in a nutshell
Various new corporate income tax measures came into force in Belgium on 1 January 2023. The biggest impact will be a temporary increase in the minimum corporate tax base under the so-called ‘basket rule’. This measure will remain in force until the European Minimum Tax Directive (Pillar 2) is incorporated into Belgian law and comes into force (in principle 1 January 2024). Below is a brief overview of the major changes.
- important point
- In detail
- The minimum corporate tax base under the so-called ‘basket rule’ will come into force in the EU Minimum Tax Directive (EU Pillar 2) from fiscal year 2023 (fiscal years ending after 31 December 2023) (in principle from 2024 after January 1). The “Basket Rule” applies to all Belgian corporate taxpayers, regardless of whether they fall within the scope of Pillar 2. In contrast, the EU Minimum Tax Directive (Pillar 2) only applies to groups with a total annual turnover of at least Euros. 750 million (some exceptions apply). For these groups, the Directive will have a major impact. Therefore, this newsletter provides some insight on how to prepare for it.
- Notional Interest Deduction (NID) has been phased out in 2023, but its impact is fairly limited.
- Corrected the calculation of the foreign tax credit for foreign royalty income. This equals the actual withheld foreign tax (capped at 15%), not 15% of the lump sum.
- Finally, certain annual tax credits applicable to the financial sector are currently limited to 20%.
Temporary increase in minimum corporate tax base from 30% to 60% and Pillar 2
Regulations until 1 January 2023
Since 2018, the application of certain corporate tax deductions in Belgium has been limited to a €1 million “basket” and increased by 70% for taxable income over €1 million.
This limiting rule currently applies to the following tax credits: Notional Interest Deduction (NID), Dividend Received Credit Carryforward, Innovation Credit Carryforward, Tax Loss Carryforward and Tax NID Carryforward.
As a result of the limitation rule, 30% of taxable income over €1 million is effectively the minimum tax base (because no deductions can be made against that amount).
Rules as of January 1, 2023
As of 1 January 2023 (tax year 2024), this minimum tax base will be increased to 60% of taxable income over €1 million, as the “basket” of corporate tax deductions will amount to €1 million. increase. 40% (instead of 70%) of taxable income over €1 million.
This increase in the minimum tax base is temporary and will be repealed as soon as the Belgian legislation implementing the EU minimum tax base comes into force (usually from 1 January 2024). In doing so, the basket rule will again have a minimum tax base of 30% on taxable income above €1 million (although there is an interaction with his ETR rule in his EU Minimum Tax Directive for taxpayers. within range – see below).
The impact of the second pillar, the Global Minimum Tax (GloBE) rule
For context, on 14 December 2022, the EU Council unanimously adopted the Minimum Tax Directive 2022/2523. Its aim is to enact Pillar 2 Regulations in the EU. According to the directive, European member states will have until 31 December 2023 to replace the minimum tax directive implementing the Pillar 2 rules with local legislation, effective from 1 January 2024. Become.
Main provisions of the European Union Minimum Tax Directive
The main items of the EU Minimum Tax Directive are:
- This directive Total annual turnover of at least €750 millionThere are some exceptions based on:
- Activities carried out: Exemption for general interest groups, government agencies, international organizations, pension funds, non-profit organizations, real estate investment vehicles or investment funds.
- de minimis rule(i) Exemption for groups with less than €10,000,000 of profit earned in the jurisdiction. (ii) that the average qualifying income is less than his €1,000,000 (or loss) in the same jurisdiction;
- This directive Minimum Effective Tax Rate (ETR) A percentage of 15% in all jurisdictions in which the Group operates.
- To implement this ETR, the Directive contains a system of two rules. Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR)This means that whenever the ETR on an MNE group’s income in a particular jurisdiction falls below 15%, an additional amount of tax is levied, known as ‘extra tax’. See our previous news alert for more details (here).
How can businesses prepare?
The regulations have not yet come into force in Belgium, but businesses should already be preparing for what is to come. Specific steps possible in this context are:
- Evaluate and model the impact of the new measures to assess additional data and reporting requirements and assess opportunities to optimize the calculation of “extra tax”.
- Ensure that existing IT systems that manipulate group data are up-to-date and have the ability to perform relevant calculations/extractions to facilitate the flow of information within the MNE group (and towards tax authorities) should not be disturbed.
- Identify gaps in the data you need for reporting.
- Establish processes and controls by internally agreeing with entities and teams responsible for aggregating figures at each entity level and filing relevant additional tax information returns.
- Discuss how reporting procedures will be coordinated at the group level.
- Prepare and train the right people in your tax and finance teams to ensure that the right people are aware of the impact of the new measures.
Our team can assist you with any of the above. Please feel free to contact us if you would like to discuss your requirements.
Elimination of Notional Interest Deduction (NID)
The NID system will be completely abolished in 2023. Due to low long-term interest rates in recent years, his NID rate for large companies was equal to zero and his NID rate for SMEs was capped at 0.443% in FY2023. Interest rates would normally have risen significantly as of tax year 2024 as a result of higher long-term interest rates. However, given the incremental equity calculation method introduced in 2018, the impact of this deprecation will be limited.
Inventory of NIDs carried forward is still deductible (subject to basket rules). If the EU DEBRA proposal is adopted, Belgium may need to reintroduce the notional interest deduction regime.
Amendment to calculation of foreign tax credit (FTC) for foreign royalty income
Until January 1, 2023, foreign royalty income (other than royalties subject to the innovation income deduction) is effectively taxable in the country of origin of such income, and the FTC will You can benefit from the FTC if your calculation is based on Equal to 15/85 of the net amount of foreign royalties (i.e. after deducting his WHT in foreign countries).
Beginning January 1, 2023, FTC on foreign-sourced royalty income will be calculated based on the actual withholding tax imposed by the source state, capped at 15%.
Certain annual tax deductions for the financial sector
Until 1 January 2023, certain annual taxes applicable to credit institutions, collective investment and insurance businesses were fully deductible for corporate income tax purposes until 1 January 2023.
As of January 1, 2023 (tax year 2024), the tax credit for these taxes is limited to 20%.
If you have any questions or would like to discuss the latest tax measures described above, please contact your local Baker McKenzie representative or one of the authors of this alert.