Impact of the recently approved Belgian federal budget
The Belgian federal government has recently approved the federal budget for 2023 and 2024. It includes several novelties and changes to the Belgian tax landscape. In this newsletter, we provide a brief overview of the most important tax measures that have been disclosed to date. As no draft legislation is yet available, the details of each measure still need to be determined. These measures will be discussed more extensively in an upcoming alert once the draft legislation has been adopted by the Belgian Parliament.
Reinforcement of the minimum taxable basis rule in anticipation of the Pillar Two implementation in 2024
According to current Belgian tax law, certain tax attributes (eg carried forward tax losses, carried forward innovation income deductions and carried forward dividend received deductions) can in principle be carried forward without any time limit. However, these tax assets can only be used to offset EUR1 million of the taxable profit, to be increased by 70% of the taxable profit exceeding EUR1 million. The remaining 30% constitutes a minimum taxable basis and is subject to corporate income tax at a rate of 25%.
The 70% will be reduced to 40% to increase the minimal taxable basis to 60% instead of 30%. This measure is expected to apply to taxable periods starting as of 1 January 2023. The federal government has confirmed the temporary nature of this measure, as it is the intention to abolish this measure as soon as the global minimum tax rules (OECD Pillar Two) enter into force in Belgium.
Limitation of the personal scope of the copyright transfer tax scheme for individuals
Belgian tax law provides for a favourable tax treatment of copyright fees paid to an employee or self-employed individual, as compensation for the transfer of copyright to the employer or client. Under this tax scheme, these fees (capped at EUR64,070 for income year 2022) are generally subject to an income tax rate of 15%, whereas the normal personal income tax rate for professional income exceeding approx. EUR42,000 is 50%.
Over the years, this tax scheme has been widely applied in different sectors. This widespread use is not in line with the rationale of the legislator, which was to entitle only a limited amount of “creative” professions (mainly in the artistic world) to the copyright transfer tax scheme.
The Belgian federal government has announced its intention to align the personal scope of this tax scheme with the initial rationale of the legislator. This might have a substantial impact on the IT sector, lawyers, consultants and architects, as it is expected that these professions will no longer be entitled to the copyright transfer tax scheme. A transitional period of two years will be applied.
It’s expected that, in addition to the cap of EUR64,070, the amount of the copyright fees that are annually eligible for the copyright transfer tax scheme will be limited to 30% of the total gross fee paid by the employer or client. This proposed legislative amendment might also affect taxpayers that have obtained a tax ruling on the application of the copyright transfer tax scheme. These tax rulings remain binding, provided that the relevant legislation is not changed. Hence, the proposed amendment might affect the validity of tax rulings on copyright fees.
If this amendment would be adopted, a new tax ruling would have to be obtained to obtain upfront legal certainty on the application of the copyright transfer tax scheme and the calculation of a reasonable amount of copyright fee. However, the impact of this proposed amendment on the amount of the eligible copyright fee might be limited, as the ruling commission already applied a similar lump sum cap to determine a reasonable amount of copyright fees that qualify for this special tax scheme.
In addition to the amendments outlined above, the Belgian federal government also announced the following measures:
- Limitation of the corporate income tax deduction of (i) the annual tax on credit institutions, (ii) the annual tax on undertakings for collective investment and (iii) the annual tax on insurance undertakings to 20% as of 1 January 2023.
- Abolishment of the tax reduction for “long term savings” regarding the capital repayments of mortgage loans related to the acquisition of a second property, for loans granted as of 1 January 2024.
- Abolishment of the notional interest deduction for large companies for the financial years closed after 30 December 2022. Any modification made to the financial year as from 11 October 2022 will remain without effect.
- Increase of excise duties levied on (alternative) tobacco products.
- Replacement of the lump sum Foreign Tax Credit of 15% with regard to the withholding tax applied abroad to a royalty income by a Tax Credit based on the actual foreign withholding tax paid.
- Extension of the packaging tax as of 1 October 2023.
- Extension of the reduced excise duties levied on natural gas and electricity until the first quarter of 2023.
- Introduction of an excess profit tax for energy producers. For the period from 1 January 2022 until 31 October 2022, all profits above EUR180 / MWh will be subject to the excess profit tax. As from 1 November 2022 to June 2023, all profits above EUR130 / MWh will be subject to the excess profit tax.
- Extension of the reduced excise duties on petrol and diesel until the first quarter of 2023.
- Permanent reduction of the VAT rate of 6% on the supply of natural gas, electricity, and heat through heat networks in the context of "residential contracts.”
- Additional contribution for fossil fuel companies.
- Reduction of 7.07% on the net employer social contributions for quarters one and two of 2023 and payment deferral until 2025 of such contributions for quarters three and four of 2023.
- Increase in VAT on unhealthy products and reduction of VAT on healthy products (such as vegetables and fruit).
For more information on the federal budget for 2023 and 2024, the measures that have been announced and their possible impact, please get in touch with the authors or your usual contact at DLA Piper.