To further support taxpayers' liquidity and restore solvency positions during and after the Covid-19 crisis, the Belgian parliament recently passed two laws. The first law introduces a one-off rule on loss carryforwards (law of June 13, 2020, published in the Belgian Official Journal on July 1, 2020). A second contains various other tax measures (law of July 15, 2020, published in the Belgian Official Journal on July 23, 2020).
This article provides an overview of the most important relevant measures for companies.
Readmission of Covid-19 losses
The government has introduced a one-time option to carry back losses incurred during the Covid-19 crisis to offset taxable profits from the previous fiscal year.
Such a take-back system is a novelty that is limited to a single application. Belgian corporation taxpayers (Belgian companies and Belgian taxable entities of foreign companies) who expect tax losses in the so-called Covid-19 financial year can offset these losses against their taxable profit generated in the previous financial year ("Pre-Covid-19-Finanz") year ", a fiscal year that ends between March 13, 2019 and July 31, 2020. The company can improve its liquidity position and possibly receive a refund of tax payments (prepayments) made for the fiscal year prior to Covid-19.
Who is Eligible?
A company with activities in Belgium (Belgian companies, Belgian incorporation of foreign companies) with a Belgian taxable profit for the financial year before Covid-19 could in principle apply the carry-back.
However, the following companies are excluded from the regulation:
- Companies that have reduced their equity (such as dividend distribution, capital reduction, share buyback) in the period from March 12, 2020 to the date of filing their corporate income tax return for the tax year 2021;
- Companies that benefit from a special tax regime (e.g. investment companies or companies that are subject to the tonnage tax regime);
- Companies that hold a direct stake in a tax haven company at any time in the period from March 12, 2020 to the date of filing their corporate income tax return for the tax year 2021;
- Companies that have made payments of more than 100,000 euros (total amount on an annual basis) to tax haven companies in the period from March 12, 2020 to the date of submitting their corporate income tax return for the tax year 2021, unless this is the case, it is proven that these payments are made in real and justified transactions that meet legitimate economic or financial needs;
- Companies that qualified as "Companies in Trouble" prior to the start of Covid-19 (i.e. before March 18, 2019). “Companies in difficulty” are to be understood in particular as companies that have applied for legal restructuring or that have reduced their net capital to less than half of their capital due to losses.
Number of losses
The regime aims at losses incurred in the Covid-19 financial year, regardless of the origin of the losses (no condition for a direct connection with the Covid-19 crisis).
In principle, taxpayers are free to estimate the amount of losses in their Covid 19 financial year that they would like to attribute to their profit from the previous financial year. However, the return transport is subject to restrictions:
- The amount must not exceed the taxable result of the financial year before Covid-19. This taxable result is (i) the increase / decrease in retained earnings; (ii) added to the ineligible costs and dividends paid; (iii) reduced with the tax-exempt dividends, deductible innovation income and deductible patent income;
- Even if the taxable profit is higher, there is an absolute maximum of 20 million euros.
If the losses are overestimated by more than 10%, a penalty will be levied. Therefore, in some cases, the loss estimation should be done cautiously and even conservatively.
When and how?
The corporation taxpayer can temporarily exempt all or part of his taxable result for the financial year prior to Covid-19 by creating a temporary tax-exempt provision in his tax return:
- If the corporate income tax return for the year prior to Covid-19 has not yet been filed, taxpayers can immediately request the application of the loss carryforward rule in their corporate income tax return.
- If the tax return for the relevant year before Covid-19 has already been submitted, a change in the tax return can be requested according to a specific procedure.
As a result, the pre-Covid-19 tax base will be reduced for the fiscal year and the profit will be postponed to the following year (Covid-19 fiscal year), in which the carry-back amount is added to the tax result (offset with the losses incurred in the Covid-19 fiscal year).
All taxes that have already been (pre) paid for the financial year before Covid-19 can be reclaimed according to a specific procedure.
Due to the Belgian corporate tax reform, which will lead to a reduction in the statutory tax rate from 29.58% to 25% by the tax year 2021, the regulation contains a specific remuneration mechanism to neutralize tax advantages that result from the transfer of profits to the tax year 2021 and Benefit from a lower corporate income tax rate.
recommendations
It is recommended to remain cautious when claiming the use of this one-time take-back system:
- In case of overestimation of the losses incurred during the Covid-19 as mentioned above, a penalty will be charged.
- Such a carry-back will interact with other rules that impose restrictions on companies, such as: B. Earnings before interest, taxes, depreciation and amortization (EBITDA), which is used for the limitation of the interest deduction and for the Belgian tax consolidation system (“group contribution regime”) ”);
- The take-back system may also have an impact on recent and future reorganizations and M&A transactions in terms of the process, the benefits of the measure and the exclusions that may lead to operational restrictions.
Temporary and partial exemption from wage tax
A temporary partial wage tax exemption will be introduced to reduce wage bills in June, July and August. This only applies to companies that meet the following conditions:
- The employing company must have made use of the temporary unemployment scheme for an uninterrupted period of at least 30 days between March 12, 2020 and May 31, 2020.
- The employing company may not have reduced its equity (e.g. dividend distribution, capital reduction, share buyback) in the period from March 12, 2020 to December 31, 2020.
- In the period from March 12, 2020 to December 31, 2020, the employing company may neither hold a direct stake in a tax haven company nor make payments to tax haven companies of more than EUR 100,000 (total amount on an annual basis).
The hiring company must withhold wage tax on the employee's salary, but does not have to transfer 50% of the difference between on the one hand the total amount of wage tax due for each month to the tax authorities in June, July and August and on the other hand the total amount of wage tax for the month of May. The exemption only applies to the regular salary and after all other possible reductions (a combination is therefore possible). The total amount of the exemption cannot exceed 20 million euros.
As a result, this exemption will only take effect for qualified companies if the June / July / August wage tax amount is higher than that of May (e.g. because the May wage tax amount was lower due to temporary unemployment) and only ordinary salaries (excluding e.g. vacation payments, severance payments, etc.) from employees (excluding directors and self-employed).
Investment incentives
Investment deduction
The investment allowance is a tax deduction that is calculated in addition to the depreciation charge for some eligible assets, calculated as a percentage of the acquisition value of the eligible assets. The base rate for small and medium-sized enterprises (SMEs) is 8%. The corporate tax reform of 2017 increased the base percentage of the investment deduction for fixed assets acquired or created between January 1, 2018 and December 31, 2019 to 20%.
To encourage investment, the law provides for a temporary increase in the investment allowance for fixed assets acquired or created between March 12, 2020 and December 31, 2020 by up to 25%. If the taxable profit is insufficient, the investment deduction can usually be made one year forward; To support the difficult year 2020, the law also provides for a specific two-year carry-forward (instead of one year) for investments acquired or created in 2019.
Tax Shelter Investments
Investment tax protection makes investing in SMEs more attractive to individuals by giving them a tax break on their investments, while SMEs benefit from an increased source of equity finance. The existing tax protection for investments in start-ups and scale-ups will be expanded. It aims for capital increases between March 14, 2020 and December 31, 2020, which will be fully paid up by December 31, 2020. The new measure applies not only to investments in a starter or a scale-up, but also to all SMEs that have suffered from the Covid-19 outbreak, which in the period from March 14 to April 30, 2020 led to a decline in sales of at least 30 % over the same period in 2019.
In the case of start-ups, a comparison should be made with the forecast sales according to the financial plan and the actual sales in the last period. Some companies are excluded from this measure, e.g. Companies that have a direct stake in a tax haven company, as well as companies that make certain payments to tax haven companies.
The total amount of capital invested through this measure cannot exceed EUR 250,000 and various conditions and formalities apply to the tax reduction.
Reception costs temporarily fully tax deductible
Basically, reception costs (i.e. costs incurred in the context of external relations and the acceptance of third parties) are only 50% tax deductible. In support of the events sector, a full allowance will be made for reception costs incurred between June 8, 2020 and December 31, 2020.
VAT measures
This package of measures includes three changes to VAT.
- VAT relief in December: Taxpayers registered for VAT in Belgium are usually required to prepay the VAT due on their December transactions in December. Taxpayers registered for VAT in Belgium will be exempt from this prepayment in December 2020.
- No input tax adjustments on computers that are given to schools for free: Taking into account the possibility that schools will have to close again this year due to the plumbing crisis, and so that most online classes can follow, the measure does not allow companies to carry out input tax adjustments for Computers given to schools for free will be extended until the end of 2020.
- Technical validation of the royal decree reducing the VAT rate for restaurant services: the king has the power to set and change the VAT rates and their scope by royal decree. However, a subsequent law must validate this royal decree. With the royal decree of June 8, 2020, the VAT rate for restaurant services was reduced to 6% (instead of 12%) by the end of the year and also to the sole delivery of non-alcoholic beverages in extensive bars, restaurants and other establishments (instead of the normal VAT rate of 21 %, which generally applies to alcoholic and non-alcoholic beverages offered as part of restaurant services). With the Covid-19 law, the legislature has validated the royal decree of June 8, 2020.
Expected actions
The Belgian government will set long-term tax measures as part of the recovery plan.
One of these could be a specific “recovery reserve” that was part of the bill implementing the return regime. However, Parliament removed the recovery reserve from the law and postponed the vote on this measure to a later date due to its non-urgent nature. Such a reserve would allow companies, for three consecutive tax periods related to the 2022, 2023 and 2024 tax years, to exempt profits equal to the losses they suffered in 2020, subject to the conditions of maintaining their equity position, as well as at least 85% of their existing employment expenditure.
The reserve is subject to the immateriality condition, which means that the reserve becomes taxable if the reserve is reduced (e.g. through the distribution of dividends) or ultimately if the company is liquidated. The same exclusion of companies would apply as for the loss carryforward.
Planning points
Several laws have been enacted since the outbreak of the Covid-19 crisis: Supporting short-term cash flow was the main objective. After some basic moves to postpone payments around the world, (temporary) profit shifts and cost exemptions are now approved. Companies can benefit from these measures, but not all companies. In particular, carrying out operations on the company's equity excludes companies from profiting from these measures. Some restructuring is also to be expected. Be aware of the right options for taxable companies in Belgium.
Laurent Donnay de Casteau is a partner, Lionel Wellekens is counsel and Nawel Benaisa is an associate at Advisius in Brussels. Advisius is a tax law firm.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.