Belgium: A Tax Overview

Belgium typically stands out as a shortlisted jurisdiction for investors, distinguished by its compact yet thriving presence in the heart of the Europe. Characterised by an open economy, a highly skilled workforce, and excellent accessibility, it offers an attractive investment environment.

Since the 1960s, Belgium has fostered extensive cross-border relations through a well-established network of double tax conventions, currently facilitating business with 98 tax jurisdictions. Moreover, as a member of the European Union (EU), market participants can rely on the assurances provided by EU law.

The Belgian corporate income tax regime is widely regarded as appealing, featuring a nominal corporate income tax rate of 25% since the 2018 tax reform. Small-and medium sized enterprises (SMEs), under certain conditions, benefit from a reduced rate of 20% for the initial tranche of EUR100,000 taxable income. The corporate income tax regime encompasses notable features for holding activities. Subject to participation and subject to tax conditions, Belgium provides a 100% dividend received deduction and a full exemption for capital gains on shares. Additionally, transfers of shares outside the stock exchange are generally not subject to Belgian stamp tax.

The Belgian tax regime robustly encourages innovation through various mechanisms, all subject to various conditions. The innovation income deduction (IID), which replaced the patent income deduction and which is aligned with BEPS Action 5, allows an 85% deduction of the net income derived from certain IP rights, subject to a nexus-fraction. A tax credit for R&D investments extends to environmentally friendly R&D investments and for patents, offering a deduction of 20,5% or 13.5% of qualified investments. Furthermore, an 80% relief from paying professional withholding taxes to the tax authorities applies in the R&D sector.

The Belgian group contribution regime offers avenues for tax consolidation, but it is subject to rigorous limitations. These include the prerequisite of a 90% direct shareholding between the pertinent group companies (or by a common parent company), a four-year waiting period, and the rule that no tax attributes from preceding years can be transferred.

Belgium’s corporate tax law adheres to the arm’s length principle, as defined by the OECD transfer pricing guidelines for multinational enterprises and tax administrations, and has incorporated transfer pricing documentation requirements outlined in Action 13 of the BEPS Action Plan into its regulatory framework. The Belgian corporate tax regime has implemented the measures outlined in the EU Anti-Tax-Avoidance Directive 2016/1164 (ATAD), encompassing the interest limitation rule, commonly referred to as the “30% EBITDA rule”, exit taxation rules and the controlled foreign company rule (CFC). Initially adopting Model A for CFCs, which taxes a CFC’s non-distributed income at the parent level if derived from non-genuine arrangements primarily for tax advantages, Belgium transitioned to the more stringent Model B at the end of 2023. In Model B, a CFC’s non-distributed passive income, including dividends, royalties and interest is, under certain conditions, included in the taxable income at the parent level.

The Belgian legislature has implemented a minimum tax for multinationals and large domestic groups, implementing EU Directive 2022/2523 within the framework of OECD’s Pillar Two, aiming for a 15% effective tax rate. Belgium has introduced a domestic top-up tax (QMDTT), an income inclusion rule (IIR) and an under-taxed payment rule. The Belgian implementation closely mirrors the rules outlined in the EU Directive.

Dividend, interest and royalty payments are generally subject to a 30% Belgian withholding tax, regardless of the beneficiary’s tax residency in Belgium. However, several exemptions and reductions are applicable, stemming from domestic policy decisions, the fulfilment of Belgium’s obligations under European Union law, or the implementation of double taxation conventions. Qualifying parent companies in the European Union or a treaty jurisdiction, for instance, enjoy a complete withholding tax exemption on dividends. SMEs may distribute dividends at reduced rates. Moreover, extensive exemptions are in place for interest payments, including those to qualifying group entities in the European Union, interest paid by Belgian financial institutions (as defined broadly), and interest related to nominal bonds held by non-resident bondholders.

In recent years, there has been a noticeable shift within the tax authorities towards the establishment of specialised teams dedicated to conducting audits with distinct focuses, both regarding multinationals and SMEs. These targeted areas include corporate restructurings, transfer pricing and outbound “passive income” streams such as dividends, interest and royalties. More generally, audits of multinational enterprises are focused on potential profit shifting strategies. Additionally, increased attention is directed towards examining beneficial regimes, among others those applicable to R&D.

Tax disputes are increasingly leading to tax litigation, primarily due to the uncertainties surrounding the interpretation of the rapidly changing tax rules and the expanding application of anti-abuse measures by tax authorities (including domestic general anti-abuse provisions, specific anti-abuse regulations and the overarching principle of EU law that prohibits abusive practices).

Tax certainty can be secured through obtaining an advance ruling issued by the Office for Advance Tax Rulings, an autonomous department within the Belgian tax authorities. This mechanism allows for the resolution of queries pertaining to both domestic and EU law, as well as tax treaties, including issues relating to transfer pricing. No tax ruling can be obtained regarding the application of the minimum tax in accordance with the Pillar Two rules. Tax rulings must in all instances comply with applicable legislation (no “sweet deals”).

Bilateral or multilateral advance pricing arrangements (APAs) serve as an additional instrument for managing cross-border tax risks associated with Belgium. However, this tool is less commonly employed due to the significant investment of time and resources required, both on the part of the taxpayer and the tax authorities.

Mutual agreement procedures (MAPs) are often initiated in case of cross-border tax disputes. All Belgian tax treaties include a mutual agreement provision, and Belgium ratified the Multilateral Instrument (MLI) without reservations regarding Article 16 which relates to MAPs.

Belgium also actively engages in alternative tax dispute resolution programmes. In 2018, Belgium launched its domestic Co-Operative Tax Compliance Programme (CTCP). Furthermore, Belgium actively participates in the International Compliance Assurance Programme (ICAP) at the OECD level and the European Trust and Cooperation Approach (ETACA) at the EU level.