Invest in Belgium

Invest in Belgium

Fiscal Aspects of doing Business with Belgium

Marc De Mil – FPS Finance

BelgiumMain Tax Incentives

Corporation

•Notional Interest Deduction (NID)•Numerous fiscal treaties to avoid double taxation•Innovative measures to support R&D

Patent income deduction Investment deduction for R&D related investments and patents Income tax reduction for researchers

Ruling practice : legal certainty for investors

Shareholder

•No taxation on capital gain

Management

•Reduction of employment costs for expatriates, with simple proceedings

BelgiumEffective (Average) Corporate Tax Rate (ECTR) 2009*

Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU CommissionProject : Taxud/2008/CC/099, Mannheim and Oxford, October 2009

*(based on asset and source of finance) Especially in Belgium, the ECTR is considerably below statutory tax rates (-9,3%)

BelgiumEffective (Average) Corporate Tax Rate (ECTR) 2009*

Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU CommissionProject : Taxud/2008/CC/099), Mannheim and Oxford, October 2009

*(based on asset and source of finance) Especially in Belgium, the ECTR is considerably below statutory tax rates (-9,3%)

What is it?

A notional interest calculated and deducted yearly from the taxable basis

Used to off-set operational or financial income (thus lowering effective tax rate)

Notional Interest Deduction

Who?

Companies subjected to

- Corporate tax - Non-residents / Corporate Tax


How does it work ?

Annual Tax DeductionAnnual Tax Deduction==

EQUITY X RATE (OLO 10 years)EQUITY X RATE (OLO 10 years)


EXAMPLE 1:

(Return on Equity: 4%)

Assets Liabilities

Group Financing100.000

Share Capital100.000

P&L Account Before N.I.D. After N.I.D

Profit before tax 4.000 4.000

N.I.D. (3,425%) / - 3.425

Taxable 4.000 575

Corporate Tax (33,99 %) 1359 195

Effective Tax Rate 33,99 % 4,89%


EXAMPLE 2:

Net Result(Return on Equity)

Effective Tax Rate

≤ 3,425 % 0 %

4 % (Previous slide) 4,89 %

5 % 10,71 %

8 % 19,44 %

Assets Liabilities

Business Assets100.000

Share Capital100.000


« Qualifying » equity

Equity = total equity as defined under Belgian GAAP

(includes retained earnings)

in the opening balance sheet of the taxable period

“adjusted” to avoid double use and abuse.


Interest Rate

RATE = annual average of the monthly published rates of the long term Belgian Government Bonds (10-year OLO)

Fixed yearly for 2011 (Tax Year 2012) : 3,425 %

+ 0,5 % 3,925 % (SME)


Other particularities

Permanent measure Carry forward of 7 years No ruling nor agreement is needed Suppression of the 0,5% capital duty as of

1/1/2006 EU compliant


OPPORTUNITIES

It’s a valuable tool for further development of Coordination Centre activities

Opens possibilities for international groups of allocating new activities to a Belgian entity such as intra-group financing, central procurement or factoring


THUS: increases attractiveness of Belgium for capital intensive companies, equity funded headquarters and treasury centers.

Extensive tax treaty network

Dividend withholding tax exemption

Conditions to benefit

be resident in a country with which Belgium has concluded a double tax treaty;

the beneficiary holds a participation of at least 10% in a Belgian subsidiary, for an uninterrupted period of at least 12 months = low participation threshold;

• No WHT

• No LOB

• 10% shareholding

• 12 months

Dividend withholding tax exemption

US parent company(treaty partner)

Belgian subsidiary

Patent income deduction

Investment deduction for R&D related investments and patents

75% exemption from withholding tax on the remunerations of researchers, in favour of employers

Unique tax features for R & D

What is it ?

Deduction of 80% of the income from patents from the taxable basis, resulting in an effective tax rate of maximum 6,8% on this income

Who can benefit ?

Belgian companies and Belgian establishments of foreign companies


Example Patent income: 100 Deduction: (80)

Taxable basis: 20 Corporate Tax (33,99%) (6,8) Net income after tax: 93,2

Effective Tax rate: 6,8 %


Patents concerned

self-developed by a Belgian company or branch in R&D centers (*) in Belgium or abroad;

acquired by a Belgian company or branch provided they are being further developed in R&D centers (*) in Belgium or abroad (by acquisition, or license,…)

(*) R&D center must qualify as branch of activity


Calculation of the deduction

For patents that are licensed: 80% of the patent income received, to the extend the income is at arm’s length

For patents that are used in the production process: deemed deduction of 80% of the at arm’s length royalty that would have been received had the patents been licensed to unrelated third parties


Applies to variable income streams, fixed income streams, as well as upfront fees, milestones, etc.

Other intellectual property rights (copyrights, know-how, designs, trademarks, etc.) do not qualify.


Anti-abuse provision in order to avoid double deduction of certain costs, in the case of patents acquired by the company;

no carry forward or carry back;

compliant with EU rules;

formalities: an enclosure to join to the tax return;

applicable to new patent income as from Tax Year 2008 (financial year ending on or after December 31, 2007).

Particularities


Very low effective tax rate of maximum 6,8% and absence of any capping rules;

Tax deduction in addition to normal tax-deductibility of R&D related expenses;

Investment deduction for R&D related investments and patents;

Can be combined with Notional Interest Deduction for invested equity, etc.

Highly competitive measure


Investment deduction for R&D related investments:for assets which aim to promote R&D of new products and advanced technologies which are environment-friendly : deduction of 13,5% on the investment value (in one shot)

or 20,5% on the annual depreciation (spread deduction)

Investment deduction in patentsacquired or self-developed by the company deduction of 13,5% on the investment value

NB: In case of insufficient profits, deduction carried forward for an unlimited period .

Investment deduction for R&D

75% exemption from withholding tax on the remunerations of researchers, in favour of employers

Principle: the salary withholding tax is normally retained

on the remunerations paid to the researcher, but the amount of tax so retained must not be totally

paid to the Revenue Collector (= extra financial means for the employer)

For researchers with a specific degree, engaged in R&D program

75% exemption from withholding tax

Manufacturing company with a R&D division: Share capital: 10.000 (of which 2.000 = contributed patent value)

Return on equity: 12% Net profit: 1200

(of which 300 = patent income ; 900 = product revenue)

To deduct Invest. ded. on patents: 13,5% x 2.000 = 270 Patent Income Ded.: 80% x 300 = 240 N.I.D. 3,425% x 10.000 = 342 Taxable basis: 348

Corporate Tax: (348 x 33,99%) = 118,28 Effective tax rate: 9,85%

Example

Advanced decisions or ruling is about creating CONFIDENCECONFIDENCE to invest in Belgium;

The investor describes the facts, allowing the tax administration to determine, in advance, how the tax laws are to be applied on a CASE BY CASE CASE BY CASE BASISBASIS

It ensures a LEGALLY BINDING ACCURATE FORECAST of all the tax implications of your investment project

Tax Ruling

Tax Ruling

Unlimited application field for ruling:

Transfer pricing Business Restructuring Deductible expenses Financing Branches Bonded warehouses, etc.

Characteristics of the Belgian ruling

Ruling on all kind of taxes (Corporate, Personal, VAT,..)

Case-by-case ruling in a new open culture Legal certainty for investors In accordance with international rules Open to potential AND existing investors Legally binding for a 5 year renewable period Economic “substance” required

Tax Ruling

Belgian DISTRIBUTION Centre Belgian SERVICES Centre

Operational Companies

OperationalCompanies

PARENT COMPANY USA

* OECD accepted norm: arm’s length standard

Cost plus % case-by-case ruling * Notional Interest Deduction

Tax Ruling

Expenses

Transport (27.000 €)

Warehousing (27.000 €)

Staff (46.000 €)

Income

Interco Reinvoicing

European Distribution

Centre100.000 € 105 % X 100.000 € = 105.000 €

Income 105.000 €

Expenses - 100.000 €

Profit 5.000 €

Notional Interest Deduction -3.425 €

Taxable basis 1.575 €

Corp.tax rate: 33,99 %

Corporate tax 535 €

European Distribution Centre

Income approved by the ruling Commission (ex. 105% of operational exp.) mark up 5% on operational expenses +NID

BelgiumManagement : Expatriate Status

For employees (foreign executives)

• Tax free allowances : for moving expenses and school fees of the children : unlimited amount for cost of living, cost of housing, tax equalisation :

➝ operational entity: 11 250 €➝ HQ or research centre: 29 750 €

• Travel exclusion (of workdays performed outside Belgium)

For employers

• Reduction of employment costs (no tax, no social security contribution)

VAT fiscal unity

Bonded warehouses and VAT deferal

European pension funds

Tax shelter for audiovisual sector

Extensive tax treaty network

Customs…

Other incentives

Tasks of the Belgian Customs

Belgian CustomsEuropean

Customs Legislation

27 Member States:One Goods Classification

One Customs TariffOne Customs Legislation

Protect financial interests of the EU

Ensure safety and securityCombat fraud

Support legitimate business activity

Facilitate legal trade

Traditionally the Belgian Customs were trendsetters in facilitating licit trade by introducing Simplified Customs Procedures, as:

Temporary storageCustoms bonded Warehouse, VAT-Warehouse)

TransitLocal clearance procedures

Belgian Customs & Excise Department

Smooth import and export systems (simplified procedures) All formalities (customs, excises, healthcare, economic licences )

executed in one process Client-orientated customs service spread over the entire territory 7/7 and 24/24 Customs decision as near as possible to the flow of goods Well trained customs staff and multilingual skills E-Customs: 100% electronic & paperless Single office The best solution

=PARTNERSHIP

Customer oriented Customs Customs oriented Customers

Belgian Customs & Excise Department

SeaportANTWERP

SeaportZEEBRUGGE

SeaportGENT

Int. AirportBRUSSELS

Int. AirportLIEGE

Int. AirportOOSTENDE

Int. AirportCHARLEROI

Int. TransportEYNATTEN

Int. TransportMENEN-LAR Int. Transport

MOUSCRON

Int. TransportSTERPENICH

The main Customs posts where customs is facilitating trade

For Further Information

38

Marc De Mil

Federal Public Service Finance

Fiscal Department for Foreign Investments

Wetstraat, 24 (Parliament Corner)

1000 Brussels - BELGIUM

Email: [email protected]

Tel.: +32 257 870 19

Invest in Belgium

Technology

Transcript of Invest in Belgium