Amendment of the Flemish Codex of Taxation: what’s to remember?
On December 20, 2022, the amendment of the Flemish Codex relating to registration taxes was published in the Belgian Official Gazette. Below, we discuss some interesting topics that have changed due to this amendment and that could potentially have an impact on your donation/inheritance.
Flemish donation tax and donations of foreign immovable property
A Belgian resident who has had his/her tax residence in the Flemish Region for the longest time during the five years preceding a donation is subject to Flemish gift tax. The following rates apply upon donation of an immovable property: progressive rates
- between 3%-27% (in direct line and between partners); or
- between 10%-40% (other persons).
The gift tax rate for immovable property thus depends on (a) the relationship between the donor and the donee and (b) the value of the donated property/properties.
If a donation of an immovable property is followed within 3 years by a new donation of an immovable property, between the same parties, the value of the 1st donation will be added to the value of the 2nd donation. The progressive rate on the second donation will then start to count where the 1st donation ended and will therefore be higher.
As from 3 years after the last immovable donation, the rates go down again. This is why donations of immovable properties are frequently split up. Every time a period of 3 years has passed, a new donation gets executed.
Due to the amendment, as of December 30, 2022, the law now confirms that a donation of an immovable property located abroad will no longer be taken into account to calculate the progressive rate for a donation of immovable property.
Deduction of foreign inheritance tax
A Belgian resident who had his/her tax residence in the Flemish Region for the longest time during the 5 years preceding his/her decease, is subject to Flemish inheritance tax.
The Flemish inheritance tax is calculated on the value of the deceased's worldwide assets (minus the funeral expenses and other debts, if any, of the deceased). The rate depends on (a) the relationship between the parties and (b) the value of the assets.
If the deceased has movable or immovable properties abroad, tax (which has the nature of an inheritance tax) may also be levied in that foreign country.
Since December 30, 2022 (amendment entered into force), the law itself provides that the tax levied abroad can be deducted from the inheritance tax due in the Flemish Region.
Consequently, it is avoided that properties, movable or immovable, abroad would be subject to inheritance tax twice.
In the past, this deduction was not applicable for movable assets. Only for immovable properties abroad, a tax credit was granted. This gave rise to case law from the Constitutional Court, stating that the principle of equality was violated. The Flemish Tax authority applied the credit for movable assets in reaction to this case law and due to the amendment, it now
receives a legal basis.
CORPORATE INCOME TAX
Investigation and assessment periods for direct taxes prolonged
As previously announced in our November newsletter, the investigation powers of the Belgian tax administration were significantly extended by the law of November 20, 2022 containing various fiscal and financial measures, published in the Official Gazette on November 30, 2022.
Under the new rules, the investigation and assessment periods for direct taxes are as follows:
- The ordinary assessment period still runs until 30 June of the year following the assessment
- The 3-year assessment period will be maintained in case of an incorrect tax return.
- In case of non- or late filing of the tax return, the assessment period will henceforth be 4
- years as from January 1 of the assessment year.
- In some cases, an assessment period of 6 years will apply from 1 January of the assessment
- year where a non- or late filed income tax return or an incorrect income tax return:
➢ concerns a company that needs to submit a Local File Form
➢ concerns a company that is subject to the obligation to file a Country-by-Country(“CbC”) report
➢ concerns a company that makes reportable payments to tax havens (to be reported on a special form 275F annexed to the income tax return)
➢ includes the imputation of a foreign tax credit (FBB/QFIE)
The same 6 years assessment term applies when certain information was received from abroad in relation to the income tax return as well as in case withholding tax exemptions or reductions are applied based on a Double Tax Treaty or an EU Directive.
- In addition, an assessment period of 10 years from January 1 of the assessment year will now apply when the income tax return is considered as complex. This is the case:
➢ when there is a so-called “hybrid mismatch”,
➢ when Controlled Foreign Company “(CFC”) legislation is applied on non-distributed profits of foreign subsidiaries.
➢ When the taxpayer is obliged to report in its income tax return the existence of legal arrangements in foreign jurisdictions.
These extended assessment periods mainly intend to address situations that may require more in-depth scrutiny by the Belgian tax administration. The extension of deadlines should also create the necessary time to collect information, the obtaining of which is time-consuming, during the examination procedure with a view to determining the correct levy, and this by both taxpayer and Belgian tax administration.
- In addition, a special 10-year assessment term applies in cases of tax fraud. This 10-year period replaces the extended 7-year period and aims to ensure that the Belgian tax administration can conduct investigations within a timeframe that will allow Belgium to fulfil its commitments regarding exchange of information at the international level.
The notification of indications of tax evasion is removed and replaced by a notification by the tax administration of its intention to apply the extended deadline for the assessment years for which a fraud investigation is initiated, without having to mention at this stage the precise indications of fraud.
The retention period for documents will be adapted to these new terms and will also be a period of 10 years.
Considering that the amendments to the assessment and investigation terms are made for reasons of increased complexity and internationalization and are allowing more time for investigation and consultation between tax administration and taxpayer, it has been decided that the taxpayer should also benefit from an extension of the term to object to an assessment issued by the tax authorities. Consequently, the deadline for filing a tax claim has been increased from 6 months to 1 year.
These provisions take effect as from assessment year 2023 and only for the future. For the previous assessment years until 2022, the applicable provisions remain those applicable before the entry into force of the new law (by example 6 months term to file an administrative tax claim).
The European Commission published a proposal with 3 pillars to modernize VAT in the digital age. The purpose of such measures is to tailor the European VAT system to the current economy where more and more transactions are done digitally whilst tackling fraud in VAT revenue which is a significant loss for member states. (Proposal for a COUNCIL DIRECTIVE
amending Directive 2006/112/EC as regards VAT rules for the digital age - COM/2022/701 final).
Possibility to Introduce mandatory digital reporting requirements
Digital reporting requirements (“DRR”) impose on payers to periodically submit a set of data for each transaction to their respective tax administration. The stress is on the transactional dimension and no longer on aggregated VAT data. Such reporting already exists in some member states but not in a homogeneous manner.
This mandatory DDR will be based on the implementation of e-invoicing. The move to e-invoicing will give member states valuable information in order to reduce VAT fraud by comparing more efficiently the data of taxpayers.
Platform economy operators
Online platforms, which have grown in recent years, act as an intermediary between the suppliers of certain services and consumers. However, it is not the platform but the underlying providers of services, who is obliged to collect and remit VAT to the tax authorities.
As per the 2nd pillar, platform economy operators will become subject for collecting and remitting VAT to tax authorities when service providers do not, for example due to their size of business or individual provider.
Expansion of the current OSS System
Currently the One-stop-shop (“OSS”) system allows taxpayers to report and pay their VAT due in all the member states of the European Union through one single VAT registration. However, such OSS is only applicable for certain B2C transactions, mainly to the benefit of the actors of the digital economy.
The 3thrd measure aims at reducing the burden of VAT registration in multiple member states by applying the current OSS to a number of B2B transaction and extending the scope of B2C transactions.
Mazars in Belgium can provide support to ensure that your business complies with the application of the reporting requirements and facilitate your VAT registration.
GLOBAL MOBILITY SERVICES
New regime for copyrights in Belgium as from 2023
Following the law of 26 December 2022 (published on 30 Dec. 2022), Belgium refreshed his copyrights taxation regime. These new rules are applicable since 1 January 2023 even if a transition period of 1 year is foreseen during which the old regime can still be applied to a certain extent.
For whom and for what?
The law of 26 December 2022 has a more limited scope than before as the new copyrights taxation regime only applies to someone :
- who is creating literary, scientific or artistic works ;
- and which are meant to be operated or used ;
- and fulfill at least one of the three following conditions :
➢ He/she owns a certificate of artist received by the Belgian artistic commission ;
➢ He/she transfers his/her intellectual rights to someone who realizes a communication or a representation to public of this work or reproduce this work ;
➢ He/she perceives copyrights royalties trough a collective management organization.
Based on the above conditions and after the Minister of Finances precisions, we believe that the copyrights tax regime will be very difficult and risky to apply to computer programs design.
The Minister explained that the goal of the new bench of rules was to properly exclude such use
of the derogatory tax regime.
Tax rates, limits and costs deductions
If the copyrights royalties are perceived outside of the frame of the professional activity, the royalties are taxed at a flat-tax rate of 15% as movable income.
If the copyrights royalties are perceived in the frame of the professional activity, and if the annual amounts of copyrights royalties are below 70.220 € (2023 income year) and in the case of additional remuneration for services other than the granting of copyrights, the remuneration related to copyright may not exceed 50% (40% in 2024 and 30% in 2025) of the total remuneration granted to the employee.
The royalties are taxed at a flat-tax rate of 15% as movable income.
If the copyrights royalties are perceived in the frame of the professional activity but does not respect one of the two cumulative conditions mentioned above, the income perceived above these two limitations will be subject to the classical progressive tax rates.
Furthermore, if someone has perceived copyrights above the limit of 70.220 € during 4 years in a row, the copyrights of the next year will be automatically qualified as professional income even for the income below the limit of 70.220 €.
Finally, it is important to highlight the fact that the new regime still includes a deduction of costs on copyrights royalties amounting to (2023 amounts) :
- 50 % on the first 18.720 € perceived as copyrights income ;
- 25 % on the copyright's income perceived between 18,720 € and 37.450 € ;
- no deduction of costs is allowed above 37.450 €.
The new law still allows to apply the old regime of copyrights during the year 2023 for everyone who perceived copyrights in 2022 but nevertheless limits the application of this old regime.
Indeed, the new law divides by two the possible deduction of costs (see above) for the old regime and reduces by two the limit (35.110 € instead of 70.220 €) under which copyrights are taxed at 15% in the frame of the professional activity.
The previous advance tax rulings made under the scope of the old regime remain applicable in 2023 with the limitations explained above.
As the tax authorities will follow the Minister’s interpretation of the legal text, the company which decide to still apply the new copyrights tax regime to its IT specialists may face an uncertain and long legal battle.
We therefore advise each of our clients wishing to implement or continue to apply the copyright regime to carefully analyze whether they can still apply this regime to the creative works of their employees. The transition period can be useful for such type of clients but the limitations of it (duration and amounts) requires the companies to already explain and anticipate the impact of the new regime to their previous eligible employees.
Our team remains at your disposal in case of questions or if you require assistance and will keep you updated of any further developments.
KEEP IN MIND THE DEADLINE!
- VAT return December 2022 / Q4 2022 : January 20, 2023
Corporate income tax
- Withholding tax forms 273 for interest, dividends, royalties with payment or attribution date December 31, 2022 are to be filed within 15 days after date of payment.