Mazars Info March 2023

CORPORATE INCOME TAX

Beefed up proposal for a tax reform from our Finance Minister

The Finance Minister released an amended proposal for the 1st phase of a broader tax reform including a set of individual tax measures aimed at reducing the tax burden on labor. To offset the revenue loss, taxes on wealth and consumption would be increased while certain corporate tax regimes would be strengthened.

The proposed measures could enter into force as from 1 January 2024, with a 2nd reform planned after the parliamentary elections in 2024. This proposal is a subject to legislative initiative, so the effective implementation remains subject to political consent.

Further details will be provided in the following newsletters. The most important corporate income tax measures for are enlisted below.

Innovation income deduction

The scope of the innovation income deduction would be limited to patents and no longer apply to copyright software.

Investment deduction for sustainable investments

The investment deduction would be strengthened via three measures:

• The R&D and the basic investment deduction will remain, but sustainable investments will be eligible to a substantially increased deduction.
• An accelerated (double) depreciation for sustainable investments will be introduced in supplement to the investment deduction
• The R&D tax credit will be extended to sustainable investments

Dividend Received Deduction (DRD)

To prevent double taxation of profits generated within group companies and support entrepreneurship, the 100% Dividend income deduction and capital gain exemption on shares (DRD) would be replaced by an exemption. going forward, investments will have to meet stricter criteria to qualify for the DRD exemption. This measure is already subject to heavy debates by private equity business.

Legal certainty of advance tax rulings

The Office for Advance Tax Rulings will be merged with the Tax Mediation Service to strengthen legal certainty of advance tax rulings.

The annual tax on security accounts

The annual tax on securities accounts worth over 1 million euros is expected to be doubled until a proportional tax on capital gains on shares is developed.

Exemption from payment of withholding tax for R&D

The proposed reform aims to provide more clarity and consistency of the R&D withholding tax exemption. The government departments responsible for implementing this exemption will have more clearly defined roles and better guidelines for its application.
The criteria for qualifying researchers in universities and colleges will be clarified.

VAT

New compliance obligations – real use method application

As of January 1, 2023, the application procedure for an authorization to apply the real use method is replaced by a prior notification procedure (1°) followed by the filing of supporting information to the VAT administration (2°).

1. For VAT taxpayers already applying the real use method on 31/12/2022, this notification must be made no later than 30 June 2023. The notification must be made via electronic form E-604 B on MyMinFin. Our team can assist you in fulfilling this 1st step.
2. In addition to this notification, the tax administration also requires following information relating to the application of the right to deduct according to the real use method :

• the final general deduction percentage for the preceding calendar year
• the proportion, expressed as a percentage, of the tax charged on operations:
• the special prorata(s)

For taxpayers who are already applying the deduction system according to the real use method on December 31, 2022, these data must be reported in the periodic VAT return for May 2024 (to be filed by June 20, 2024) at the latest.

We would like to emphasize the importance of these supporting documents. In the absence of a formal agreement, the tax administration can decline the application of the real use method with retroactive effect.

Your Mazars VAT team can assist you with the preparation of these supporting documents to safeguard the input VAT deduction.

VAT

VAT proposal in the scope of the broader tax reform proposal (published by Minister of Finance Van Peteghem on 02.03.2023)

On March 2, 2023, the Minister of Finance presented his proposal to implement a broader tax reform including various measures, that would amend the VAT Code.

Due to the complexity of the allocation between the reduced VAT rates of 6 % and 12 %, the Minister proposes to harmonize these VAT rates into a new reduced rate of 9 %.

The Minister of Finance proposes to keep the 6 % VAT rate for the supply of electricity, natural gas, water, and domestic heating.

The proposal also extends the scope of goods and services subject to the 0 % VAT rate. This 0% VAT rate is currently applicable to a very limited number of goods such as newspapers and waste products. According to the proposal such VAT rate would also apply to fruits and vegetables, medication diapers & other products for the protection of intimate hygiene and public transport.

In addition, the proposal includes measures to improve the efficiency of VAT collection through the mandatory introduction of e-invoicing and an e-reporting application. As of 1st of July 2024, taxpayers with an annual turnover above 9.000.000 € (during calendar year 2023) will have to comply with these new reporting requirements.

The Minister of Finance also proposes to permanently apply the new reduced VAT rate of 9% for demolition and reconstruction of private homes.

Our VAT team can advise you more in detail on any questions in this respect.

PERSONAL INCOME TAX

Amended proposal for Belgian tax reform

The amended proposal of the Belgian Minister of Finance for a broad tax reform includes a set of individual tax measures aimed at reducing the tax burden on labor by incentivizing people to work and increasing their purchasing power. To compensate the budgetary impact, a tax shift towards wealth and consumption would be proposed.

The proposed measures are expected to enter into force as from 1 January 2024, with a 2nd reform planned after the parliamentary elections in 2024. This proposal is subject to political consent and legislative initiative.

Please find hereafter some of the most important proposed changes.

Reducing the tax burden on employment income

In order to achieve a reduction of the tax burden on employment income, various measures have been proposed :

• Increased tax-free amount which will incentivize the Belgian working population. However, people enjoying an unemployment allowance or pension will not be able to benefit thereof.
• Although the progressive income tax brackets (between 25% and 50% still to be increased with communal taxes) remain in place, the 45%-tax bracket range will be increased from 46.440 EUR to 60.000 EUR.
• The work bonus to incentivize taxpayers with a lower professional income will be expanded so that the difference in income between working and not working will be increased.

Furthermore, in order to enable a good work-life balance, the personal income tax relief for childcare expenses will gradually be increased to 24,70 EUR per child per day.

Stock options/free shares retain staff

The Belgian Minister of Finance recognizes the importance of equity-based remuneration such as stock options or the offering of free shares in the current war for talented workers while also fighting abuse by proposing the following changes:

• The current favorable stock option regime (which started in 1999) will be simplified by restricting the system to options on (own) shares of the employer (or a related group company). Consequently, existing bonus warrant systems as a tax-friendly alternative to a cash bonus will no longer be able to benefit from the current exemption of social security contributions.
• A new tax regime for equity-based compensation will be designed where the prefinancing issue will be avoided by taxing the equity (e.g. shares granted for free) when they are sold by the beneficiary. The capital gain resulting thereof will be taxed differently at a flat tax rate of 15%. By introducing this new system, start-ups and scale-ups should be able to use this new system to attract and retain talent.
• A clear and dedicated framework will also be introduced for management incentive schemes.

PERSONAL INCOME TAX

Second pillar pension

The Belgian tax regime for second-pillar pensions should be simplified with the aim of encouraging more employees to participate in the second pillar (e.g. group insurance).

As a result, a proposal is now launched where the current 80%-limit would be abolished and be replaced by a new system where the maximum contributions or premiums paid, would be calculated as a fixed percentage of the annual remuneration (i.e. maximum 12% pension contribution up to an annual remuneration of 71.000 EUR and 32% pension contribution for the remuneration exceeding 71.000 EUR).

Evolving to a more modern and simplified taxation

The Minister of Finance has the ambition to simplify the (very complex) personal income tax return by removing 70 codes from the tax return form.

Furthermore, a harmonization between the Belgian tax and social security treatment of certain benefits in kind – for which currently a different treatment exists (such as heating, electricity and providing free housing to the company’s director, servants) – will be envisaged by taxing this at real value instead as on a lump sum basis.

The proposed tax reform also suggests to neutralize the family position of the taxpayer (e.g. single, married, living together) by abolishing the marital quotient (“huwelijksquotiënt/”quotient conjugal”) and the tax regime for alimony payments. A transition regime will be foreseen for 20 years.

As details and effects of this tax reform proposal become available, we will keep you informed on the progress thereof. In the meantime, if you have any questions, please reach out to your Mazars contact for further assistance.

GLOBAL MOBILITY SERVICES

New protocol of the Belgian and Luxembourg Double Tax Treaty offers higher tolerance for cross-border workers

As from 1 January 2022, Belgian or Luxembourg cross-border workers that are employed in Belgium and/or in Luxembourg will be able to practice outside their usual state of employment for a maximum 34 working days and remain taxable in their usual state of employment.

According to Article 15 §1 of the Double Taxation Treaty (DTT) concluded between Belgium and Luxembourg, the salary of the employee is considered taxable in the State in which the professional activities are pursued.

This entails that, by principle, a Belgian resident who perform professional activities in Luxembourg, for a Luxembourg employer, would be taxable in Luxembourg on the income received relating to that employment. If the employee would then work e.g. from home – in Belgium – the remuneration obtained for those days will be taxable in Belgium. The same
reasoning also applies for a Luxembourg resident performing professional activities in Belgium for a Belgian employer.

In the protocol of 05.12.2017, a tolerance had already been agreed by the respective countries for cross-border workers, relating to article 15 §1 of the DTT. This protocol states that Belgian or Luxembourg cross-border workers may work outside their usual state of employment and remain taxable in their state of employment, if they do not exceed the limit of 24 working days.

As a result of increased telework during the COVID-19 crisis and afterwards, the protocol of 31.08.2021 now provides that cross-borders workers are entitled to 34 working days without any fiscal consequences (i.e., 10 additional days), starting from 1 January 2022.

If you have employees working in Luxembourg or Belgium and you believe this protocol might be applicable to you or you have questions about cross-border employment situations, please reach out to your Global Mobility contact at Mazars.

LEGAL

UBO register rules amended

By Act and Royal Decree of 8 February 2023, amendments were made to the Act of 18 September 2017 on the prevention of money laundering and terrorist financing and on the restriction of the use of cash (the Act) and to the Royal Decree of 30 July 2018 on the operating modalities of the UBO register (the Royal Decree). These amendments entered into force on 17
February 2023, date of publication in the Belgian Official Gazette.

Legitimate interest

The most important change is the requirement for the general public of demonstrating a legitimate interest in order to access the information in the UBO register (‘UBO” stands for “Ultimate Beneficial Owner”) relating to the ultimate beneficial owners of companies, (international) non-profit associations, foundations, trusts, fiduciaries and similar legal
structures.

Until recently, “any member of the public” could access the information in the UBO register relating to the ultimate beneficial owners of companies. This in contrast to (international) nonprofit associations, foundations, trusts, fiduciaries and similar legal arrangements, where the access of the general public to the data relating to the ultimate beneficial owners was already restricted to particular data.

However, this almost unlimited access to the UBO register - which was introduced following the transposition of the fifth European Anti-Money Laundering Directive – was not acceptable for the European Court of Justice. In a judgment of 22 November 2022 the Court ruled that the free access by the general public constitutes a serious and unjustified interference with the fundamental rights to respect for private life and protection of personal data guaranteed by the Charter of Fundamental Rights of the European Union. The Court found the provision in the fifth European Anti-Money Laundering Directive to be invalid.

As a result of this judgement, the Federal Public Service Finance had already suspended access to the UBO register for the general public. The Act and Royal Decree now provide a solution by removing the provision under which "any member of the public" has access to the UBO register. In order to access the data, the general public will now have to be able to
demonstrate a legitimate interest.

The amended Royal Decree stipulates that individuals and legal entities only have access (free of charge) to the UBO information of Belgian legal entities if they can demonstrate a legitimate interest. The required legitimate interest refers to an activity which is related to the fight against money laundering, financing of terrorism and related underlying criminal activities. More specifically, the individual or legal entity has a legitimate interest if one of the following conditions is met:

• the applicant has a purpose or carries out activities related to combating against money laundering, terrorist financing and related underlying criminal activities in a sustainable and effective manner;
• the applicant acts in court in connection with the purpose or activities with a view to defending the interest related to that purpose or those activities;
• the applicant will enter into an economic relationship or carry out transactions with an information reporting entity and the applicant is involved in activities relevant to preventing or combating money laundering, terrorist financing and related underlying.

An access request will have to be addressed to the relevant administration in order to be granted access regarding UBO information.

Other changes: beware of fines

Besides this fundamental change regarding access to the UBO register, some other changes took place.

It is now explicitly stated that the term “reporting agent “not only refers to the entities that are required to provide information to the UBO register, but also to their legal representatives, such as directors or managers. The UBO regulation was also adapted to align the provisions with the functioning of the UBO register in an electronic manner. Furthermore, additional authorities are granted access to the UBO register. From now on, the register can also be consulted in the
context of the application and control of obligations regarding embargoes, asset freezes and other restrictive measures as imposed by the United Nations, the European Union and national provisions.

Lastly, the procedures for imposing, collecting and recovering administrative fines in case of non-compliance with the UBO regulation are clarified. The procedure starts with a notification by the administration of the existence of a potential infringement and of the fact that an administrative fine may be imposed in case of a final finding of infringement. That notification must be made within a period of 30 days following the formal establishment of the existence of
the potential infringement. After that, the reporting agent may put forward a defense. The Minister or his/her delegate then makes a final decision. If the fine is upheld, the reporting agent is notified within three months following the decision. This is the procedure the administration has already been applying in practice.

A noteworthy change is that the scope for the imposition of administrative fines has been extended. Whereas previously a fine could only be imposed on the reporting agent if it had not transmitted the required information to the UBO register, a fine can now also be imposed if the information on the UBO is not updated at least annually. Finally, the individuals or legal entities who are managers or directors of the reporting agent or in charge of its daily management are jointly and severally liable for any administrative fine imposed on the reporting agent.

KEEP IN MIND THE DEADLINE!

VAT

• VAT return February 2023 : March 20, 2023
• Client listing (financial year 2022) : March 30, 2023
• Mixed VAT-payer with quarterly VAT return filing that applied the general VAT-deduction rule but wants to switch to the effective use method as from 1 Jan 2023 : notification by MyMinfin by March 31, 2023.

Corporate income tax

• Q1 advance CIT payment: April 10, 2023
• Request of reimbursement or transfer of income tax prepayment (personal/corporate) (via MyMinfin) : March 31, 2023
• Request file for increased investment deduction claims for FY 2022 investments (energy-friendly investments) from the Regional authorities by March 31, 2023