Have you taken into account all the measures you can use to optimise your company’s taxes by the end of this year, bearing in mind the new measures in 2020? It’s not too late!
With 2020 looming fast, the Belgian tax system is not standing still either. The entry into force of the corporate tax reform has already brought about a whole series of changes in the Belgian fiscal landscape in recent years. In 2020 the second phase of the “Summer Agreement” will come into force.
Below you will find a non-exhaustive overview of important changes that may be of interest to you; firstly, with a view to optimizing your tax situation at the end of the year, and, secondly, for future strategic decisions concerning the company with a view to income year 2020. In this contribution we offer some concrete tips as well. The assumption underlying this article is that the relevant financial year coincides with the calendar year, unless specifically stated otherwise.
Overview of the new measures in 2020 and opportunities at the year-end closure
Further reduction in the rate
First of all, the basic rate of corporate tax will decrease again to 25%. The rate for companies that qualify as ‘small’ will remain at 20% (on the first slice of EUR 100,000), the balance is taxable at the standard rate of 25%. The crisis contribution will be completely abolished.
Tip 1: If you intend to make an investment in the near future, it is best to make it before 31 December 2019.
Tip 2: Are there any directorships? If company A pays a percentage of profits to company B, it will be deductible for company A in 2019 and taxable for company B in 2020.
Tip 3: To be able to benefit from the reduced rate, at least one manager must be paid a remuneration of EUR 45,000 (or at least equal to the company’s taxable income for that financial year). Any type of remuneration is eligible for this.
Mobilisation of exempted reserves
For tax years 2021 and 2022, it will be possible from now on to opt to have certain tax-exempt reserves taxed spontaneously by no longer complying with the condition of inviolability (either through an actual distribution or not). The reduced rate is 15%, but it can be further reduced to 10% for that part of the withdrawal that meets the conditions for appropriate investments in depreciable tangible or intangible fixed assets.
It should be noted that the tax cannot be reduced by applying any deductions or set-offs that result in a minimum taxable base.
Tip 4: As no deductions can be applied to it, an investment reserve will always lead to taxability at the normal rate applicable for corporate income tax. It may be possible to benefit from the reduced rate by including the investment reserve as of tax year 2021 (and/or tax year 2022).
Tip 5: If tax losses are expected in the coming years, fiscal optimisation would consist of setting them off against tax-free reserves. In that case, it obviously makes no sense to have them taxed spontaneously. NB: This does not apply to investment reserves.
Change in depreciation reserves
It is important to bear in mind that degressive depreciation will no longer be possible in corporate taxation. From now on, pro-rata temporis depreciation for the year of the investment will also be compulsory for small companies.
In the case of small companies, the purchase costs can now either be deducted immediately or they can be written off together with the main investment.
However, the above changes will only apply to assets acquired or realised as of 1 January 2020.
Tip 6: If the financial year ends on 31 March and an investment is made on 30 December 2019, it will be possible to write off another full year. However, if the same investment is made on 1 January 2020, it will only be possible to depreciate by 3/12ths during the financial year.
Hidden gains and secret commissions
As of 1 January 2020, the assessment of secret commissions will no longer be deductible as professional expenses. In addition, the reduced rate of 51.50% will be cancelled if additional hidden profits are recorded in the accounts. Consequently, from 1 January 2020, they will also be subject to a rate of 100%, without any possibility of deduction.
Vehicle costs in the company
As of 1 January 2020, there will be a new formula for calculating the tax deductibility of vehicle costs as well, namely 120% – (0.5% x coefficient x CO2/km), which will generally result in reduced deductibility.
It should also be noted that from now on the 120% deductibility rule for electric vehicles will be reduced to 100%.
Tip 7: From 1 January 2020 all costs related to a particular private vehicle will have to be entered in the accounts separately, given that the limit on the deduction per vehicle has to be calculated. In order to reduce the administrative burden, it may be advisable to assign a fuel card to a specific vehicle.
Tip 8: If you intend to purchase a vehicle in the near future or are going to incur vehicle costs, we recommend that you do so before 31 December 2019.
Restriction on deduction of foreign losses
Where a Belgian company has a foreign establishment, losses on it can currently be deducted from the Belgian base.
However, the possibility of deducting such losses will be strictly limited as of 1 January 2020. This type of set-off will only be possible if the following cumulative conditions are met: (i) the losses must be permanent and (ii) they must have been incurred within a member state of the EEA.
Tip 9: In this respect, it may be appropriate to carry out any planned closures of establishments in non-EEA member states before the financial year that starts on or after 1 January 2020, so as to fall under the old rules.
Clarification of the terms ‘market interest rate’ and ‘money loan’
In the well-known article 18 WIB 92, the notion of ‘money loan’ is replaced by the term ‘advance’ in order to prevent credit interest on current accounts from being reclassified as dividends.
Furthermore, the term ‘market interest rate’ (MIR), as the maximum interest rate for the credit balance of a current account, is replaced by an MFI rate (determined by the National Bank of Belgium) increased by 2.5%. More specifically, where a reclassification of interest as dividends for the financial year 2020 is concerned, the MFI interest rate of November 2019 will have to be taken into account.
Finally, it should be noted that these new provisions enter into force on 1 January 2020 and apply to interest relating to the periods after 31 December 2019.
Advantage of amortisation of goodwill versus creation of liquidation reserve
Goodwill is taxed at 33% (plus municipal tax).
Tip 10: In view of the reduction of the corporate income tax rate as of 1 January 2020 and the possibility of creating a liquidation reserve, it is advisable – for example for a dentist who wishes to convert his/her sole proprietorship to a company – to set up a liquidation reserve and not to charge goodwill. If the waiting period is respected and the liquidity and net asset tests are passed, it will only be necessary to pay 15% withholding tax in full discharge instead of 33%. NB: In both cases, this will be after payment of 25% or 20% corporation tax as of tax year 2021.
As of 1 January 2020, the investment deduction will decrease again from 20% to 8%.
Tip 11: If you are still considering making an investment in 2019 in order to benefit from the higher investment deduction, we recommend that you take into consideration the changes in the depreciation rules and the changes in the corporate income tax rate. NB: it is not possible to apply the investment deduction on the basis of an invoice entered in your bookkeeping. An advance payment (which can be written off for the same amount) or a transfer of the property must have taken place.
An optimisation that many accounting professionals have applied has consisted of opting for the system of spread taxation, if capital gains were realised on an asset that had been used for more than five years before the exercise of the professional activity. The decision was then taken after four years not to reinvest and to have the capital gains taxed spontaneously.
Tip 12: Until now, no interest was charged if the capital gains were taxed spontaneously after four years. However, this is no longer the case. From now on late payment interest will always be due if the condition of inviolability is no longer met and the investment is not correctly reinvested.
As of 1 January 2020, a liquidity test and a net asset test will have to be carried out when liquidation reserves are distributed.
Tip 13: A company was established in 2016 and the financial year ends on 31 December 2016. At an extraordinary general meeting in 2019 an interim dividend can be paid relating to the profits of 2018 (or older liquidation reserves, since the waiting period has passed). In this way, it is still possible to distribute the liquidation reserve for which, as yet, neither a liquidity test nor a net assets test has to be carried out in order to be able to proceed with the distribution.
Should you have any questions about the above, please do not hesitate to contact us.