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1
Unique TAX INCENTIVES in Belgium
2015
Michela RitondoFiscal Department for Foreign Investments
Federal
Public Service
Finance
2
Effective (Average) Corporate Tax Rate (ECTR)
Sources : ZEW, Centre for European Economic Research, Manheim Effect Tax Levels – Report 2013
Especially in Belgium, the ECTR is considerably below statutory tax rates (-7,7%)
ECTR (Effective Corporate Tax Rate)
26,522,3
28,2
34,3
25,1 24,2
36,540,1
0
5
10
15
20
25
30
35
40
45
Belgium Netherlands Germany France Ita ly UK USA Japan
NCTR (Nominal Corporate Tax Rate)34
25
31
37,1
31,3
23
37,9 38,6
0
5
10
15
20
25
30
35
40
45
Belgium Netherlands Germany France Ita ly UK USA Japan
2
3
1/ Tax incentive for risk capital : Notional Interest Deduction
PrincipleCompanies are allowed to deduct a fictitious interest calculated on the basis of their shareholders equity
Consequences Reduced effective tax rate
Federal
Public Service
Finance
Federal
Public Service
Finance
4
Who?
Companies subjected to
Corporate tax Non-residents / Corporate Tax
Federal
Public Service
Finance
1/ Notional Interest Deduction
5
How does it work ?
Annual Tax DeductionAnnual Tax Deduction==
EQUITY EQUITY (in the opening balance sheet of the taxable period)(in the opening balance sheet of the taxable period)X X RATE ( RATE (10-year OLO10-year OLO))
Federal
Public Service
Finance
1/ Notional Interest Deduction
6
« 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.
1/ Notional Interest Deduction
Federal
Public Service
Finance
7
Interest Rate RATE = annual average of the monthly published rates
of the long term Belgian Government Bonds (10-year OLO) of the months July, August and September of the penultimate year prior to the tax year (budget law 2013)
Fixed yearly for 2015 (Tax Year 2016):
1,63% (2,13% SME’s)
1/ Notional Interest Deduction
Federal
Public Service
Finance
8
(Return on Equity: 4%)
Assets LiabilitiesGroup Financing100 000
Share Capital100 000
1/ Notional Interest Deduction
Example
P&L Account
Profit before tax
N.I.D. (1,63%)
Taxable
Corporate Tax (33,99 %)
Effective Tax Rate
Before N.I.D.
4000
/
4000
1360
33,99 %
With N.I.D
4000
- 1630
2370
806
20,1 %
Federal
Public Service
Finance
9
EXAMPLE 2:
Net Result(Return on Equity) Effective Tax Rate
≤ 1,63 % 0 %
4 % (Previous slide) 20,1 %
5 % 22,9 %
6 % 24,7 %
Assets LiabilitiesBusiness Assets100 000
Share Capital100 000
Federal
Public Service
Finance
1/ Notional Interest Deduction
10
Other particularities
For SME’s: + 0,5% Rate = 2,13% Permanent measure No ruling nor agreement is needed Suppression of the 0,5% capital duty as of
1/1/2006 EU compliant
Federal
Public Service
Finance
1/ Notional Interest Deduction
11
PrincipleThe investor describes the facts to the tax administration, allowing him to know, in advance, how the tax laws are to be applied on a case by case basis
Consequences • Confidence to invest• Legally binding & accurate forecast
Scope of applications
Corporate tax, individuals tax, customs, VAT, Transfer pricing, Business Restructuring, Deductible expenses Financing, Branches, Bonded warehouses, etc.
2/ Tax Ruling
Federal
Public Service
Finance
12
Belgian DISTRIBUTION Centre Belgian SERVICES Centre
Operational Companies
OperationalCompanies
PARENT COMPANY e.g.USA / Japan…
* OECD accepted norm: arm’s length standard
Cost plus % case-by-case ruling *
Federal
Public Service
Finance
2/ Tax Ruling
13
Examples of matters that can be cleared in advance:
Transfer pricing issues Cost plus ruling for European Distribution Center (EDC) Cost plus ruling for Service Sharing Center (SSC)
Taxable presence or not in Belgium ? In the hands of the foreign principal of a Belgian manufacturer or sales
function In the hands of the service recipients of a EDC or SSC
Personal tax issues Amount of tax-free lump sum allowances for personnel
VAT issues“Tonnage” tax regime for shipping …
Federal
Public Service
Finance
2/ Tax Ruling
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3/ 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;
Federal
Public Service
Finance
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Parent company(treaty partner of Belgium)
Belgian Subsidiary
No WHT No LOB
10% shareholding
12 months
Federal
Public Service
Finance
3/ Dividend withholding tax exemption
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Participation exemption dividends received : deduction of 95%
Deductibility of interest paid to acquire shares No capital duty For large enterprises: low taxation of 0,412% on
realized capital gains on shares if minimum holding period of 12 months is fulfilled
For SME’s: full exemption of realized capital gains on shares if min holding period of 12 months is fulfilled
4/ Holding regime
Federal
Public Service
Finance
17
For foreign executives and managers temporarily detached in Belgium : Tax free expatriate allowance (cost of living, cost of housing, tax equalization)
operational entity: 11 250 € / an HQ or R&D centre: 29 750 € / an
Reimbursement of non-repetitive expenses (installation costs, moving expenses, school fees) unlimited amount tax free
« Travel exclusion »:workdays performed outside Belgium tax free in Belgium
5/ Expatriate status
Federal
Public Service
Finance
18
For employers:
No tax, no social security contributions on expatriate allowances and reimbursement of expenses
Deductible from Corporate tax
Federal
Public Service
Finance
5/ Expatriate status
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6/ 10 good reasons to invest in R&D
1. Patent Income Deduction2. Investment deduction for R&D related investments and patents
3. R&D Tax Credit4. Partial exemption salary withholding tax for researchers
5. Tax allowance for additional employee
20
6/ 10 good reasons to invest in R&D !
6. Innovation premium
7. Expatriate status in R&D
8. Tax exoneration for regional grants
9. Accelerated depreciation of R&D intangibles
10. Deductible gifts
21
6/ Tax incentives for R & D
1/ Patent income deduction
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
22
6/ Tax incentives for R & D
1/ Patent income deduction
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 %
23
6/ Tax incentives for R & D1/ Patent income deduction
Patents concerned
•self-developed or co-developed by a Belgian company or branch;•acquired by a Belgian company or branch provided they are being further developed in Belgium or abroad (by acquisition, or license,…) •Large companies must have in-house R&D activities in a R&D center that qualifies as branch of activity•As of 1 January 2013 SME’s are exempted from the R&D center requirement
24
6/ Tax incentives for R & D
1/ Patent income deduction
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
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Développer une entreprise axée sur R&D
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6/ Tax incentives for R & D
1/ Patent income deduction
• 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.
27
6/ Tax incentives for R & D1/ Patent income deduction
Highly competitive measure
• 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;
• Can be combined with Notional Interest Deduction for invested equity, etc.
28
6/ Tax incentives for R & D2/ Investment deduction for R&D related inv. and patents
• 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 patents acquired 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 .
29
6/ Tax incentives for R & D3/ R&D Tax Credit
Corresponds to the tax saving linked with the investment deduction
Ex.: Investment of 100 000 € Tax credit = 100 000 x 13,5% x 33,99% = 4 589 €
•Advantage: improved presentation in accounting terms of the cost price of R&D in Belgium
•In case of insufficient profits, the Tax Credit can be carried over to the subsequent 4 tax years;The part not used after 5 years is refunded.
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6/ Tax incentives for R & D4/ Income tax reduction for researchers, in favor 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 Belgian Treasury (= extra financial means for the employer)
• 80% exemption !
• For researchers with a specific degree, engaged in R&D program
31
6/ Tax incentives for R & D
5/ Tax allowance for additional employee
Exemption of 15 270 € (year 2015) from the enterprises profits:
•for the manager of Total Quality department•for the manager of Exportations department
32
6/ Tax incentives for R & D
6/ Innovation premium
• Principle: the premiums must be granted for an innovation which creates genuine added value for the normal activities of the employer
exemption from personal income tax for the beneficiary exemption from social security contributions deductible against corporate income tax for the employer
• Conditions: the amount paid per worker may not exceed one month’s gross salary
per calendar year Publication within the company of the criteria, identification of the
project,…and communication to the Ministry of Economic Affairs
33
6/ Tax incentives for R & D7/ Expatriate status in R&D
Attractive conditions for foreign executives and researchers:
•Exclusion from the taxable remuneration of expatriation allowances max €29 750 per year for repetitive expenses (cost of living, cost of housing, tax equalization) tax free reimbursement of installation costs, school fees,…
•Exclusion from the taxable remuneration of workdays performed outside Belgium
Attractive conditions for employers:
•Reduction of employment cost for expatriates with simple proceedings
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6/ Tax incentives for R & D
8/ Tax exoneration for regional grants in favor of R&D
• Subsidized assets or intellectual property out of a subsidized project can not be transferred during a 3 year period
35
6/ Tax incentives for R & D
9/ Accelerated depreciation of R&D Intangibles
Tax depreciation rules on R&D investments (intangibles):
accelerated depreciation in 3 years instead of 5, according to the straight-line method of depreciation
36
6/ Tax incentives for R & D
10/ Deductible gifts
Cash contributions aiming at sponsoring public R&D programs
deductible from the net taxable incomemax. 5% of the net income or € 500 000
37
People
Wage withholding tax exemptionTax allowance for additional employeeInnovation premiumExpatriate tax regime
Belgian R & D Centre
Activities Investments
Patents
Favourable transfer pricing rulings
Investment deductionR&D Tax creditAccelerated depreciationTax exoneration for regional grants
Patent Income Deduction
38
ExampleManufacturing company with a R&D division:•Share capital: 100 000 (of which 20 000 = contributed patent value)•Return on equity: 12% Net profit: 12 000 (of which 3 000 = patent income ; 9 000 = product revenue)
To deduct•Invest. ded. on patents: 13,5% x 20 000 = 2700•Patent Income Ded.: 80% x 3 000 = 2400•N.I.D. 1,63% x 100 000 = 1630•Taxable basis: 5 270
Corporate Tax: (5 270x 33,99%) = 1 791 Effective tax rate: 14,9 %
INVEST IN BELGIUM – increase your profits
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More information ?
Contact
Federal Public Service Finance Fiscal Department for Foreign InvestmentsRue de la Loi, 24 (Parliament Corner)1000 Brussels - BELGIUM
Michela Ritondo
Email: [email protected].: +32 257 938 69