Belgian government agreement: expected tax reforms

1. Solidarity contribution of 10% instead of capital gains tax

The government agreement explicitly states the following: “There will be a general solidarity contribution of 10% [instead of 5% in previous texts] on future realized capital gain from financial assets, including crypto assets, accrued from the moment the contribution is introduced. Historical capital gains are thus exempt.” Consequently, only capital gains accumulated from the introduction of this rule would be taxable.

An exemption of 10,000 EUR (to be indexed, 6,000 EUR in the previous texts) is provided to protect small investors. In the case of a significant participation of at least 20% (instead of 5% in the initial versions), the first 1 million EUR will “always” be exempt, regardless of whether the shares are listed or not.  The taxable base between 1 million EUR and 2.5 million EUR will be taxed at a rate of 1.25%, between 2.5 million EUR and 5 million EUR at 2.25% or 2.5% (depending on the version of the government agreement), and between 5 million EUR and 10 million EUR at 5%. Capital gains above 10 million EUR will be taxed at 10%. The capital losses are deductible in the same tax year, but cannot be carried forward. On the one hand, it is envisaged that a taxpayer will “always” be able to benefit from the progressive exemptions up to 10 million EUR, but on the other hand, the participation condition has been substantially increased, from 5% to 20%. The progressive tax up to 10 million EUR has been softened by introducing the separate rates of 1.25%, 2.25% or 2.5% (depending on the version of the government agreement) and 5%, although previous proposals envisaged a full exemption up to 5 million EUR.

It is unclear from the text whether exemptions will be provided for shareholdings of less than 20%. The text provides that an exemption will “always” come into play for participations of at least 20%. This could mean that, under certain conditions, exemptions could also apply to shareholdings of less than 20%. This seems appropriate to us, for instance in the case of shareholdings in SMEs or the situation of the founder of a start-up or scale-up who, as a result of investors joining in capital rounds, would dilute its shareholding below 20%. Such a shareholder should not be treated less favorably than a shareholder holding a minimum stake of 20%, especially given the government’s desire to encourage entrepreneurship and innovation.

The question is how this contribution will be incorporated into the tax code and how it will interact with existing taxations of capital gains on shares, such as the 33% tax on capital gains on shares in case of abnormal management of private estate, or the 16.5% tax on capital gains on shares on a participation of 25% or more in domestic companies in case of disposal of shares to a legal entity established outside the EEA. It also remains to be seen whether this solidarity contribution will be due if capital gains are realized when shares are contributed to a holding company, for example. In situations where at least a temporary exemption should be granted under the Merger Directive, it remains to be seen whether such a solidarity contribution can be applied.

Furthermore, it remains to be seen how such a solidarity contribution can be combined with the creation of a taxed reserve in capital upon contribution to a holding company. Since 2017, it is no longer possible to create paid-up capital for tax purposes to the extent of the value of the contributed shares, so that the subsequent distribution of such a taxed reserve is already taxed at 30% at present (even though the capital gains realized on shares following the contribution is currently exempt). Furthermore, it is also questionable whether and how realized capital gains will be taxed on shares in 19bis funds (on which 30% income tax is already due on their interest component).

2. Participation exemption : participation condition increased from 2.5 million EUR to 4 million EUR for large companies

As indicated earlier, the participation exemption (referred to as the Dividend Received Deduction or DRD) will be reformed and converted into an exemption. This will be achieved by an increase in the initial state of the reserves. The participation condition of 10% remains in place, but the threshold of 2.5 million EUR will be raised to 4 million EUR for and between large companies and will be linked to the condition that the participation has the nature of a financial fixed asset. This stricter participation condition does not apply to small or medium-sized companies, but only to and between large companies.

Contrary to the initial proposals, it is planned to refer to the existing definition of “medium-sized companies” (article 2, §1, 4°/1 of the ITC: during at least 2 of the last 3 closed taxable periods, an average workforce of less than 250 FTEs, with a turnover of no more than 50 million EUR or a balance sheet total of no more than 43 million EUR) and no “sui generis” definition is used.

Although this was not always the case in previous versions, the condition that the participation must qualify as a financial fixed asset was nevertheless reinstated in the final text. In the past, this condition had already been introduced and then found to be in conflict with EU law. Belgium would be imposing an additional condition, which was contrary to the Parent-Subsidiary Directive with respect to the 10% participations. This condition was therefore removed at the request of the European Commission in 2011. Now, this condition to qualify as a financial fixed asset is being reintroduced, but only for participations of less than 10% and 4 million EUR or more, and for and between large companies.

The softening of the subject to tax rule of the DRD for “active” subsidiaries that was included in previous proposals  has unfortunately not been retained in the final government agreement. Nevertheless, it would have been interesting to allow foreign dividends that do not meet the taxation condition to benefit from the DRD regime, provided that the company paying the dividends has an effective business activity and that the dividends originate from this effective business activity. This would allow profits from foreign investments by Belgian companies to be repatriated effectively and, in turn, used for new (Belgian) investments. Such an arrangement for active DRDs is unfortunately not included in the government agreement.

3. 5% exit tax from DRD SICAV – private equity funds

A separate levy of 5% will be introduced on the capital gain realized upon the exit from a DRD SICAV (ie SICAV that allows the benefit of the participation exemption for Belgian corporate investors). In addition, the withholding tax can only be offset against corporate income tax if the receiving company grants the minimum remuneration to its company director (now 50.000 EUR, to be indexed) in the income year in which it receives the distribution.

Although the DRD SICAV regime itself remains intact, it is nevertheless remarkable that a separate levy will be introduced here. The investment tax landscape is becoming even more complex, and there is no tax neutrality in corporate income tax with respect to the chosen investment form. Moreover, the link established with the minimum remuneration of company directors is, to say the least, peculiar.

to former Minister Van Peteghem’s tax reform proposal, the taxation of other investment companies and investors remains unchanged (except for a possible introduction of a specific carried interest regime and the abolition of the tax reduction for capital losses incurred due to complete distribution of the corporate assets of a private pricaf, as indicated below). The government also plans to ease the regulatory framework of a private pricaf, as requested multiple times by the sector. This can only be welcomed.

4. Carried interest: introduction of a competitive regime compared to neighboring countries

The government wishes to introduce a specific and competitive regime compared to neighboring countries to “stimulate fund activity in Belgium”. The new government mentions a maximum rate of 30%. This would have no impact on existing plans.

It is to be welcomed that the government wishes to support the private equity sector by introducing a competitive regime. However, the question arises as to how this specific regime will be designed and whether a specific regime is necessary. After all, carried interest returns are currently subject to taxation depending on the nature of the income obtained. In practice, carried interest is currently structured through a substantial investment by the carried interest holder in carried interest shares (or invested at the market value of those shares). In such cases, the ruling commission and the special tax inspectorate have accepted that the carried interest income should be taxed as a dividend, subject to a withholding tax of 30%, possibly reduced to 15% (VVPRbis).

It is questionable whether a new different regime for carried interest is compatible with the principle of equality. It should also be kept in mind that carried interest shares have a significantly higher risk profile than shares subscribed by other investors, since carried interest shareholders typically only receive a distribution after ordinary investors have received a preferential return. As a result, carried interest shareholders incur greater risks.

The requirement for equal treatment of shareholders was also recognized in the proposal by former minister Van Peteghem. That proposal provided for separate taxation of carried interest returns as professional income at a specific rate. However, the explanatory memorandum stated that the separate taxation was intended for carried interest holders who had paid only symbolic amounts to acquire the carried interest rights.

A pure codification of current market practice and agreements with the tax administration seems appropriate, not only to be competitive with our neighboring countries but also to comply with the principle of equality.

5. Exit tax for legal entities

The final text of the government agreement specifies that the emigration of a legal entity will be treated for tax purposes as a fictitious liquidation of the legal entity.

An earlier version of the text still explicitly stated that the withholding tax would be applied. This fiction raises important questions. In Belgian corporate tax law, the emigration of a corporation is already equivalent to a fictitious liquidation. Currently, the emigration of a corporation does not result in a deemed liquidation for the shareholder of the emigrating corporation (based on the literal text of the law, as currently interpreted by the ruling committee).

It may be intended to amend this provision and introduce a levy (apparently not necessarily through the collection of withholding tax, as this last sentence did not make it into the final text). In our view, such a general exit tax could be contrary to EU law, unless the measure is limited (for example, in the case of emigration to non-EEA countries). This measure could also lead to double taxation. It is expected that it will also be made redundant by certain double tax treaties. Its introduction is reminiscent of a similar regime proposed in the Netherlands in 2022 (with an exception for emigration to EEA countries and only applicable to profit reserves above 50 million EUR). As there were indications that such measure would discourage foreign investment, it was abandoned/scrapped. The question now is what form this measure will take and whether it is wise to implement such measures as the only country in the BeNeLux.

6. Harmonizsation of VVPRbis and the liquidation reserve

The VVPRbis regime and the liquidation reserve will be harmonized as far as possible. The waiting period for the liquidation reserve will therefore be reduced from 5 to 3 years. The 5% withholding tax rate will be increased to 6.5% from 1 January 2026 for newly created liquidation reserves. This increases the effective rate of the liquidation reserve from 13.64% to 15%, the same as for the VVPRbis. However, distributions made within 3 years will be taxed at the standard rate of 30% withholding tax.

7. Company directors’ remuneration: minimum 50,000 EUR, to be indexed and only 20% benefit in kind

The current minimum remuneration of 45,000 EUR for company directors to benefit from the reduced corporate tax rate of 20% on the first 100,000 EUR of profit will be increased to 50,000 EUR and will henceforth be indexed. Additionally, in the future, a maximum of 20% of the gross annual remuneration of company directors may consist of benefits in kind. This measure will affect, among others, corporations that provide housing to their directors, granting a benefit in kind. Importantly, there is also a peculiar link with the DRD-SICAV regime (see above).

8. Foundations: clarification of the concept of non-profit objectives

To address the alleged “abuse” with private foundations, federal legislation will clarify what “non-profit objectives” are. Notaries will have a greater responsibility, and in cases of improper use of a foundation, the tax authorities could request its dissolution (the consequences of which are rather unclear). The current mandatory filing of annual accounts for non-profit organizations and foundations with the court registry will be replaced by a mandatory filing at the NBB’s Central Balance Sheet Office, as is the case for companies. The filing fee will be abolished for small companies and associations. However, the text makes no mention of this for foundations.

9. The software sector can once again benefit from the copyright tax regime

According to the government agreement, the copyright tax regime will once again be applicable to income from the transfer or licensing of computer programs (Book XI, Title 6 of the Code of Economic Law).

Under the copyright tax regime, remuneration for such works is taxed favorably (15% up to a maximum amount of 73,070 EUR for income year 2024), with a substantial flat-rate expense deduction. The previously suggested rate increase from 15% to 20% was not retained. Since 2023, income from the transfer or licensing of computer programs and databases has been excluded. The government agreement reverses the exclusion of computer programs, so software developers could, in principle, once again benefit from the favorable copyright regime. However, an effective legislative amendment imposes itself following a previously unsuccessful annulment appeal before the Constitutional Court (Constitutional Court 16 May 2024, no. 52/2024). The extension appears to apply only to computer programs and not, for example, to databases (Book XI, Title 7 of the Code of Economic Law).

10. Tax procedure: deadlines shortened and easier access to the CPC

The tax investigation and assessment periods will once again be shortened to a standard 3 years, and 4 years for complex and semi-complex returns (previously 6 and 10 years respectively). In cases of suspected fraud, the 10-year investigation period will again be reduced to a standard 7 years. The tax retention period would remain unchanged (10 years).

The tax mediation service would be transformed into tax arbitration, which can only be invoked once the administrative procedure is completed. Such arbitration is welcome in practice, as it currently takes up to 10 years for certain courts of appeal (tax chamber) before a case can be heard.

The sanction policy during audits would be adjusted for both direct and indirect taxes; first errors made in good faith would no longer give rise to an automatic sanction, but the taxpayer would only receive a warning. The current deduction prohibition in corporate tax would only apply to repeated violations where a tax increase of at least 10% is effectively applied. This aligns with recent Constitutional Court case law (November 2024). However, the offsetting of the additional taxable base (in such cases) would be limited to offsetting against the losses of that fiscal year (and not with carried forward losses).

Access to the Central Point of Contact for accounts and financial contracts (CPC) will be eased. In cases of sufficient and precise indications of fraud or an indicative shortfall, and with authorization from an official of the rank of general advisor, the tax authorities will be able to directly consult the CPC. In doing so, the right to privacy and the right to defense will be safeguarded, and the tax authorities will inform the taxpayer within a month. Additionally, cryptocurrency accounts must be reported, and the financial data of foreign origin that the tax authorities already automatically receive will also be included in the CPC, as well as online gambling accounts exceeding 10,000 EUR. A legal framework would be provided for the use of data from the CPC in the context of anonymous data mining for case selection.

When a taxpayer “intentionally” obstructs a tax visitation, the tax authorities will now be able to levy a tax on a minimum taxable profit as provided for in article 342, §1 of the ITC92. Such taxation would replace the current penalty payment. Note: a penalty payment can only be imposed after the intervention of a judge sitting “as in summary proceedings”, whereas the tax on the minimum taxable profit can be used as a unilateral means of pressure by the tax authorities. There is no immediate judicial remedy against this; one must first go through a time-consuming administrative appeal while in the meantime protective measures can be taken to safeguard the recovery of the contested tax assessment. What about the equality of arms and the prohibition of arbitrariness and oppression?

A new taxpayer charter will be drafted to “restore the relationship between the taxpayer and the tax authorities”. Among other things, the right to direct and personal contact between the taxpayer and the tax authorities will be restored.

Finally, the principle of legitimate expectations and the Antigone doctrine (excluding illegally/unlawfully obtained evidence) will be legally enshrined. Regarding the principle of legitimate expectations, it will (finally) be clarified that taxpayers cannot be sanctioned for continuing a previously audited practice, provided that the applicable law has remained unchanged.

11. Combatting share deals involving real estate corporations

The government agreement explicitly states that the government will assist the regions, if they wish, in combatting so-called share deals involving real estate corporations (in which case no transfer tax is due).

This is remarkable in itself. As the text itself mentions, transfer tax is a regional matter and the regions have the authority to levy it. The question is why the federal government believes that such transactions should be combatted: in most cases, there are economic and financial reasons justifying a share deal, which has been repeatedly confirmed by the courts and tribunals.

Furthermore, the legislator never intended to levy registration taxes on the sale of real estate companies. Additionally, the tax authorities have measures to combat abusive transactions (including the general anti-abuse provision regarding registration taxes).

12. Permanent (para)fiscal regularization (EBA Quinquies)

The government agreement provides for the development of a new, stricter permanent (para)fiscal regularization with an increase in rates to 30% for fiscally non-prescribed capital (i.e., capital for which the fiscal statute of limitations has not been reached) and 45% for fiscally prescribed capital (i.e., capital for which the fiscal statute of limitations has been reached). This would happen in consultation with the regions. An exception will be made for taxpayers who can demonstrate good faith.

We can therefore expect an EBA Quinquies with a regional component for inheritance tax once again. This is a good thing in itself and a clear response to the requests from practitioners. The provided exception for good faith certainly raises high expectations for heirs, for example.

13. VAT changes

The main measures regarding VAT appear to be the following:

• The reduced VAT rate of 6% for demolition and reconstruction would be reintroduced for the supply of private homes constructed after the demolition of an existing building. The social conditions previously linked to this measure under the temporary regime will be retained. With respect to the supplies, the surface area criterion would be tightened from 200 m² to 175 m². There is currently no mention of increasing the rate to 9%.
• A clear definition would be developed for renovation and reconstruction. The government is exploring how a sustainability condition can be introduced in the long term, within the upcoming EU regulations and without increasing the administrative burden.
• As of 2028, a “real-time reporting” system would be introduced for transactions between VAT taxpayers and transactions for which a Cash Register System (CRS) is used. Cash registers and payment and invoicing systems will be connected to the administration and will automatically transmit VAT data. The obligation to send structured electronic invoices for local transactions in a B2B context from 1 January 2026, is already a preparation for the measure aimed to be implemented for 1 January 2028.
• Several VAT rates would be changed:
  • The VAT rate on the supply and installation of heat pumps will be temporarily reduced from 21% to 6% for the next 5 years
  • The VAT for the supply and installation of a combustion boiler on fossil fuels (gas, oil, etc.) will be increased from 6% to 21% in the context of a renovation (for private homes older than 10 years old).
  • The VAT on coal will increase from 12% to 21%.

14. Measures to attract investments

The government agreement aims, among other things, to make Belgium attractive again for (new) investments.

The following measures are proposed:

• The expat regime would be made more attractive by increasing the tax-free allowance from 30% to 35%, abolishing the ceiling of 90,000 EUR, and lowering the minimum gross remuneration from 75,000 EUR to 70,000 EUR;
• The group contribution regime would be made more flexible by allowing both direct and indirect participations, no longer excluding new companies, and making the DRD-exemption possible for profits arising from a group contribution.
• The investment deduction would be indefinitely transferable, without restrictions.

15. Higher net salary

The personal tax allowance would be increased for everyone who works, and the special social security contribution would not be abolished, contrary to previous texts, but would be reduced. The social work bonus would be strengthened.

16. Abolition of certain tax reductions, exceptions and exemptions

Several tax reductions will disappear, such as the tax reduction for investments in development funds for microfinancing, for domestic workers, for adoption costs, and for legal aid. Additionally, the tax reduction for capital losses arising from the complete distribution of the corporate assets of a private pricaf will also be abolished. The tax reduction for gifts will decrease from 45% to 30%, and the tax exemption for additional low-wage personnel and for additional personnel for export and total quality management will disappear.

17. Electric company cars

A longer transition period for hybrid cars would be provided, where a maximum deduction percentage for hybrids would remain at 75% until the end of 2027. Thereafter, it would decrease to 65% in 2028 and 57.5% in 2029 (simultaneously with the decrease for electric cars). These deduction percentages are applicable during the entire duration of the vehicle’s use by the same owner/lessee. The fuel costs for hybrid vehicles will remain 50% deductible until the end of 2027. The electricity consumption costs of hybrids will have the same deductibility as those of electric models. An exception would be provided for certain low-emission hybrid cars.

18. Investment deduction for research and development – abolition of regional certification requirement

The regional certification requirement for R&D investments would be abolished. A covenant would also be established between the competent federal R&D administration and the tax administration to improve cooperation and provide more legal certainty for taxpayers. Additionally, there would also be an opportunity for companies to be recognized as a research center, giving them certainty about a stable fiscal legal framework in the long term.

19. Entrepreneurial deduction for self-employed (to be determined)

A special entrepreneurial deduction for self-employed individuals would be introduced, where a first tranche of profits and gains (after offsetting tax losses and deducting professional expenses) can be deducted. This amount has yet to be determined and would be increased in 2029.

20. De minimis provision of 2,000 EUR for miscellaneous occasional income

Regarding miscellaneous occasional income (e.g. second-hand sales), a de minimis provision of 2,000 EUR would be introduced. This would mean that any occasional profit or gain realized outside of professional activity would only be taxable insofar as it exceeds 2,000 EUR. The exemption for the normal management of private estate would remain and would not be affected by this provision.

21. Corporate contribution (social security)

The corporate contribution would be adjusted based on the balance sheet total in order to reduce the contribution for small companies and increase it for large companies. This appears to build on the current distinction in corporate contribution between companies with a balance sheet total of 858,605.72 EUR or more. Let’s not forget that this contribution was originally introduced as a ‘one-time’ measure in 1992.

22. Digital tax – no later than 2027

In line with international agreements, a digital tax will be introduced to tax large digital multinationals even without a physical presence in Belgium. If no agreement is reached at EU or international level, Belgium will unilaterally develop a digital tax no later than 2027.

23. Annual tax on securities accounts and bank contributions unchanged, federal housing taxation phased out

The rate of the annual tax on securities accounts of 0.15% remains unchanged and, contrary to previous plans, will not increase to 0.25%. However, there will be an investigation into how alleged ‘abuse situations’ can be addressed.

The total contributions from banks remain at the same level as in 2025, maintaining the target of 1.8% with respect to the Guarantee Fund.

As expected, the federal interest deduction for non-owner-occupied homes will be completely abolished.

Conclusion

After more than 7 months and numerous draft versions, there is finally a little more clarity on the tax measures that will be taken. We are looking forward to the technical implementation in draft texts expected in the coming weeks. We will continue to monitor this. In the meantime, you can contact us with any questions you may have.