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Belgium To Introduce 'Cost Of Capital' Deduction

by Ulrika Lomas, Tax-News.com, Brussels

20 June 2005

The Belgian Parliament has passed the government's new 'notional interest tax deduction' which will improve the position of international companies headquartered in Belgium.

As from 2006, Belgian tax-resident companies and Belgian branches of non-resident companies will be able to claim a tax deduction for their cost of capital at a notional interest. The notional interest deduction is compliant with EU "state aid" rules. The rate to be used for the first three years is that paid on 10-year Belgian government bonds, currently 3.7%.

The change means that there is equal treatment for equity and debt financing, and will be particularly welcomed by companies which have taken advantage of Belgium's 'coordination centre' tax regime, which has been diluted under attack from the EU's Code of Conduct Committee.

Small and medium-sized companies will be allowed to add the reference interest rate by 0.5%. However, they will have to make the choice between the current system of an investment reserve and the notional interest deduction.

'Capital' will mean share capital plus retained earnings less:

  • the value of the company's holdings in its own share capital;
  • the value of shareholdings that are not holdings in affiliated companies but are mere financial fixed assets;
  • the net book value of tangible fixed assets whose attendant costs are unreasonably high;
  • the net book value of any other investment that is not acquired in order to produce a regular income.

The Belgian Government has also announced that the 0.5% registration duty on capital contributions will be abolished as of 1 January 2006.

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