Key changes of the corporate income tax reform

For taxable periods starting on 1 January 2018 or after, several new measures with respect to corporate income tax are effective. The new measures are part of the law on corporate income tax reform of 25 December 2017.

Panis highlights the most important changes.

Corporate income tax rate

The standard income tax rate of 33% will be lowered to 29% in 2018 and to 25% as from 2020.

The reduced tax rate for SME’s will be replaced by a flat tax rate of 20% for the first 100.000 EUR taxable profit. In order to benefit from the flat tax rate, the minimum (taxable) salary of at least one director must be equal to 45.000 EUR, or must be minimum equal to the taxable profit for the year. For starting SME’s, this salary condition is not required during the first 4 years after foundation of the company.

The crisis tax of 3% will be lowered to 2% in 2018 and will be abolished as from 2020.
 

  2017 2018-2019 2020
Standard tax rate 33% 29% 25%
Crisis tax 3% 2% 0%
Standard tax rate incl. tax 33,99% 29,58% 25%
Tax rate for SME's
incl. crisis tax

1-25.000 EUR:
24,98 %

25.000 EUR - 90.000 EUR:
31,93%

90.000 EUR - 322.500
EUR: 35,54%

<= 100.000 EUR:
20,40%

> 100.000 EUR:
29,58%

<= 100.000 EUR:
20,00%

> 100.000 EUR:
25,00%


Distinct taxation if director’s taxable salary is lower than 45.000 EUR

If companies do not pay a (taxable) salary of minimum 45.000 EUR to at least one director, or a salary that is equal to or higher than the taxable profit for the year, will be subject to a distinct taxation of 5,10% for 2018 and 2019 (including crisis tax) and 10% for 2020. The distinct taxation is calculated on the positive difference between the minimum required salary of 45.000 EUR and the director’s salary paid by the company.

This measure does not apply to starting SME’s during the first 4 years after foundation of the company.

For affiliated companies (companies part of a group according to the law) in which more than 50% of the directors are the same persons in each of the companies, the minimum salary has to amount to 75.000 EUR at group level. Where the group exception applies, the distinct tax is due by the company with the highest taxable profit.
 

Advance tax payments

Companies have to pay a penalty in absence or in case of insufficient tax prepayments. The rate of tax increase was fairly low during the recent years, which resulted into an unpopular system of tax prepayments amongst companies, and disappointing income for the government.

The average rate of tax increase is now set to 6,75%, by which companies are encouraged to make advance tax payments.

In case of timely and sufficient tax prepayments, a company can avoid the tax increase. The amount of the calculated tax increase, will be reduced with the total amounts of benefits related to the executed tax prepayments, as based on following scheme (for companies with an accounting year that ends on 31 December):
 

Prepayment Executed before Benfit
Prepayment 1 10 April 2018 9,00%
Prepayment 2 10 July 2018 7,50%
Prepayment 3 10 October 2018 6,00%
Prepayment 4 20 December 2018 4,50%


An example: the estimated company taxes amount to 50.000 EUR for accounting year 2018. In absence of tax prepayments, the total company taxes to pay will amount to 50.000 EUR x 1,0675 = 53.375 EUR. So, the amount of tax increase is 53.375 EUR - 50.000 EUR = 3.375 EUR. By making an advance payment of 25.000 EUR before 10 April 2018, the company will save 2.250 EUR (25.000 EUR x 9,00%). An additional prepayment of 15.000 EUR before 10 July 2018 will wipe out the effect of tax increase, as it gives the company a benefit of 1.125 EUR (15.000 EUR x 7,50%) – after receipt of the tax bill, the company will still have to pay the balance of 10.000 EUR (50.000 EUR - 25.000 EUR - 15.000 EUR).
 

Allowance for high risk equity

The allowance for high risk equity will be calculated on the incremental equity over a period of five years and no longer on a company’s total qualifying equity. The incremental equity is equal to one fifth of the positive difference between the equity at the end of the taxable period and the equity at the end of the fifth previous taxable period.

The annual amount of allowance for high risk equity is zero for a taxable period during which the company did not yet exist. Practically, a company cannot benefit from the allowance for high risk equity for the first four years after its foundation.

Anyhow, the carat tax regime does not allow a company to deduct the allowance for high risk equity below the minimum floor of 0,55% on the turnover.
 

Capital gains on shares

The tax exemption on capital gains will depend on a taxation condition, on the duration of the ownership of the shares and, this is new, on a participation threshold. First of all, the shares must be held in companies based in countries with a normal tax regime. The shares must be also held for an uninterrupted period of minimum one year. Finally, the company must hold a minimum participation of 10% or at least 2,5 million EUR – previously this rule did not apply.
 

Late filing or non-filing of income tax return

In case of late filing or non-filing of the income tax return, a company will be taxed on a minimum taxable profit of 34.000 EUR instead of 19.000 EUR. This threshold will increased with 25% to 200% for recurring infractions to the law.
 

Deductibility of car expenses for one-man businesses

Henceforth the deductibility of car expenses for a one-man business will depend on the CO2-emmission of a car, instead of 75% by standard. An exception to this rule is applicable to car expenses for cars that were purchased before 1 January 2018. Such car expenses will be deductible for minimum 75%.

Realized gains on the sales of a car will be taxed following the same ideology.