Belgium Increases Minimum Corporate Income Tax

Just after the EU has reached an agreement on an international minimum corporate income tax, the Belgian parliament approved its own Belgian minimum tax. This is done through a change to the "basket" in the corporate income tax, which limits the deduction of losses carried forward and other deductions. the new scheme will not be long-lived.

For a few years now, the deduction of certain deductions that are carried forward (losses from past tax years, dividend received deduction, notional interest deduction...) has been limited to 70% in the bracket above €1 million (Article 207, paragraph 5 ITC 1992). This has been labelled the "basket". As a result, part of company’s profit becomes taxable resulting in a minimum corporate income tax.

If a company has a taxable profit of €2 million, and losses carried forward of €2.5 million, it can only deduct €1.7 million and it pays tax on €0.3 million. At a corporate income tax rate of 25%, this is an effective tax rate of 7.5% (25% of (1-70%)) on every euro over € 1 million.

This does not mean that the remainder of the tax losses are lost; they are just carried forward to later years. The limitation of the deduction basically only has a cash-flow effect.

70% becomes 40%

The Omnibus Act of 26 December 2022 is tightening that regime, temporarily, by reducing the 70% to 40%.

From next year, the company will only be able to deduct €1.4 million and will pay tax on €0.6 million. This results in an effective tax rate of 15% (25% of (1-40%)) on every euro over € 1 million.

The new "basket" will apply from tax year 2024 (unless the taxable period starts before 1 January 2023) but will therefore, if everything goes according to plan at EU level, already become inoperative from tax year 2025 (unless the taxable period starts before 1 January 2024). Incidentally, the tightening of the "basket" was conceived from the outset as an interim measure, pending the realisation of the OECD initiative.

The EU minimum corporate income tax

That 15% is no coincidence.

In early December the EU Council agreed to impose a minimum tax of 15% for multinationals. This comes after the proposals by the OECD and the G20. An agreement was unexpectedly reached after Hungary gave up its opposition. All EU Member States will introduce that minimum tax as of from 2024.