15 June 2015

Following the increase of the withholding tax rate on liquidation boni to 25% and protests from many independent/self-employed workers, (transitional) measures were rapidly implemented to still enable liquidation at the rate of 10%. However, a time void remained between the different (transitional) measures, which soon led the legislator to introduce a new transitional measure, with retroactive effect, for the profit pertaining to assessment years 2013 and 2014.

A brief recapitulation to start with:

  • Pursuant to the Programme Act of 28 June 2013, the withholding tax ("WHT") rate applicable to liquidation boni increased from 10% to 25% as from 1 October 2014. Concurrently, a transitional regime was put in place, in order to enable taxpayers to keep the benefit of applying a rate of 10% to liquidation boni previously built up and approved by the GM on 31 March at the latest, provided that a series of conditions were met. Among the requirements was a mandatory waiting period of four years (for SMEs) or eight years (for other companies).
  • Later, the Programme Act of 28 December 2014 reintroduced the possibility, solely for SMEs – aside from the existing VVPRbis regime – to benefit from the 15% WHT rate applicable to dividend distributions on the one hand, and the reduced rate of 10% on liquidation boni (the "liquidation reserve"), on the other hand, as from assessment year 2015. As opposed to the previous system, the assessment is henceforth levied on an upfront basis (cf. Eubelius Spotlights March 2015).

The next Programme Act (the draft act was submitted to Parliament on 1 June 2015) will "retroactively extend" the benefit of the system of liquidation reserves to assessment years 2013 and 2014. This entails that SMEs as defined by article 15 of the Companies Code will also be able to build up a liquidation reserve for those specific assessment years (special liquidation reserve), subject to the payment of the 10% upfront levy.

The legislator's intention is expressly set forth in the draft explanatory memorandum and aims at filling the time void between the two regimes by introducing a transitional measure which has retroactive effect, as it pertains to profit after tax (recorded code 9905 Belgian GAAP) corresponding to assessment years 2013 and 2014.

Besides a series of specific conditions, the statutory conditions applying to the "ordinary" liquidation reserve will apply as well.

The tables below give an overview of the coverage in time of the new transitional measure, in comparison with other regimes enabling the 10% upfront levy on the taxed reserves in case of subsequent liquidation, it being understood that companies wishing to apply the new transitional provision will have to have qualified as an SME for assessment years 2013 and 2014.

Furthermore, and besides a whole series of formalities, draft article 541 ITC92 also provides that:

  • The latest date for payment of the upfront levy is 30 November 2015 for assessment year 2013, and 30 November 2016 for assessment year 2014. As for the final deadline for building up a special liquidation reserve, this is set at the last day of the financial year in which the levy was paid. 
  • As for the maximum amount that can be allocated to the liquidation reserves the draft article provides for a double limitation, providing that (i) this amount cannot exceed the amount of the profit recorded at that time under code 9905 of the relevant financial year, and (ii) this amount is also limited to the amount "that is still recorded in a reserve at the beginning of the financial year during which the special upfront levy was paid".