On 10 August 2018, the act containing various provisions concerning income tax was published. This "Repair Act" remedies the corporate income tax reform, which was rushed through Parliament at the end of last year with all hands on deck and was in need of some improvement in several areas. Here we focus on the amendments relevant to Regulated Real Estate Companies (BE-REITs) and Specialised Real Estate Investment Funds (REIFs), and on the amendments to the mandatory annual minimum remuneration of management. Finally, we give an overview of the other measures.
Impact for BE-REITs/REIFs
First, the Repair Act remedies an unwanted side effect of the implementation of the interest deduction limitation rule from the Anti Tax Avoidance Directive (ATAD). The technical implementation of the interest deduction limitation rule resulted in the possible taxation of BE-REITs/BE-REIFs on part of the interest they pay. The Repair Act now clarifies that the excess borrowing costs ("financieringskostensurplus" / "surcoûts d'emprunt") are not part of the taxable base of a BE-REIT/BE-REIF (and the other investment companies falling within the scope of article 185bis ITC 92).
Furthermore, the Repair Act re-implements the changes to the rate of the exit tax to amend the entry into force thereof. The exit tax is due upon (i) recognition as a BE-REIT/BE-REIF, (ii) corporate restructuring in which a BE-REIT/BE-REIF is involved, and (iii) the contribution of real estate into a BE REIT/BE-REIF. The entry into force is amended in order to also allow transactions during assessment year 2018 to benefit from the reduced rate of 12.50% (to be increased with the applicable complementary crisis contribution). The 12.50% rate is applicable to transactions carried out as from 1 January 2018. The 15% rate enters into force on 1 January 2020 and is applicable to transactions carried out from that date onwards.
Minimum managers' remuneration
Starting this year, each company has to pay minimum annual remuneration of EUR 45,000 (previously EUR 36,000) to at least one of its managers. If no remuneration or insufficient remuneration is paid, the company will be subject to a separate tax at a rate of 5%. This minimum remuneration is also a condition for the application of the reduced tax rate for small companies (SMEs).
For the purpose of the minimum remuneration requirement, everything the manager receives from the company is taken into consideration (the "attraction principle"). If the manager is also an employee of the same company, his wage is also taken into account in assessing whether the minimum remuneration requirement has been met. Before the summer, the Minister of Finance had already confirmed that this is also the case if the manager carries out his mandate free of charge (Parliamentary Question no. 25970 from Mr Piedboeuf on 20 June 2018).
For companies that only have limited taxable income, the minimum remuneration must be equal to or higher than the amount of the company's taxable income (and not equal to the accounting result for the taxable period, as originally provided for).
The taxable base of the separate tax is equal to the positive difference between the minimum amount (EUR 45,000) and the highest remuneration attributed by the company to one of its managers. The Repair Act now clarifies that if the company only has limited taxable income, the minimum amount is replaced by the lower remuneration (see above).
As regards affiliated companies, the minimum remuneration is increased, under certain conditions, to EUR 75,000. In this respect, the Repair Act clarifies that the separate tax is owed by the company which has declared the highest amount of taxable income (and not by the company with the highest taxable result, as originally provided for).
Please note that the original text was unclear about whether the above-mentioned obligation was also applicable to companies which do not have any private individuals among their managers. The Repair Act now clarifies that the obligation also applies to these companies. Therefore, companies without individual managers, which simply cannot pay any managers' remuneration, (i) will not be able to enjoy the reduced SME rate and (ii) will automatically be subject to the separate tax at a rate of 5%.
Finally, the Repair Act cancels the increase in the rate of the separate tax to 10% which was initially planned for assessment year 2021. The 5% rate will thus be maintained.
The above-mentioned amendments entered into force on 20 August 2018, ten days after their publication in the Belgian Official Gazette.
Besides the measures described above, the Repair Act contains several other adjustments and clarifications.
These are the most important measures:
- The exemption for dividends received from shares is increased to EUR 800 as of income year 2019.
- The increased deduction of 120% for certain security costs and to encourage the use of a bicycle for commuting is abolished as of assessment year 2021.
- The reformed notional interest deduction is amended in certain respects. The calculation base is modified, and an anti-avoidance provision is inserted to avoid "double dip" situations.
- The entry into force of the transfer of Dividends Received Deduction carried forward on a pro rata basis is amended. The measure applies to transactions carried out as of 1 January 2018.
- The Fairness Tax is now also formally abolished.
- The above-mentioned separate tax for insufficient managers' remuneration is now also applicable in the non-residents tax regime.
- Several technical improvements have been made to the CFC rules, the exit taxation, the interest deduction limitation rule and the group contribution system. Please note that during the discussion of the budgetary agreement it was announced that the entry into force of the interest deduction limitation rule would be brought forward by one year. The interest deduction limitation rule should thus already be applied in 2019.
Finally, we would like to point out that the Minister of Finance announced another important tax measure during the discussion of the budgetary agreement: a tax reporting obligation is to be introduced for stock options granted as from 1 January 2018 by a foreign group company to employees of a Belgian subsidiary (e.g. restricted stock units).