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Dividends 100% exempt for Belgian parent companies

 
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Dividends 100% exempt for Belgian parent companies

Patricia Stas, Frédéric Lettany

The federal government announced that the corporate tax reform will include an additional change. In particular, dividends received by Belgian parent companies from subsidiaries will be 100% exempt, provided of course that the conditions for the dividends received deduction (DRD) are fulfilled.

 

At present, this exemption amounts to 95%, which means that companies are in fact subject to a taxation of 1.7% on dividends received (33.99% corporate tax on the 5% that is not exempt).

 

The conditions to benefit from the DRD can be summarised as follows:

  • The company distributing the dividends must be a normally taxed company (“taxation condition”);

  • The receiving company must have had full ownership of the shares for a continuous period of at least 1 year;

  • The receiving company must have a minimum participation of 10% or it must represent an acquisition value of 2.5 million euro.

 

With the intended change, the government aims to make Belgium more attractive to British and other companies looking to relocate. The full exemption is certainly needed to remain competitive, since several neighbouring countries already grant this for some time.

 

However, it is questionable whether this exemption and the reduction in the corporate income tax rate will be sufficient to compensate for the other “unattractive” measures in the “Summer Agreement”. For more detailed information about these measures we refer to our previous newsletter regarding the corporate tax reform.

 

In any case, for Belgian companies with one or more participations in other companies, it will be all the more important to acquire a minimum participation of 10% (or a participation that represents an acquisition value of 2.5 million euro). For both dividends and capital gains on shares, this makes the difference between a full exemption or a taxation as profit (at the normal corporate tax rate). The Summer Agreement indeed stipulates that the above-mentioned DRD-conditions will also apply to the capital gain exemption on shares.