Federal Public Service Finance

UNIQUE TAX INCENTIVESin BELGIUM

2011

Fiscal Department for Foreign Investments

Albert WOLFS

Effective (Average) Corporate Tax Rate (ECTR) 2009*

Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU CommissionProject : Taxud/2008/CC/099, Mannheim and Oxford, October 2009

*(based on asset and source of finance) Especially in Belgium, the ECTR is considerably below statutory tax rates (-9,3%)

2

Effective (Average) Corporate Tax Rate (ECTR) 2009*

Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU CommissionProject : Taxud/2008/CC/099), Mannheim and Oxford, October 2009

*(based on asset and source of finance) Especially in Belgium, the ECTR is considerably below statutory tax rates (-9,3%)

3

www.invest.belgium.be

1. Notional Interest Deduction

2. Tax Ruling

3. Unique tax features for R & D

4. Dividend withholding tax exemption

5. Holding regime

6. Expatriate status

7. Other tax incentives

INVEST IN BELGIUMINVEST IN BELGIUM

What is it?

A notional interest calculated and deducted yearly from the taxable basis

used to off-set operational or financial income (thus lowering effective tax rate)

1. Notional Interest Deduction

Who?

Companies subjected to

- Corporate tax - Non-residents / Corporate Tax

1. Notional Interest Deduction

How does it work ?

Annual Tax DeductionAnnual Tax Deduction==

EQUITY X RATE (OLO 10 years)EQUITY X RATE (OLO 10 years)

1. Notional Interest Deduction

EXAMPLE 1:

(Return on Equity: 4%)

Assets Liabilities

Group Financing10,000

Share Capital10.000

P&L Account Before N.I.D. After N.I.D

Profit before tax 400 400

N.I.D. (3,425%) / - 342,5

Taxable 400 57,5

Corporate Tax (33,99 %) 135,96 19,5

Effective Tax Rate 33,99 % 4,89%

1. Notional Interest Deduction

EXAMPLE 2:

Net Result(Return on Equity)

Effective Tax Rate

≤ 3,425 % 0 %

4 % (Previous slide) 4,89 %

5 % 10,71 %

8 % 19,44 %

Assets Liabilities

Business Assets10,000

Share Capital10.000

1. Notional Interest Deduction

EXAMPLE 3: (For SME’s)

(Return on Equity: 6%)

P&L Account Before N.I.D. After N.I.D.

Profit before tax 600 600

N.I.D. (3,925%) / - 392,5

Taxable 600 207,5

Corporate tax (24,98%) 149,88 70,53

Effective Tax Rate 24,98 % 11,75 %

Assets Liabilities

Business Assets10,000

Share Capital10.000

1. Notional Interest Deduction

« Qualifying » equity

Equity = total equity as defined under Belgian GAAP

(includes retained earnings)

in the opening balance sheet of the taxable period

“adjusted” to avoid double use and abuse.

1. Notional Interest Deduction

Interest Rate RATE = annual average of the monthly published

rates of the long term Belgian Government Bonds (10-year OLO)

Fixed yearly for 2011 (Tax Year 2012) : 3,425 %

1. Notional Interest Deduction

Interest Rate (for SME’s)

for 2010 (Tax Year 2011) :

+ 0,5 % 3,925 %

1. Notional Interest Deduction

Other particularities

Permanent measure Carry forward of 7 years No ruling nor agreement is needed Suppression of the 0,5% capital duty as of

1/1/2006 EU compliant

1. Notional Interest Deduction

OPPORTUNITIES It’s a valuable tool for further development of Coordination Centre

activities

Opens possibilities for international groups of allocating new activities to a Belgian entity such as intra-group financing, central procurement or factoring

1. Notional Interest Deduction

THUS: increases attractiveness of Belgium for capital intensive companies, equity funded headquarters and treasury centers.

ForeignCo

BelCo

Bank Loan

Capital injection 200

Loan 200 Interest 10

Interests received : 10

N.I.D. : -6,85 (200 x 3,425%)

Income : 3,15

Corp. tax = 3,15 X 33,99% = 1,07

Effective tax rate : 10,7%

1. Notional Interest Deduction

Advanced decisions or ruling is about creating CONFIDENCECONFIDENCE to invest in Belgium;

The investor describes the facts, allowing the tax administration to determine, in advance, how the tax laws are to be applied on a CASE BY CASE CASE BY CASE BASISBASIS

It ensures a LEGALLY BINDING ACCURATE FORECAST of all the tax implications of your investment project

2. Tax Ruling

2. Tax Ruling

Unlimited application field for ruling:

Transfer pricing Business Restructuring Deductible expenses Financing Branches Bonded warehouses, etc.

Characteristics of the Belgian ruling

Ruling on all kind of taxes (Corporate, Personal, VAT,..)

Case-by-case ruling in a new open culture Legal certainty for investors In accordance with international rules Open to potential AND existing investors Legally binding for a 5 year renewable period Economic “substance” required

2. Tax Ruling

Belgian DISTRIBUTION Centre Belgian SERVICES Centre

Operational Companies

OperationalCompanies

PARENT COMPANY e.g. USA / UK / Japan …

* OECD accepted norm: arm’s length standard

2. Tax Ruling

Cost plus % case-by-case ruling

* + Notional Interest Deduction = double limitation of taxable basis

European Distribution Centre Income approved by the ruling Commission (ex. 105% of operational exp.) mark up 5% on operational expenses

Expenses

Transport (27.000 €)

Warehousing (27.000 €)

Staff (46.000 €)

Income

Interco Reinvoicing

European Distribution

Centre

100.000 € 105 % X 100.000 € = 105.000 €

Income 105.000 €

Expenses - 100.000 €

profit 5.000 €

Corporate tax rate 33,99 %

Corporate tax 1.700 €

European Distribution Centre Income approved by the ruling Commission (ex. 105% of operational exp.) mark up 5% on operational expenses with N.I.D. (ex: Equity 100.000 €)

Expenses

Transport (27.000 €)

Warehousing (27.000 €)

Staff (46.000 €)

Income

Interco Reinvoicing

European Distribution

Centre100.000 € 105 % X 100.000 € = 105.000 €

Income 105.000 €

Expenses - 100.000 €

Profit 5.000 €

Notional Interest Deduction -3.425 €

Taxable basis 1.575 €

Corp.tax rate: 33,99 %

Corporate tax 535 €

1/ Patent income deduction

What is it ?

Deduction of 80% of the income from patents from the taxable basis, resulting in an effective tax rate of maximum 6,8% on this income

Who can benefit ?

Belgian companies and Belgian establishments of foreign companies

3. Unique tax features for R & D

1/ Patent income deduction

Example Patent income: 100 Deduction: (80)

Taxable basis: 20 Corporate Tax (33,99%) (6,8) Net income after tax: 93,2

Effective Tax rate: 6,8 %

3. Unique tax features for R & D

1/ Patent income deduction

Patents concerned

self-developed by a Belgian company or branch in R&D centers (*) in Belgium or abroad;

acquired by a Belgian company or branch provided they are being further developed in R&D centers (*) in Belgium or abroad (by acquisition, or license,…)

(*) R&D center must qualify as branch of activity

3. Unique tax features for R & D

1/ Patent Income Deduction Calculation of the deduction

For patents that are licensed: 80% of the patent income received, to the extend the income is at arm’s length

For patents that are used in the production process: deemed deduction of 80% of the at arm’s length royalty that would have been received had the patents been licensed to unrelated third parties

3. Unique tax features for R & D

1/ Patent Income Deduction

Applies to variable income streams, fixed income streams, as well as upfront fees, milestones, etc.

Other intellectual property rights (copyrights, know-how, designs, trademarks, etc.) do not qualify.

3. Unique tax features for R & D

1/ Patent Income Deduction

Anti-abuse provision in order to avoid double deduction of certain costs, in the case of patents acquired by the company;

no carry forward or carry back;

compliant with EU rules;

formalities: an enclosure to join to the tax return;

applicable to new patent income as from Tax Year 2008 (financial year ending on or after December 31, 2007).

Particularities

3. Unique tax features for R & D

1/ Patent Income Deduction

Very low effective tax rate of maximum 6,8% and absence of any capping rules;

Tax deduction in addition to normal tax-deductibility of R&D related expenses;

Investment deduction for R&D related investments and patents;

Can be combined with Notional Interest Deduction for invested equity, etc.

Highly competitive measure

3. Unique tax features for R & D

2/ Investment deduction for R&D related investments and patents

Investment deduction for R&D related investments:for assets which aim to promote R&D of new products and advanced technologies which are environment-friendly : deduction of 13,5% on the investment value (in one shot)

or 20,5% on the annual depreciation (spread deduction)

Investment deduction in patentsacquired or self-developed by the company deduction of 13,5% on the investment value

NB: In case of insufficient profits, deduction carried forward for an unlimited period .

3. Unique tax features for R & D

3/ 75% exemption from withholding tax on the remunerations of researchers, in favour of employers

Principle: the salary withholding tax is normally retained

on the remunerations paid to the researcher, but the amount of tax so retained must not be totally

paid to the Revenue Collector (= extra financial means for the employer)

For researchers with a specific degree, engaged in R&D program

3. Unique tax features for R & D

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ExampleManufacturing company with a R&D division:

Share capital: 10.000 (of which 2.000 = contributed patent value)

Return on equity: 12% Net profit: 1200

(of which 300 = patent income ; 900 = product revenue)

To deduct Invest. ded. on patents: 13,5% x 2.000 = 270 Patent Income Ded.: 80% x 300 = 240 N.I.D. 3,425% x 10.000 = 342 Taxable basis: 348

Corporate Tax: (348 x 33,99%) = 118,28 Effective tax rate: 9,85%

4. Dividend withholding tax exemption

Conditions to benefit

be resident in a country with which Belgium has concluded a double tax treaty;

the beneficiary holds a participation of at least 10% in a Belgian subsidiary, for an uninterrupted period of at least 12 months = low participation threshold;

4. Dividend withholding tax exemption

Parent company(treaty partner of Belgium)

Belgian Subsidiary

• No WHT

• No LOB

• 10% shareholding

• 12 months

Participation exemption dividends received : deduction of 95%

Deductibility of interest paid to acquire shares

No capital duty

Exemption of realized capital gains on shares

5. Holding regime

For foreign executives and managers temporarily detached in Belgium : Tax free expatriate allowance (cost of living, cost of housing, tax

equalization) operational entity: 11.250 € / an HQ or R&D centre: 29.750 € / an

Reimbursement of mainly non-repetitive expenses (installation costs, moving expenses, school fees) unlimited amount tax free

« Travel exclusion »:workdays performed outside Belgium tax free in Belgium

6. Expatriate status

6. Expatriate status

For employers:

No tax, no social security contributions on expatriate allowances and reimbursement of expenses

Deductible from Corporate tax

VAT fiscal unity

Bonded warehouses and VAT deferal

European pension funds

Tax shelter for audiovisual sector

Etc.,…

7. Other incentives

Federal Public Service Finance Fiscal Department for Foreign InvestmentsRue de la Loi, 24 (Parliament Corner)1000 Brussels - BELGIUM

Albert WOLFS

Email: albert.wolfs@minfin.fed.be Tel.: +32 257 938 67Fax: +32 257 951 12

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INVEST IN BELGIUM – increase your profitsINVEST IN BELGIUM – increase your profits