Tax alert: New Belgian federal government agreement

Nearly eight months after the elections, the political parties of the “Arizona coalition” have reached an agreement and formed a new federal government. The government agreement (Agreement) provides an overview of intended tax policy and announces a wide range of tax measures that will affect businesses, individuals, and various sectors. But detailed (proposed) legislation is still to follow in the following weeks and months.

Below, we set out an overview of the most significant tax measures. Although the Agreement sets 2026 as the target for implementing all measures, the exact date of implementation and possible transitional measures are still uncertain. Furthermore, substantial disparities exist between Dutch and French versions of the Agreement. For the overview below, we have relied on the Dutch version as political sources confirmed that this should be the leading text.

 

General corporate income tax measures

 

PARTICIPATION EXEMPTION REGIME

The Agreement introduces reforms to the participation exemption regime, which currently operates as a tax deduction (known as the “dividends received deduction” or DRD). To align with EU legislation, the deduction will be replaced with a direct exemption (primarily a technical adjustment via the increase of the starting position of taxable reserves in the tax return). This implies that if the exempt income exceeds the taxable profit of a company, future tax losses will usually be carried forward instead of the existing DRD carried forward.

Today, the participation exemption for dividends and capital gains requires either a participation of 10% or a participation EUR 2.5 million acquisition value. For large companies, the minimum participation threshold will increase from EUR 2.5 million to EUR 4 million, and the participation will need to be classified as a financial fixed asset to qualify for the exemption. The current alternative threshold of a minimum participation of 10% remains unchanged (meaning that no classification as financial fixed asset is required). This restriction won’t apply to SMEs and medium-sized companies as defined in article 2, §1, 4°/1 Belgian Income Tax Code.

GROUP CONTRIBUTION REGIME

The Agreement specifies that the current group contribution regime will be rendered more flexible. Under this regime, Belgian companies can transfer taxable profits to other Belgian group entities and set the transferred amounts off against current year losses at the level of the transferees, resulting in a form of tax consolidation in Belgium. But strict conditions apply, such as a 90% direct minimum participation and a five-year waiting period. 

The Agreement aims to make the current regime more attractive by making indirect and newly acquired participations eligible for the group contribution.

EMIGRATION OF LEGAL ENTITIES

The Agreement stipulates that the emigration of legal entities will be treated as a deemed liquidation, resulting in practice in extended exit tax exposure. Belgian companies are already deemed liquidated upon emigration, though this only applies for corporate income tax purposes and subject to exceptions and mitigation rules (eg exit taxation spread over five years for intra-European emigrations). Previous versions of the Agreement specifically referred to the application of withholding tax, suggesting that the tax fiction would be extended to shareholders. However, this reference has disappeared in the final version, leaving uncertainty about the intended changes, especially since the text only refers to the broader concept “legal entities”, which can mean nonprofit organisations.

DIGI TAX

In accordance with the Pillar One initiative of the OECD, the new government confirms the introduction of a “digi tax,” ensuring that large digital multinationals are taxed even if they don’t have a physical presence in Belgium. In the absence of an international or European agreement, Belgium will unilaterally implement a digi tax at the latest in 2027. However, the design of the digi tax remains uncertain at international level, especially given President Trump’s recently announced policy to scrutinize tax initiatives of non-US countries that appear to target US multinationals.

SIMPLIFIED TAX RULES AND TAX COMPLIANCE OBLIGATIONS

The new government aims to simplify complex tax rules and tax compliance obligations, such as the administrative burden with regard to the deduction limitation for company cars, transfer pricing obligations for SMEs and medium-sized companies, and the patchwork of different withholding tax exemptions.

COMPANY CARS

The exemption for capital gains on company cars will be abolished. The transition to fully electrified vehicles will be facilitated by implementing an extended transition period.

OTHER NEW MEASURES TO ENCOURAGE INVESTMENT

The Agreement aims to introduce several new measures and amend existing measures to incentivize entrepreneurship and encourage new investments, such as: 

• Making the investment deduction regime more flexible, by amongst others allowing the unlimited transferability of the investment deduction for all types of investment. The requirement of a regional certificate for R&D investments will be abolished. In order to enhance legal certainty for the taxpayer, companies will have the possibility to be recognised as research centres and a covenant will be drawn up between the competent federal R&D administration and the tax administration. Additionally, the green investment deduction will be simplified and made more accessible, in particular for investments regarding the energy transition. The rates for the increased “thematic” investment deduction (energy, mobility, environment) will be harmonised at 40%.
• Harmonizing the tax reductions for startups and scaleups.
• Abolishing restrictions for certain equity investments by specific investors such as pension funds and insurance companies.
• Introducing accelerated depreciation for certain categories of investments, such as investments in R&D, defence and the energy transition. Large enterprises will benefit from a temporary measure to depreciate 40% of the acquisition value in the first year.
• Reintroducing degressive depreciation for SMEs.

 

Measures related to investment income

 

CAPITAL GAINS TAX

The Agreement introduces a general “solidarity contribution,” which represents a capital gains tax of 10% on future capital gains from financial assets, including shares and crypto assets. Only capital gains accumulated after the implementation of the solidarity contribution will be targeted.

Capital losses will be deductible in the same year but cannot be carried forward. This departure from taxation of net capital gains will incite taxpayers to plan the realization of capital gains and losses.

To protect small investors, a tax-exempt de minimis threshold of EUR 10,000 will apply, with the amount to be indexed annually.

For investors realizing a capital gain on a substantial participation of at least 20% in a company, the following progressive rates will apply for realized capital gains:

• < EUR1 million: exempt
• EUR1 million – EUR2.5 million: 1.25%
• 2.5 million – EUR5 million: 2,5 %
• EUR5 million – EUR10 million: 5%
• > EUR10 million: 10%

The Agreement suggests that an investor with a participation below 20% in a company will be taxed at the 10% rate on any capital gain realized above the exemption threshold of EUR 10,000. But a Belgian newspaper reported that political disagreement exists around this question, as some political parties consider that a capital gain on a substantial participation of less than 20% should be able to benefit from the progressive rates (although without exemption for the capital gains up to EUR 1 million). 

The specific implementation date of the capital gains tax is still to be determined. For ongoing investments, this date will be an important cut-off because latent capital gains built-up beforehand should not be subject to the new capital gains tax. Taxpayers should be mindful that they will have to make a valuation of their financial assets, to substantiate the exempt capital gains related to the period before the implementation date of the solidarity contribution vs. the taxable capital gains built-up after that date.

The Agreement doesn’t clarify how the solidarity contribution will interact with the existing rule according to which capital gains on financial assets can be taxed at a 33% rate when they don’t result from the normal management of private wealth. In the absence of any statements to the contrary, it must be assumed that the existing rule will continue to apply, meaning that historic uncertainties around the interpretation of the notion “normal management of private wealth” will remain. We will need to see how existing discussions around the treatment of excess cash in the event of a share deal or potential reinvestment conditions to justify the exemption of capital gains on shares will be affected by these new rules.

DRD INVESTMENT FUNDS

Investments in “DRD investment funds” will attract a final 30% withholding tax on distributions unless the investor company grants a minimum director’s remuneration of EUR50,000 (indexed annually) during the income year of distribution. Additionally, a 5% capital gains tax will apply upon exit in any event. 

PRIVATE PRIVAKS/PRICAFS PRIVÉES

While the government won’t fundamentally reform the tax regime for other investment companies, it will relax regulations for “private privaks/pricafs privées,” addressing long-standing industry demands. The agreement acknowledges key issues such as the limited duration of such funds, the minimum number of shareholders, and the permitted investment universe. However, the tax reduction for capital losses incurred upon the liquidation of a “private privak/pricaf privée” will be abolished.

Belgium also commits to the European industrial and financial strategy to strengthen the European capital markets and will take measures to incentivize venture capital.

TAX REGIME FOR CARRIED INTEREST

The Agreement will introduce a specific tax regime for carried interest received in the form of movable income, eliminating the uncertainty that fund managers previously faced. To date, carried interest income in the form of a dividend is often treated as passive investment income, leading to the application of the standard withholding tax rate of 30%, or in some cases a reduced rate of 15% (VVPRbis). However, it’s not uncommon for the Belgian tax authorities to allege that the carried interest constitutes professional income, taxable at progressive rates of up to 50%. Going forward, a maximum rate of 30% will apply.

It's unclear to what extent the new regime will address the treatment of carried interest income structured as capital gains on shares. The tax authorities typically deny the application of the exemption for "normal management of private wealth" and apply tax at a rate of 33%. Or in limited cases they even seek to apply taxation as professional income at progressive rates.

ANNUAL TAX ON SECURITIES ACCOUNTS

The annual tax on securities accounts will remain at 0.15% for accounts exceeding EUR1 million, despite earlier proposals to increase it to 0.25%. The Arizona government will instead focus on addressing tax avoidance by strengthening enforcement measures.

TAX ON STOCK-EXCHANGE TRANSACTIONS

The Agreement is vague regarding the tax on stock-exchange transactions. The current regime will be “modernized and simplified,” through several targeted adjustments to solve “known issues” and to create a level playing field across different types of investments.

 

Personal income tax measures

 

The new government intends to introduce several measures affecting the tax regime for Belgian resident individuals. 

REDUCED TAX ON EMPLOYMENT INCOME

A common denominator of all coalition members was the ambition to lower taxation on employment income. The new government will aim to achieve this by increasing the tax-free allowance and reducing the special social security contribution. The exact amended amounts are yet to be determined, but the government is striving to create a difference in net-salary of at least EUR500 between working and non-working individuals.

EXPAT REGIME

To attract highly qualified profiles, the expat regime will be improved. The minimum gross annual salary will be reduced from EUR 75,000 to EUR 70,000. The tax-exempt reimbursement of expenses proper to the employer will be increased to 35% of the employee's gross salary and the annual amount will no longer be capped at EUR 90,000.

RETIREES

Retirees who continue to work after a full career of 45 years or after reaching statutory retirement age, will merely be subject to a final withholding tax of 33%, unless the retiree is already subject to a more favourable tax rate today.

STUDENT WORK

The maximum amount of student work income will be increased to EUR12,000. The limit for student work will be permanently increased to 650 hours.

MATRIMONIAL QUOTIENT

The “matrimonial quotient” will be halved for non-pensioners by 2029. For retirees, the regime will be phased-out.

TAX DEDUCTIONS FOR CHILDCARE

Tax deductions for childcare will be increased for professionally active individuals, while those for alimony payments will decrease from 80% to 50%. Alimony payments made to states outside the EEA will no longer be deductible.

MOBILITY BUDGET

The mobility budget will be reformed and will reflect the actual underlying value of the transportation means.

MEAL VOUCHERS

The face value of meal vouchers will be increased (twice by EUR 2 during the legislature) and its scope will be extended. The tax deductibility of these corresponding costs will also increase. All other vouchers (eg eco vouchers, culture vouchers) will gradually be abolished.

OTHER DEDUCTIONS, EXCEPTIONS AND EXEMPTIONS

Several smaller deductions, exceptions and exemptions in the personal income tax regime (eg tax reductions for home personnel, legal assistance, gifts) will be abolished or decreased as part of an overall tax simplification exercise.

 

Taxation of directors, personal service companies and self-employed individuals

 

LIQUIDATION RESERVE REGIME

Today, dividends are generally subject to 30% withholding tax, but reductions to 15% (VVPRbis regime) or up to 13.64% (liquidation reserve regime) are available to SMEs. The Agreement aims to harmonize the liquidation reserve with the VVPRbis regime. Accordingly, the waiting period for making distributions under the liquidation reserve will be adjusted from 5 to 3 years, while the effective withholding tax rate will be increased from 13,64% to 15%. Any distributions made before the end of the 3-year waiting period, will be taxed at the ordinary withholding tax rate of 30%.

MINIMUM REMUNERATION FOR COMPANY DIRECTORS

The minimum remuneration for company directors, to allow their personal service company to benefit from the reduced CIT rate of 20% on the first bracket of EUR 100,000 profits, will be increased from EUR45,000 to EUR50,000 (indexed annually). Benefits in kind will only be taken into account for these purposes up to a maximum of 20% of the annual gross salary of the director. This may constitute a significant change for some PSCs, as there was no such limitation on benefits in kind in place today.

SELF-EMPLOYED INDIVIDUALS

For self-employed individuals, the new government will introduce a specific deduction for a first bracket of profits or gains (after offsetting tax losses and professional expenses). Insufficient prepayments will no longer result in a tax increase from 2026 onwards. An additional period for making prepayments will also be introduced.

VAT FORMALITIES

Certain VAT formalities will be abolished (eg daily receipt book, nihil VAT reporting), others will be either abolished, reviewed or simplified (eg various vat registers).

PENSION SCHEMES FOR THE SELF-EMPLOYED

Pension schemes for self-employed persons will be harmonized and simplified.

 

Rebalancing the relationship between the tax administration and the taxpayer

 

Under the previous government, various measures resulted in increased tensions between taxpayers, tax practitioners and the tax administration. The Agreement now outlines a number of measures to increase tax certainty for taxpayers and rebalance the relation between taxpayers and the tax administration.

TAX AUDIT AND ASSESSMENT PERIODS

After the previous government extended certain tax audit and assessment periods (from assessment year 2023 onwards), the Arizona government will now partially reverse these changes. The standard audit and assessment period will be shortened back to three years, while for complex and semi-complex tax returns it will be lowered to four years (from six years). In case of a fraudulent intent, these periods will be extended to seven years (today the extension period is ten years). The entry-into-force of these new measures and their alignment with existing audit and assessment periods will have to be determined.

FIRST NON-FRAUDULENT OFFENCES 

Additionally, a first non-fraudulent offence will no longer automatically result in a 10% tax increase — instead, the taxpayer will receive a warning. So the taxpayer will no longer need to file a motivated request for the waiver of a fine for a first offence committed in good faith. The administration will independently determine if the conditions for not imposing a tax increase are met.

PRINCIPLE OF TRUST

The “principle of trust” will be embedded into law, ensuring that taxpayers who are audited on a specific item without this leading to an adjustment and who continue the same practice in subsequent years will not be penalized in future audits, provided that the law remains unchanged.

RULE ON TAX ADJUSTMENTS FOR TAX AUDITS

The rule that tax adjustments made upon a tax audit will lead to a minimal taxable basis will only apply for repeated offences where a tax increase of minimum 10% is imposed, rather than for mistakes or administrative oversights. Additionally, it will be possible to use current-year losses to offset the additional minimum taxable bases created by audit adjustments. If the taxpayer intentionally hinders a tax audit, a minimum taxable basis will be created (strengthening existing rules where only a penalty could be imposed).

MODERN VAT PENALTY POLICY

A modern VAT penalty policy will be introduced, ensuring that proportional penalties will take into account mitigating circumstances, such as whether the Belgian Treasury suffered any financial loss as a result of the offence.

ENHANCED DATAMINING AND RISK DETECTION

The Agreement further specifies that the new government will proceed with IT investments to enhance datamining and risk detection. A legal framework will be created for anonymous datamining.

CENTRAL POINT OF CONTACT FOR ACCOUNTS AND FINANCIAL CONTRACTS

Access to the Central Point of Contact for accounts and financial contracts (CPC) will be broadened. Lottery accounts with a balance of more than EUR 10,000 and crypto accounts will have to be reported to the CPC.

INCREASED TRANSPARENCY BETWEEN AUTHORITIES AND TAXPAYERS

The transparency between the tax authorities and taxpayers will also be ensured as much as possible by:

• developing a charter between the taxpayer and the tax authority;
• Incentivizing the system of “horizontal supervision” (horizontaal toezicht);
• promoting direct contact with tax auditors and ensuring free access to all case law involving the tax authorities (ie including negative case law for the tax authorities);
• proactively publishing circulars and administrative commentaries following the adoption of new legislation;
• rewriting and simplifying the income tax code for transparency purposes. 

ILLEGITIMATELY OBTAINED EVIDENCE

A clear framework will be provided for illegitimately obtained evidence, ensuring that the tax administration follows the established procedures.

PERMANENT (PARA)FISCAL REGULARIZATION

A permanent (para)fiscal regularization procedure will be (re)introduced with increased rates of 30% for non-time-barred capital and 45% for time-barred capital, except for taxpayers who can demonstrate good faith.

STRENGTHENED INVESTIGATION OF TAX FRAUD

The investigation of tax fraud will also be strengthened by recruiting 300 additional tax officials, exchanging information between the various inspection services, police and judicial authorities, and deployment of additional tax expertise within the authorities.

Furthermore, audits regarding the so-called 183-day rule will be sharpened by leveraging data available within the social security inspection. In practice, a trend had already emerged where construction sites in particular were under increased scrutiny. As a result, international companies and individuals could face an increased risk of disputes relating to the existence of a Belgian permanent establishment and to Belgium's taxing rights over employment income.    

TAX ARBITRATION SERVICE

The tax conciliation service will be transformed into an independent tax arbitration service. 

TAXPAYERS CAN STILL CONSULT THE RULING COMMISSION

Finally, the Agreement confirms that taxpayers will still be able to consult the Belgian tax ruling commission to obtain legal certainty on intended transactions that haven’t yet generated any tax consequences (ie that for CIT / PIT / VAT purposes no return has been filed yet). The tax ruling commission will retain its decision-making autonomy.

 

Sector and industry-specific measures

 

CURRENT TONNAGE TAX REGIME

With regard to the maritime sector, the current tonnage tax regime will be enhanced and simplified to ensure a level playing field in Europe. Accordingly, multi-purpose vessels of companies with local economic substance will continue to benefit from the tonnage tax regime, but the application should be simplified.

BAREBOAT CHARTERING / VESSEL LEASING

Additionally, payments related to bareboat chartering / vessel leasing will be exempt from withholding tax, in line with OECD international standards. However, this exemption will be subject to conditions ensuring the green transition of the Belgian fleet and preventing tax optimization through payments to related entities.

COPYRIGHTS REGIME

Digital professionals, such as software developers, will once more be able to benefit from final withholding tax at a reduced rate under the copyrights regime. Contrary to initial expectations, the applicable tax rate will not be increased (15%).

NON-PROFIT TAX REGIME

Regarding the nonprofit sector, the Agreement specifies that the application of the current non-profit tax regime will be adjusted in view of the new Belgian Code on Companies and Associations and that the efficiency of the prohibition to distribute profits will be scrutinized. The growing trend of using non-profit organisations to trade illegally or build up reserves without paying taxes is being addressed. The combination of taxes imposed on non-profit organisations will be re-assessed, including the patrimony tax, legal entities tax, etc. Importantly, the tax deduction for donations will decrease from 45% to 30%.

REAL ESTATE

With regard to the real estate sector, the Agreement explicitly includes a commitment to help combat share deals involving real estate companies in collaboration with regional tax authorities (since real estate transfer taxes are a regional competence).

EXISTING VAT REGULATIONS

Lastly, the Agreement will introduce a series of modifications to existing VAT regulations.

Although this had recently been abolished and is subject to current transitional measures, the reduced VAT rate of 6% will be reintroduced for developers supplying dwellings after demolition and reconstruction to qualifying individuals. However, the maximum surface area of dwellings able to qualify for the reduced rate will be lowered from 200 m² to 175 m².

A VAT definition of “renovation” and “renewal construction” will be introduced to remedy the current lack of legal certainty and frequent disputes between taxpayers and the tax authorities.

Investments in green energy will be incentivized and vice versa:

• The VAT rate on heat pumps will be reduced to 6% for the next five years.
• The VAT rate for the installation of fossil fuel boilers will be increased to 21% (for dwellings over ten years old).
• The VAT rate on coal will be increased to 21%.