Corporate Tax in Belgium: Rates, Audits, Deductions & Key Rules

Corporate tax is a mandatory fee businesses pay on their profits, playing a vital role in Belgium's revenue system. The standard corporate tax rate in Belgium is 25%, while small businesses enjoy a reduced rate of 20% on their first €100,000 of profit.

This blog offers a comprehensive overview of Belgium's corporate tax system, including rates, deductions, compliance, audits, and key insights for businesses.

Belgium Corporate Tax System

Corporate tax is levied on company profits, impacting net income of the companies and contributing to public services. In Belgium, it is governed by the Federal Public Service (FPS). Corporate tax policies are structured to balance fair revenue collection with an investment-friendly environment to attract businesses.

Currently, Belgium’s standard corporate tax rate is 25%, with a reduced rate of 20% is available for small and medium-sized enterprises (SMEs) on profits up to €100,000. Companies can also benefit from deductions, such as business-related expenses and special incentives for research and development (R&D), making the system more favourable for growth-focused businesses.

Who Should Pay Corporate Tax in Belgium?

In Belgium, corporate tax is applied to a variety of entities involved in profit-generating activities. Here’s a concise look at it:

1. Belgian-Resident Companies: Taxed on worldwide income, including both domestic and international profits.
2. Branches of Foreign Companies: Taxed only on profits generated within Belgium.

• Example: If a Canadian company operates a Belgian branch, it pays corporate tax solely on Belgian-sourced income. The foreign earnings are outside Belgian tax jurisdiction.

3. Subsidiaries of Foreign Companies: Taxed as resident entities and therefore liable on worldwide income, similar to Belgian companies.

• Example: A Japanese tech firm’s Belgian subsidiary is taxed on all its profits, not just those from Belgian operations.

Corporate Tax Rate in Belgium

Belgium uses a flat corporate tax rate of 25% for all corporations, regardless of income level. However, this is an exception for registered SMEs. Small and medium-sized enterprises (SMEs) with taxable income up to €100,000 benefit from a reduced rate of 20% if they meet specific conditions, including:

• The company’s taxable income must not exceed €100,000.
• Under Belgian law, the company must be classified as a small or medium-sized enterprise (SME).
• The company should have at least one full-time employee (this can be a permanent employee) or the equivalent in full-time work (which may include several part-time employees).
• The company should not be exempt from corporate income tax.

Belgium’s Approach to Corporate Tax System

Belgium's corporate tax system is built to make the economy competitive in the European market and generate revenue to fund public services. Belgium has recently adjusted its corporate tax rate to attract FIIs and remain competitive within Europe. 

Deductible Expenses and Tax Incentives

Belgium offers a variety of tax deductions and incentives that allow businesses to lower their taxable income. Common deductions include: 

• Investment Deductions: Standard and R&D-specific deductions for qualifying investments in fixed assets and technology.
• R&D Tax Credit: A tax credit for R&D expenses, with options to carry forward or refund if unused.
• Patent Income Deduction: Effective 3.75% tax rate on income from patents and certain IPs.
• Innovation Income Deduction: Partial tax exemption on income from registered innovations.
• Foreign Tax Credits: Credits for foreign withholding tax on royalties and dividends.
• Wage Withholding Tax Exemption for R&D: 80% exemption on R&D staff payroll taxes.
• Basket Limitation: This limitation limits the use of deductions like carried losses and requires a minimum taxable profit. Starting from the 2024 assessment year, the amount of taxable profit that tax deductions can offset will be reduced, leading to a minimum tax rate of 15% on profits exceeding €1 million. This change is temporary, as the rate will revert to the previous 70% in 2025, assuming the EU implements a global minimum tax directive by that time.

Corporate Gains Tax

In Belgium, corporate gains (profits made from the sale of assets like real estate or investments) are subject to the standard rate of corporate tax @ 25%.

But there are cases where capital gains can be exempt, especially if the gains arise from the sale of shares held for a minimum period (usually one year) and specific conditions are met. For example, if a company sells a subsidiary or shares held long-term, it might qualify for this exemption.

Corporate Tax Audits and Assessments in Belgium

Accounts of companies can be audited by the Belgian tax authorities for various reasons, such as random selection or concerns about tax returns. During an audit, officials review:

• Company’s financial records
• Tax filings
• Supporting documents to check for accuracy.

If auditors find issues, they may adjust the company’s tax amount owed. 

Compliance of Audits

• Companies may be audited based on random selection or specific concerns about tax filings. For such audits, Belgian law requires companies to have a detailed record of their financial transactions and submit their tax returns on time.
• Audits involve a detailed review of financial records; any discrepancies may lead to adjustments in tax owed.
• Companies can appeal audit findings, ensuring a fair review process.
• All companies, regardless of size, must maintain accurate financial records and submit timely tax returns.

Audits are not very common for small businesses but may happen more frequently for larger corporations or those with complex tax situations.

Key Takeaways

Belgium has a 25% standard corporate tax rate, with a reduced 20% rate for profits up to €100,000 for SMEs. This rate is above the EU average of 21.3%, potentially affecting Belgium’s competitiveness for investment.

But, just like anywhere else, all businesses must maintain accurate financial records and file tax returns on time. Compliance with tax regulations is crucial for effective financial planning and avoiding penalties. Companies may be audited based on random selection or red flags in tax returns. So, make sure you are compliant and timely when filing returns.