Corporate income tax and tax law

When you invest in Belgium as an international entrepreneur, it is important to have a clear picture of the tax landscape. A good understanding of the Belgian tax rules not only prevents unpleasant surprises, but also allows for full and correct use of the existing tax incentives.

In this article, we will discuss the core principles of Belgian corporate taxation, the rules around transfer pricing and the most important tax incentives. This will give you a practical overview of the most relevant tax points when starting up or expanding your activities in Belgium.

Core principles of corporate income tax

Who is taxed?

Belgian company

Tax liability in Belgium depends on the way your company is organised. When you set up a Belgian company with separate legal personality such as a BV or NV, or when the actual management of your foreign company is located in Belgium, you are subject to corporate income tax on your worldwide profits. Foreign companies that operate through a Belgian subsidiary must also file an annual corporate income tax return.

Permanent establishment

Foreign companies operating in Belgium without a separate Belgian company are subject to non-resident tax (BNI) for their Belgian activities. This regime is specifically designed for situations in which a foreign entity carries out economic activities in Belgium through a formally established branch or through a permanent establishment, which is only established as a taxable presence.

In that case, only the profit that can be attributed to the Belgian permanent establishment is taxed. Double tax treaties and Transfer Pricing rules play a key role in this: they determine how the profit is allocated and to what extent Belgium must grant exemption or reduction.

Tariff

The standard rate of Belgian corporate income tax is 25 percent. Small companies benefit from a reduced rate of 20% on the first 100,000 euros of taxable profit. A company is considered small if it does not exceed more than one of the following criteria (on a consolidated basis):

• An annual average workforce of 50 full-time equivalents (FTEs);
• Annual turnover (excl. VAT) of €11.250.000
• Balance sheet total of €6.000.000

Only if a company exceeds the thresholds (or remains below them) for two financial years in a row, does its status change (from large to small or vice versa). This new status will then apply from the next financial year.

Tax corrections and disallowed expenditure

Accounting profit forms the starting point for calculating taxable profit, but is adjusted for tax purposes. After all, not all costs that have been included in accounting are tax deductible.  Certain expenses are fully or partially disallowed and consequently added back to the profit.

The most common disallowed expenses include, for example:

• Non-deductible car expenses (depending on CO₂ emissions);
• Fines or administrative sanctions;
• Reception and restaurant costs;
• Business gifts;
• …

In addition, tax exemptions or deductions can also be applied, such as the innovation deduction or investment deduction (see below), which actually reduce the taxable base. It is therefore the combination of these adjustments and deductions that ultimately determines the effective taxable profit in Belgium.

Transfer Pricing

Arm’s length principle

International companies that carry out transactions between affiliated companies must respect the arm’s length principle: the conditions between related parties must correspond to what independent parties would apply in similar circumstances.

In many cases, transfer pricing determines the taxable base in Belgium. For example, the Belgian subsidiary or permanent establishment of a foreign company can function as a so-called limited risk service provider. This means that the Belgian entity or permanent establishment carries out its activities under the guidelines and instructions of the foreign parent company – the principal.

In such situations, it is appropriate to apply a centralized transfer pricing model. In this case, the Belgian subsidiary or permanent establishment receives a guaranteed but limited profit margin in exchange for its services, while the residual profit or loss is allocated to the principal.

It is essential that such a limited risk entity receives remuneration that is in line with market conditions, in line with the arm’s length principle. To correctly determine this margin, a benchmark study is usually required, based on comparable independent companies in the market.

Documentation

A Belgian company or permanent establishment that is part of an international group is subject to the Belgian transfer pricing documentation requirements as soon as it exceeds at least one of the following thresholds in the penultimate financial year closed:

• Annual turnover of 50,000,000.00 euros (excl. non-recurring income);
• An annual average workforce of 100 full-time equivalents (FTEs);
• Balance sheet total of 1 billion euros.

In that case, it must submit a Master File (275MF) and a Local File (275LF). For groups with a consolidated turnover of at least 750 million euros, the Country-by-Country reporting (form 275CBC NOT) also applies.

Tax benefits

Belgium encourages companies to invest and innovate through a series of specific deductions and incentives. The most important schemes (situation 2025) are listed below.

Innovation Income Deduction

The innovation income deduction allows 85% of the net income from eligible intellectual property rights to be exempted from taxation. Qualifying rights include patents, software developed through research and development, plant breeders’ rights and certain supplementary protection certificates.

The deduction is calculated according to the so-called nexus approach: only income related to R&D activities carried out by or on behalf of the Belgian company is eligible.

Investment deduction – support for sustainable and innovative investments

Belgium rewards companies that invest in energy efficiency, renewable energy, environmentally friendly technology or digital innovation.

Companies that invest in such assets can deduct part of their investment amount from their taxable profits.

The exact deduction percentages vary depending on the type of investment and the size of the company.

 Dividends Received Deduction (DRD) – avoiding double taxation on dividends

Belgium has a favourable system for avoiding double taxation of intra-group profit distributions. Dividends that your Belgian company receives from a subsidiary are in principle exempt from Belgian tax if the following conditions are met:

• The company holds a minimum participation of 10% in the capital of the distributing company or has an acquisition value of at least 2,500,000 euros in the subsidiary;
• The participation is maintained for at least one year;
• The subsidiary is subject to a normal tax system in its home country.

When these conditions are met, the dividends are in principle fully exempt from Belgian corporate income tax. As a result, Belgium also has an excellent tax environment for holding companies.

Treaty benefits

Belgium has concluded double tax treaties with more than 100 countries. These treaties usually provide for a reduced withholding tax rate or exemption for dividends, interest and royalties. Correct application of treaty benefits can significantly reduce the effective tax burden on foreign transactions.

How we support you

At Van Havermaet, we assist foreign investors in Belgium through the entire tax process. We advise on the optimal structure and tax consequences, calculate the impact of possible deductions, ensure compliance with transfer pricing obligations and, if desired, take on the entire tax return procedure. Our expertise allows you to focus on your core business, while we ensure that you remain tax-compliant and do not miss out on any opportunities.

Do not hesitate to contact us for more information or a nonobligatory analysis of your Belgian activities.

The information in this document is based on the currently applicable Belgian tax regulations and administrative positions. The application in practice may vary depending on the concrete facts and circumstances of the case.