Changes in corporate income taxation as from 2020 and how to anticipate?

As from tax year 2021 (financial years as from January 1, 2020) the last new corporate tax reform measures, as introduced by the 2018 summer agreement, enter into force.

What follows is an overview.

Decrease of the tax rate

The nominal rate of corporation tax further decreases to 25% for large companies and to 20% on the first bracket of EUR 100,000 for SME’s.

Optional taxation of tax-free reserves

For the taxation of certain tax-free reserves, a temporary favourable rate of 15% (or 10% in case of appropriate investment) is foreseen.  This favourable rate only applies for the financial years 2020 and 2021 and applies to the taxation of investment reserves, profits of ‘inschakelbedrijven’, exempt reserves corresponding to 20% of the costs of electric vehicles, etc., recorded before 1/1/2017.

Attention: the amount of these taxed reserves constitutes the minimum taxable basis on which no deductions are possible. Therefore, tax will effectively be due.

Whether a taxpayer with tax deductions has the choice to have these reserves taxed at the normal rate and therefore can make use of his tax deductions, is not clear. If you are in this situation, you may still have these reserves taxed in the financial year 2019.

Minimum taxable basis

The minimum taxable basis for non or late filing of the tax return is raised to EUR 40,000, so that at least EUR 10,000 of tax is always due.

Measures related to investments

The increased investment deduction of 20% for new investments by SME’s in 2018 and 2019, will no longer apply to investments as from January 1, 2020. As a result, the normal investment deduction of 8% will apply again.

Furthermore, SME’s at this moment must not apply a pro rata depreciation if the investment is made during the year, even at the end of December. This means that an asset can be depreciated at any time as if it had been in the possession of the company for a whole year. This rule was no longer applicable for large companies and is now also being abolished for SME’s as from January 1, 2020.

Furthermore, it will no longer be possible to apply the double declining balance depreciation method on investments made as from January 1, 2020, so that for all new investments the straight line depreciation method should be used. This means a lower depreciation cost in the first years.

Finally, until December 31, 2019, additional costs can be written off either in one time or according to the rhythm of the asset concerned or at will. The latter is no longer possible as from January 1, 2020.

Reasons enough to still make an investment before the end of the year instead of waiting until next year!

Deduction of foreign permanent establishment losses

Only final losses from permanent establishments located in an EEA country will still be tax deductible. This is thus only the case at the moment of cessation of the activities abroad.

There will no longer be any possibility of deducting losses from permanent establishments in non-EEA countries. It may therefore be considered to close this establishment before the end of this year.

Abolition of certain favourable regimes

A number of favourable regimes are definitively abolished. This is among other things the case for the exemption for additional staff and trainees, the 120% deduction for costs of public transport and electric cars, etc.

Maximum deductible interest on C/A positions

The maximum deductible interest on  C/A positions will be based on the average interest rates of the National Bank + 2.5%.

Conclusion

A number of the aforementioned measures will have a negative impact on the determination of the taxable basis as from January 1, 2020 and therefore on the corporation income tax due.   Where possible, you can still anticipate in 2019.