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Belgium Announces New Tax Measures for Liquidation Reserves for SMEs and Withholding Tax on Dividends Paid to EEA States — Orbitax Tax News & Alerts

On 30 March 2015, the Belgian government announced new tax measures. The two main measures for corporate taxpayers are in regard to the liquidation reserve for SMEs and withholding tax on dividends paid to European Economic Area (EEA) Member States.

Liquidation Reserve for SMEs

The transitory regime introduced with the increase in the withholding tax on liquidation gains from 10% to 25% that was expanded for SMEs from 2015, has been extended to also apply for 2013 and 2014. The regime for SMEs includes that up to 100% of after tax profits can be allocated to a liquidation reserve subject to a non-deductible tax of 10%. The reserve can then be distributed tax-free upon liquidation. However, if such reserve is distributed prior to liquidation, a 15% withholding tax will apply if distributed within 5 years of its creation, and a 5% withholding tax will apply if distributed after 5 years.

Dividends Withholding Tax

A new dividends withholding tax rate of 1.69% is introduced for dividends paid by Belgian resident companies to shareholder's resident in EEA Member States, when the shareholder holds less than 10% of the capital of the paying company and the acquisition value of the participation is higher than EUR 2.5 million.

The change is the result of a decision by the Court of Justice of the European Union that Belgium's participation exemption for resident shareholders but not nonresident shareholders was an infringement of the free movement of capital. The Belgium participation exemption is 95% when shareholding is less than 10% but the participation value is EUR 2.5 Million or more, resulting in an effective rate of 1.69%.