The tax treatment of the liquidation of a company is governed by Arts 208-214 ITC. During the liquidation period, a company normally remains subject to corporate income tax. Any capital gains realized upon the distribution of its assets are included in the company’s profit (Art. 208 ITC). The total liquidation surplus is equal to the difference between the net assets at the beginning of the liquidation period and the net assets at the end of the liquidation period.
The difference between the liquidation proceeds in cash or in kind (to be valued at market value) and the effectively paid-up share capital is treated as a dividend distribution (Art. 209 ITC). A dissolved company is deemed to have made distributions to its shareholders in the following order: first, the fiscally paid-in capital, then its taxed reserves and capital gains and finally its untaxed reserves (Art. 208(2) ITC). Untaxed reserves become taxable upon distribution.
The repayment of the paid-up capital and the previously taxed but undistributed reserves is tax-free. The excess of the repayment, i.e. the previously untaxed reserves, will be taxed at the normal corporate income tax rate (Art. 209 ITC). In case of a repayment of paid-up capital that includes a capital premium reserve (agio), the agio can be repaid tax-free under the same conditions as the repayment of paid-up capital. Losses carried forward can be offset against the liquidation surplus.
The taxable period is the total liquidation period. In general, only one tax return must be filed for the whole liquidation period (Parliamentary question 90, 9 February 1990, de Clippele). The taxable period ends when all the assets are distributed to the shareholders.
The distribution of the liquidation surplus and retained earnings constitutes taxable income for the shareholders.
In the case of a corporate shareholder, the liquidation surplus will remain exempt if the receiving company owned a shareholding of at least 10% in the liquidated company. Otherwise, the liquidation surplus will be subject to a 10% withholding tax (Art. 269(2)bis ITC). This withholding tax is creditable against corporate income tax (Art. 282 ITC). Any loss incurred is only deductible to the extent fiscally paid-in capital represented by the shareholding has been lost (Art. 198(7) ITC).
In the case of individual shareholders, the liquidation proceeds are generally subject to a final 10% withholding tax (Art. 269(2)bis ITC). In case the shareholding in the liquidated company was a held in the framework of a trade or business, the liquidation dividend is taxed at progressive personal income tax rates or at a flat rate of 16.5% if the shareholding was held for more than five years (Art. 171(4) ITC). Furthermore, the liquidation proceeds are taxed at a rate of 16.5% if no impairments have been accepted (Art. 173 ITC); otherwise at the progressive rates.
SMEs are allowed to set up a liquidation reserve, which can be created by requalifying (part) of the after-tax profit account to a separate account on the liabilities side of the balance sheet. This is subject to a 10% corporate income tax.
In instances where the liquidation reserve would be distributed before the company’s liquidation, an additional withholding tax of 15% would be due in case of distribution within five years after the liquidation reserve is created; a withholding tax of 5% would be due in case of distribution of the liquidation reserve after five years of its creation. Withholding tax is not due where the liquidation reserve is distributed upon liquidation. In the event there is non-compliance with the intangibility condition, the liquidation reserve can no longer benefit from reduced withholding tax rates upon distribution.
This liquidation reserve for SMEs was introduced the end of 2014 and is applicable from the tax-year 2015. This was subsequently extended to the 2013 and 2014 tax years as well.
Companies moving their legal seat, registered office, main establishment, or place of effective management to another jurisdiction are no longer taxable in Belgium on their worldwide income but only on their Belgian-source income. However, if only the main establishment or place of effective management is moved outside Belgium and the legal seat or registered office remains in Belgium, the company remains subject to tax on its worldwide profits.
Upon emigration, the company is deemed to be liquidated and, accordingly, all latent capital gains become taxable (Art. 210(1)(4) ITC). This rule applies also to all reserves of the company regardless of whether they relate to assets located in Belgium or abroad.
It is generally accepted in Belgian company law ( Lamot case Cass. 12 November 1965) that a foreign company is able to relocate its principal seat to Belgium without dissolution in the country of origin and reincorporation in Belgium (i.e. the legal personality of the foreign company continues to exist upon migration to Belgium), where the principal seat (POEM) is legally relocated to Belgium according to the laws of the country of origin and the corporate laws of the country of emigration recognize the continuity of the legal personality of the company.
Moving the POEM from Belgium to abroad does not entail the automatic liquidation of the company. Provided that the decision to move the seat is validly taken, a Belgian company can move its corporate seat or principal place of management and control (POEM) from Belgium to abroad without being liquidated. It is also important that under the law of the jurisdiction to which the principal seat is moved, the continuation of the legal personality of the company is accepted. If this is not the case, the company will need to be incorporated again and this will also mean that from a Belgian perspective, the company is deemed to have been liquidated.