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Michel Reforms: Impacts for Companies, Workers and Savers? (Tax Reforms)
The Michel Government announced on July 26 the ambitious reforms envisaged for the years 2018 and following. Here are the most important points.
Please find below the reforms announced for companies, freelancers, employees and savers / investors.
- Corporate Tax reduction
|Current tax rates||
|SMEs – for tax bases under € 100,000||33.99% (except for reduced rate)||
- Tax Consolidation
- From 2020
- Deductibility of investments from 8% to 20%
- For SMEs and individual companies
- Temporary measure
- Extension of the exemption from the payment of the withholding tax on professional fees for scientific research by secondary school graduates
- Limitation of deductibility, increase in sanctions and compliance, in particular:
- Notional interest would be kept but limited to capital increases.
- The exemption of capital gains on shares could be subject to the same conditions as dividends: holding a 10% or € 2.5M stake.
- Financing for growing businesses
- Attractiveness and development of PRICAFs (Private Equity Companies)
- Extension of the tax shelter for starters to growing companies (30% tax reduction for capital increases with a 4-year holding period)
- € 500 per month exempt
- An amount of € 6,000 per year will be exempt from tax and social security obligations for income resulting from recreational works, specific functions in the socio-cultural sector and services from individuals to individuals.
- The measure is restricted to pensioners and persons employed in a main activity of at least a 4/5th.
- Increase in lump sum professional expense
- Gradual increase of the lump sum professional expenses deductible in the Personal Income Tax
- Harmonization of amounts and methods of calculating lump sums by taking the example currently applicable to employers.
- Business owners who sell their own-owned businesses will be taxed on the capital gain at a 15% rate (instead of the current tax rates of 16.5% and 33%).
- Encourage the participation of workers in the benefits of the company
- No obligation for the employer and no participation of the worker in the capital of the company
- Accessible to all workers in the company (except for company directors)
- Premium not taken into account in calculating the salary standard
- From January 1, 2018 (accounting year 2017)
For financial investments
- Exemption from dividends on shares
- For dividends up to € 627 per year.
- An annual saving of 30% * 627 € = 188 €
- Reimbursement will be made by the tax return.
- Savings account
- At present, savers do not pay withholding tax on the first € 1.880 of interest they collect per year in a regulated savings account. They pay a withholding tax of 15% for interest that exceeds this amount.
- The exemption threshold for savings accounts goes from € 1,880 to € 940 per year.
- Example: if the passbook gives an interest rate of 0,11% (current legal minimum), a saving of 854,600 € will be necessary to exceed the ceiling of 940 € per year.
- Subscription tax
- Taxation of 0.15% for securities accounts valued at € 500,000 or more per taxpayer. It seems that the government intends to apply this tax on all securities accounts that exceed € 500,000, and not only on the part that exceeds € 500,000. This choice seems discriminatory for the person who has 500,000 € compared to that those who have 499.999 €. Hence, it is hoped that this tax will be properly modulated.
- Target assets: equities, bonds and funds held by natural persons. Registered shares would also be excluded.
- Exempt assets: life insurance and pension savings
- Example: the investor has a portfolio of 4M €, of which 1M € for his company (management, real estate, patrimonial), 1M € in life insurance, 1M € in shares and 1M € in bonds. This investor will pay 2M € * 0,15% = 3,000 €. If the tax is only due from 500.000 €: He will pay 1.5M € * 0.15% = 2.250 €. But economically in relation to the current situation, the exemption of € 188 for dividends must be deducted from this amount, that is, a low net cost.
- The tax would be levied at the source by the banks.
- Investment funds
- Currently, only capital gains on bond funds (holding at least 25% debt securities) are subject to withholding tax of 30%. Henceforth, this taxation would also apply to equity funds, but only for their bond component.
- Mutual funds would be placed on the same footing as the SICAVs (open-end investment company) in case of income distribution, with the withholding tax on securities.
- Tax on stock exchange transactions
- The tax on stock exchange transactions would increase from 0.27% to 0.35% for equities and from 0.09% to 0.12% for bonds. There would be no increase for the transactions on the funds.
- The current ceilings of the tax on stock exchange transactions would not be modified either.
- Pension savings
- At present, savers who contribute to a pension savings fund are entitled to a 30% tax reduction on an amount of € 940 per year, that is, they will get a gain of € 282.
- From now on, they will be able to choose to keep this reduction, or to obtain a 25% reduction on an amount of 1,200 € per year, that is, a gain of 300 € per year.
- Strengthen Cayman Tax
- The Cayman tax, which for the sake of transparency taxes the revenues of trusts, foundations and offshore companies, will be strengthened to prevent certain structures from falling outside the scope of this tax.
Valérie-Anne has been admitted to the Brussels bar in 1999 and was a tax partner at Afschrift Law Firm. She advises and represents corporations, managers and individuals in direct and indirect tax matters. She has also gained extensive experience in wealth and estate planning. Furthermore, she advises and assists in tax litigation matters.
Valérie-Anne lectures tax law at the Solvay Business School (ULB) and at ICHEC (Brussels).
She has written numerous publications in the field of taxation and is regular guest speaker at seminars.