The patent income deduction is ceasing to exist. Belgium has adopted a new tax incentive, called the ‘innovation income’ deduction: below is what you need to keep in mind for your company.
End of the patent income deduction
Since the 2008 tax year, 80% of companies' gross earnings generated by their patents could be exempted from tax. Since then, there has, in actual fact, been a 6.798% maximum effective tax rate. The intended aim was to stimulate innovation through research and development while promoting the protection of innovation through patents.
What was the problem? Only a limited number of Belgian companies were able to make use of this deduction. This is why - in addition to the new recommendations from the OECD (Base erosion and profit shifting) - Belgium has repealed the regime restricted just to patents so that its scope can be extended. In order to reassure companies which are already affected, there will be a transitional regime which, subject to conditions, will allow such companies to continue to benefit from the former regime for a further five fiscal years.
Law extended from patents to innovation
The Chamber adopted the new deduction for innovation income at the beginning of February 2017. It entered into force with retroactive effect on 1 July 2016.
What changes for you? In addition to patents, new intellectual property rights will, going forward, now be eligible and other adjustments are set out in the law.
- From now on, the deduction also applies to innovation revenue from plant variety rights, orphan drugs, data and market exclusivity and copyright-protected computer programs.
- Compensation for violation or alienation of intellectual property rights may be taken into account in respect of tax deduction.
- From now on, the deduction remains valid even if mergers or divisions occur within the company.
- Unused deduction can be carried forward to a subsequent taxable period.
The rate of the deduction is currently set at 85% but note, this is after deduction of costs directly linked to R&D activities. In the event of a negative net innovation income, the negative amount will be deducted from other intellectual property rights.
The deduction is applicable to worldwide revenue from the year in which the patent application is lodged (not the year in which it is granted). If rejected, the deduction is cancelled and default interest will apply.
"This tax deduction for innovation allows us to conform to the new OECD directives on tax evasion while preventing profits from being artificially shifted. We are reinforcing the competitiveness of our SMEs and Belgium's position in terms of innovation by taking a common sense approach and extending the scope of the deduction." Johan Van Overtveldt, Minister of Finance.
Green light for new law for companies and associations
From 1 May 2019, new legislative rules will apply for Belgian companies and associations.
On 28 February, the Belgian House of Representatives adopted a bill for a new Code on Companies & Associations. The aim? To modernise the current legal framework, align more closely with reality and help make Belgian companies more competitive in relation to their European colleagues.
The aim? To modernise the current legal framework, align more closely with reality and help make Belgian companies more competitive in relation to their European colleagues. The new legislation will enter into force from 1 May 2019 for new companies and associations and 1 January 2020 for all existing companies and associations (unless these opt in before that date). Mass conversion is likely to occur between 2020 and 2023. All existing companies and associations must use this period to review their articles of association and legal status.
The new rules would normally have entered into force on 1 January, but the bill's adoption was delayed by the government shenanigans in recent months (Prime Minister Michel submitted his government's resignation on 18 December 2018 after a Green-Red vote of no confidence, ed.). Although the new legislation has been approved by the House, it hasn't yet been published in the Belgian Official Gazette currently. Also, the implementing decrees will take a little longer. Nevertheless, the new rules will apply as of 1 May this year.
Reforestation and biodiversity in practice
Some causes are more important than the pursuit of EBITDA. Without trees there can be no biodiversity, and flora, fauna, soil, water and air are all affected. That is why WeForest is mobilising companies to plant forests.
Reforestation is neither a luxury nor a question for hippies. It is indispensable for the climate and biodiversity, the quality of our soil and water, as well as for food; it is thus vital for the future of all species.
The solutions, which remain under-recognised, are simply waiting to emerge. They are not technical, do not adhere to the logic of extraction and do not call on limited natural resources. They are tremendously effective, draw their inspiration from natural ecosystems and entail integrating trees into fields. See also the article The full potential of reforestation.
We have pinpointed two relevant non-governmental initiatives: Ecosia, a search engine launched by a start-up in Berlin, has attracted 7 billion users and plants one tree for every 45 searches made – the equivalent of some 27 million trees planted to this day; secondly, the non-profit organisation WeForest is utilising its expertise in this area, its basis in science and its business network to engage in sustainable reforestation. We went to meet Marie-Noëlle Keijzer, the founder of WeForest, to hear her story.
From carbon offsetting to corporate 'water footprints'
In the early days, WeForest was not convinced by carbon offsetting, which it regarded as too reductive. Yet it was a means to connect with its target audience: companies anxious to measure, reduce and then offset the carbon emissions that they are not able to avoid. Today, the objective of 'net positive emissions' has been set, which also aims to offset past emissions.
It is obvious that environmental concerns now extend beyond carbon alone. Many are beginning to examine their water footprint. A new vision is taking hold, which entails development aid via the promotion of reforestation. "Moving countries out of poverty and doing more than simply planting trees and leaving: this is how companies now wish to act in a socially responsible way", explains Marie-Noëlle Keijzer, CEO of WeForest.
Intervening on vegetation, carbon, water, air and employment
With the 270 corporate clients that have joined it since 2011, WeForest planted almost 17 million new trees and restored 13,000 hectares of land by the end of 2017, and aims to double these figures by 2020. It offers high-impact marketing materials to customer companies with messages such as 'one sale = one tree planted'.
In 2014, Brabantia decided to 'do something different'. It wanted to sell products, of course, but also give thought to global issues. Working alongside WeForest, the company entered into a joint financing project supporting reforestation. "Since Brabantia began to state on its website, on YouTube and on its packaging that one tree would be planted for every rotary dryer sold, it has seen a 25% increase in sales every year", explains the head of WeForest, citing well-substantiated case studies with certified benchmarks: "We go beyond the theoretical", she continues. "There is total transparency, with every customer receiving a GPS map of the hectares they have funded. We then ensure the forest is protected, approve our customers' projects and help develop the socio-economic activity of the entire region by initiating alternative revenue sources which create employment."
A tree is more valuable in the ground than on it
WeForest is not engaged in helping Zambia in order to maintain its reliance on international aid, but to educate the hundreds of farmers who chopped down all of their trees in order to sell them for firewood. By bringing them together, the association demonstrates that they do not have to clear trees to sell forestry chips, and that by selectively collecting biomass, they can provide heat without cutting a tree down. WeForest trains women to work as nursery growers, giving them a job, an income and an identity. It also supplies beehives to farmers who have begun to produce honey as a new source of income. Bees have other positive effects too, since they pollinate flowers, plants and fruit crops, for example. "It's really simple", affirms Marie-Noëlle Keijzer. "If we kill bees and birds by using pesticides and insecticides, we are preventing nature from doing its work."
Trees provide a habitat for animals and natural fertiliser for plants
In regions of Brazil where tree coverage is 3%, leopards have completely died out. Agriculture has supplanted forests wherever the ground is level. WeForest cannot operate across the entirety of the country, which is much too large. But they have created green corridors, and life has begun again. Trees and plants have been restored, attracting birds and animals that use them to move around, eat and reproduce.
Trees are also a natural source of fertiliser: corn grows more quickly when it is close to trees. They provide shade and retain water in the soil.
There are trees and trees
Not all reforestation projects are equal. Some trees boost the food supply or increase soil nitrogen levels (such as the lucerne), whereas others are detrimental to diversity. For example, no animals will live in palm tree plantations where the soil is also full of chemicals. "We won't solve the problem if we do nothing to change the causes of deforestation: intensive agriculture for the purposes of producing meat, for example", says Marie-Noëlle Keijzer, firmly convinced. Solutions exist, but everyone needs to accept their share of responsibility.
Sources: BNP Paribas Fortis, WeForest
Simpler rules for VAT on e-commerce are one step closer
Europe is about to modernise the rules relating to VAT levied on goods and services sold online. The aim is to lighten the load on SMEs and turn the EU into a genuine "electronic single market". The first stage will begin on 1 January 2019.
Obligations associated with VAT applied inside the EU can sometimes be a real headache for companies trading within the Union's borders. While self-declaration payment rules for B2B trade are relatively simple to apply (providing the purchasing company has a valid VAT number), selling to individuals within the EU involves a more complex set of formalities. This is because companies that exceed the annual threshold of EUR 35,000 (in Belgium) must register for VAT in the country or countries of destination. According to European Commission estimates, this administrative obligation equates to an average annual cost of EUR 8,000 (per member state) for a company to ensure it complies with local VAT rules, making it costly for SMEs. This observation led the European Commission to put forward an action plan in April 2016, which was ratified by the European Council last December. What will the new rules change?
A new threshold for "digital services" from 1 January 2019
Brussels has a clear objective: it wants to simplify VAT collection from e-commerce companies in order to turn the European Economic Area into a genuine "digital single market". The primary beneficiaries will be companies that offer "digital services" to individual consumers anywhere in Europe (relating to video on demand, music or app downloading and the distribution of video games or e-books, etc.) Up to a new annual threshold of EUR 100,000, these companies can remain subject to VAT in Belgium, thereby avoiding all obligations in the other Member States.
The "one-stop shop" will gradually be extended
In addition, such digital services companies can already make use of the Mini One-Stop Shop (MOSS), a system which simplifies all cross-border VAT operations by allowing companies to make one single VAT declaration: this is submitted electronically in the company's country of origin, for all services in all other Member States. This portal therefore removes a large chunk of the administrative burden on firms. The good news is that this mini portal will be accessible to providers of all other types of services in Europe from 2019.
Distance selling of goods also to be covered from 2021
Companies whose business involves the distance selling of goods will need to wait until 1 January 2021 for the new EUR 100,000 threshold to come into force. But the other change is that the MOSS will also be opened up to these online retailers. There can be no doubt that access to this single portal is a real step forward that will, according to the European Commission, lead to savings of EUR 2.3 billion and increase Member States' VAT receipts by EUR 7 billion. It should also be emphasised that from 2019, micro-businesses with cross-border online sales of no more than EUR 10,000 can continue to apply the VAT rules of their home country.
The other priority: the fight against fraud
This package of new measures also aims to mount a more effective attack against a form of fraud that reportedly led to losses of more than EUR 152 billion across the EU in 2015. As a result, a new measure to take effect in 2021 will remove the VAT exemption on goods with a value of under EUR 22 imported from outside the European Union. This is because it was often abused by companies that exploited it to bring in goods of a higher value while evading payment of VAT in their country of arrival.
Thinking of buying a property with your company? Take care!
We explain how stricter rules now apply to the "split purchase" of a property obtained via a company. This is a favourable fiscal arrangement for a company director, but one that must be approached with more caution than ever.
The "usufruct/bare ownership" structure
For several years now, the so-called mixed purchase (private/professional) of a property has been common practice for some company directors. This fiscally beneficial solution is based on the principle of "breaking up" full ownership of the property. On one hand, the usufruct is assigned to the company for a certain amount (proportion of the purchase price). This means that the company is entitled to use the property with no rental liabilities during a given period (generally between 20 and 30 years). On the other, the company director acquires bare ownership of the property, which allows him/her to retake full possession of the building once the usufruct has expired without paying a euro more.
The crux of the issue: the valuation of the usufruct
Where is the interest in this arrangement? It lies in maximising the cost to the company of acquiring the usufruct. This is because the larger the sum paid by the company, the smaller the sum the director has to pay at the time of purchase (not forgetting taxes, registration levies, indemnities, etc.). In addition, the company can deduct building/service charges such as withholding tax, maintenance and financial costs, and amortise the value of the usufruct over the agreed term. This is the best possible fiscal scenario, but one that has resulted in a certain amount of abuse at the point of the oft-mentioned "usufruct valuation". It is not by chance then that the tax authorities have been studying the issue for a few years now with a view to tidying things up a little.
The taxman turns the screw even more
Up until now, the authorities used a formula known as the Ruysseveldt formula to calculate the usufruct value, based on the discounted proceeds of gross rental yield for the duration of the usufruct term. However, this approach led to over-valuations, and so did not prove effective enough in the eyes of the tax authorities. This is why they recently decided to apply a new financial appraisal formula which is much tougher. In reality, this is the method already in place since 2016 to assess cases filed with the Service des décisions anticipées (SDA) (advance ruling service) of Federal Public Service Finance. It should be recalled that this service has established a "pre-filing procedure" for usufruct arrangements (used in advance of the official application) to ensure the future operation benefits from a certain degree of legal security.
The "advance ruling" formula is much less favourable
By changing its stance on the issue, the tax authorities could cause problems for some directors who have been too greedy. This is because the two formulae produce rather different results. Take this basic example of a property with a purchase price of EUR 500,000, for which the company acquired the usufruct at a cost of EUR 425,000 under the Ruysseveldt formula (85% of the price). In this case, the director has only paid EUR 75,000 for the bare ownership. Based on the authorities' new approach, the financial valuation of the usufruct would actually sit at around 60%, with bare ownership at around 40%. This means the individual would have had to pay EUR 125,000 more – an altogether different situation.
Handle with care
So any head of a company who wishes to be involved in this kind of operation will need to be more prudent than ever before. One of the most important things is to demonstrate that the arrangement genuinely reflects a financial logic. With this in mind, well-informed entrepreneurs will ensure they prove the property deal will profit the company, and will adequately evaluate the usufruct's value and term. Finally, we should emphasise that approval can be sought from the tax authorities via the fiscal ruling website.