Bear in mind that companies that don’t pay enough of their tax in advance now face larger surcharges.
As of 2018 (for the tax year 2019), you will have to pay a higher surcharge if your corporation tax pre-payments aren’t large enough. Companies that didn’t previously pay much attention to pre-payments during the course of the tax year are strongly advised to do so now. Nothing has changed for self-employed people subject to personal taxation.
From 2018 onwards, it’s particularly important to make your tax pre-payments
The surcharges imposed in the event of insufficient pre-payments have been calculated for years based on ECB interest rates. But this reference rate has been less than 1% in recent years, obliging the government to set higher surcharges by Royal Decree.
It was decided at the end of 2016 that a permanent solution was needed, and so new legislation was passed, which comes into effect as of the 2018 tax year (i.e. for all financial years commencing 1 January 2017).
Since then, the reference rate has been set at a minimum of 1%. Under the ‘Summer Agreement’ approved at the end of 2017, the rate was further increased to 3% in the case of corporation tax. The reference rates are multiplied by 2.25 to arrive at the final surcharge applied to the amount of tax payable. In specific terms, this means that as of the 2019 tax year (financial years commencing 1 January 2018), the surcharge imposed on non-payment or underpayment of advance corporation tax has tripled from 2.25% to 6.75% of the tax liability. The same applies for subsequent years, when the surcharge will be at least 6.75%.
The ‘Summer Agreement’ also scraps the so-called ‘de minimis’ rule in relation to corporation tax, which means the surcharge will also apply if it is less than 0.50% of the tax liability or less than EUR 50.
The government aims in this way to encourage more companies to make tax pre-payments (in good time) in periods of low interest rates.
The benefits of pre-payments
Companies are not obliged to make pre-payments. The advantage of doing so is that the surcharge described above can be reduced or avoided. Businesses do not, however, qualify for the kind of tax benefit available to private individuals, which means there is nothing to be gained by making an unnecessarily high pre-payment.
A cut-off date for the pre-payments is set for each quarter throughout the financial year. The earlier in the financial year that you make a pre-payment, the more any eventual surcharge is reduced. Due to the increase in the reference interest rate, these reductions have also been tripled.
In specific terms, a company whose financial year coincides with the calendar year and which...
- makes a pre-payment before 10/04/2019 (first quarter), receives a 9% reduction
- makes a pre-payment before 10/07/2019 (second quarter), receives a 7.5% reduction
- makes a pre-payment before 10/10/2019 (third quarter), receives a 6% reduction
- makes a pre-payment before 20/12/2019 (fourth quarter), receives a 4.5% reduction
... calculated in each case on the amount of the pre-payment for that quarter.
The cut-off dates for companies whose financial year does not coincide with the calendar year fall on the tenth day of the fourth, seventh and tenth month and on the twentieth day of the final month of the financial year. Specific rules are provided for companies with a financial year of more or less than twelve months.
The new rules mean that a surcharge for the tax year 2020 can be avoided if 75% of the tax liability is paid during the first quarter or 90% of the tax liability is paid during the second quarter. If pre-payments are only made in the third and/or fourth quarter, more than 100% of the tax liability must be paid to avoid an increase.
For self-employed people subject to personal taxation (such as a manager or company director), similar rules apply as for companies, although the rates have not been increased in this case (surcharge of 2.25%, reductions of 3%, 2.5%, 2% or 1.5%). The ‘de minimis’ rule also continues to apply and the calculation of the potential surcharge only differs by a few percentage points. What’s more, an additional tax benefit or rebate is granted in the case of personal taxation on pre-payments that exceed the amount required to avoid a tax surcharge. This benefit is calculated quarterly at half the percentages set out above.
How much tax is it best to pre-pay?
- You are free to choose the amount. But you should bear in mind that if you wait until the third or fourth quarter, you will have to pay over 100% of the tax liability in advance.
- Check your income from the previous financial year and take account of any changes in your business activities, investments or turnover. Be sure to consult your accountant or visit the official government website (FR/NL).
- Try as much as possible – especially in the case of corporation tax – to limit your pre-payments to the amount needed to avoid the surcharge. If you make an excessively high pre-payment, you’re effectively providing the state with an interest-free loan.
- If you realise towards the end of the financial year that you have made more profit than anticipated, you can still make an extra pre-payment up to the twentieth day of the final month of the financial year.
- Also consider the special credit formula offered by the bank to cover your tax pre-payments. The interest on loans of this kind is tax-deductible as a business expense, although the main reason for choosing a solution like this is the improved cashflow management it provides.
Which account should payments be made to?
- For companies that do not close their balance sheet on 31/12: the advance payments for the ongoing 2019 tax period (2018 revenues) must be made to the existing account number: BE20 6792 0023 3056 (BIC: PCHQ BEBB).
- For companies that close their balance sheet on 31/12, the advance payments from the 1st quarter of the 2020 tax period (2019 revenues) must be made to a new account number:
BE61 6792 0022 9117.
For payments to the new account number, it is necessary to use a structured message based on the company number (CBE – the Crossroads Bank for Enterprises).
BNP Paribas Group, first quarter 2020 results
Excellent business drive in the quarter impacted by an unprecedented health crisis
The health crisis has had major repercussions on macroeconomic outlook and produced extreme shocks on the financial markets. After a quarter in line with the 2020 objectives of BNP Paribas, health crisis related developments had several major negative impacts on the first quarter 2020.
Commenting on these results, Chief Executive Officer Jean-Laurent Bonnafé stated:
“In response to the health crisis, the Group’s teams have mobilised around the world to contribute to the functioning of the economy and its financing. Our concerns have been to protect our employees who are fully mobilised to ensure banking services, to quickly implement solutions to support the financing of our corporate, institutional and individual clients, and to launch in all regions where we are present a plan for emergency donations to the hospital sector and organisations committed to assist vulnerable people.
At the end of a quarter supported by an excellent business drive, in line with its 2020 objectives, the results of BNP Paribas for the 1st quarter 2020 were impacted by the harshness of the health crisis. The good resilience of revenues and results despite this shock demonstrates the robustness of the Group’s diversified and integrated model. With all teams at BNP Paribas, whose I want to thank tireless commitment to serving customers and providing support to society, we will continue our efforts to mitigate the impact of the crisis on the economy and prepare for the future.”
Press Release: https://invest.bnpparibas.com/documents/1q20-pr-23455
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BNP Paribas Group, second quarter 2019 results
The business of BNP Paribas was up this quarter in a context where economic growth remained positive in Europe but slowed down, implying expectations of a continued low interest rate environment.
Director and Chief Executive Officer of BNP Paribas, Jean-Laurent Bonnafé:
“BNP Paribas delivered in the first half an increase in net income at 4.4 billion euros. Revenues were up thanks to business growth in the operating divisions. Operating expenses were well contained and benefitted from the transformation plan, generating a positive jaws effect. The common equity Tier 1 ratio rose to 11.9%, illustrating the Group’s solid balance sheet. New digital experiences rolled out for customers are a success and the Group is actively executing its ambitious policy of engagement in society. I would like to thank all the employees of the Group for their dedicated efforts to achieve these good results. ”
BNP Paribas Group, first quarter 2019 results
The business of BNP Paribas was up this quarter for the three operating divisions with in particular a gradual upturn in the business of CIB. Economic growth slowed down in Europe but remained positive. After the crisis in the markets at the end of 2018, the market context remained lackluster at the beginning of the quarter, but improved towards the end of the period.
Director and Chief Executive Officer of BNP Paribas, Jean-Laurent Bonnafé:
“BNP Paribas delivered a good level of result this quarter, at 1.9 billion euros. Revenues were up thanks to business growth in the operating divisions with in particular an upturn in client business at CIB. Operating expenses were well contained and benefitted from cost saving measures, generating a positive jaws effect.”