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Kurt Demeyere

Kurt Demeyere

Contact Details

  • Address
    Chaussée de La Hulpe, 120
  • City
    Brussels
  • Zip Code
    1000
  • Country
    Belgium
  • Telephone
    +32 2 566 8610
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During their first years of operation, start-ups are partially exempt from the obligation to remit taxes withheld from salary. During the first four years of their existence, micro-companies qualify for a 20% exemption, while SMEs qualify for a 10% tax exemption.

The employer withholds 100% of the taxes due from the employee's salary, but only has to transfer 90% (or 80% in the case of a micro-company) to the treasury. Similar favourable tax measures already exist for qualifying researchers (an incentive which substantially reduces the salary cost of researchers working on qualifying R&D projects).

Employers registered with the Crossroads Enterprise Database for up to 48 months can benefit from this measure. In addition, the company cannot be in liquidation, bankruptcy or judicial reorganisation, an indication of (financial) difficulties.

This measure entered into force on 1 August 2015.

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For interest on a loan of up to EUR 15,000 (for interest received in 2015) granted through a qualifying crowdfunding platform recognised by the FSMA, an individual investor can benefit from favourable tax treatment (i.e., a tax exemption for the interest on the loan), provided:

  • the loan has a minimum term of four years and interest is paid annually;
  • the loan was granted to an SME (see above);
  • the SME is still in the start-up phase (i.e. it has been registered with the Crossroads Enterprise Database or a similar register in the European Economic Area for no more than 48 months).

The investor is entitled to the favourable tax treatment for loans granted up to an amount of EUR 15,000 per year, regardless of whether it is invested in the same project. It is important to note that company directors and key personnel who are shareholders in the company can also benefit from the exemption for loans granted to their company.

This measure entered into force on 1 August 2015.

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The tax shelter for investments in start-ups consists of a reduction in the investor's individual income tax through the grant of a tax credit. The investor is entitled to a tax credit of 45% of the invested amount, for an investment in a qualifying micro-company, or 30% for a qualifying SME, provided the investment is made during the first four years of the company's existence. The investment may be made directly in an SME or micro-company or indirectly through a qualifying starter fund.

Qualifying SMEs and micro-companies
A qualifying SME is a company with an average annual headcount of no more than 100 employees which meets at least two of following three criteria (on a consolidated basis):

  • a balance sheet total of no more than EUR 3,650,000;
  • turnover, excluding VAT, of no more than EUR 7,300,000;
  • average annual employee headcount of no more than 50.

A micro-company is a company that meets at least two of the following three criteria:

  • balance sheet total of no more than EUR 350,000;
  • turnover, excluding VAT, of no more than EUR 700,000;
  • average annual employee headcount of no more than 10.

Moreover, it must be an unlisted Belgian company or a company with is registered office, principal place of business or headquarters in the European Economic Area and an establishment in Belgium. In addition, only investments in companies established from 1 January 2013 can qualify for the tax shelter.

For the sake of completeness, it should be noted that certain types of companies are excluded from the tax shelter regime. These include: companies created further to a merger or division, companies involved in financing or cash pooling activities, management companies, and companies facing insolvency proceedings. The collected amounts may not be used to pay dividends, acquire shares or grant loans.

Maximum amount collected through the tax shelter
A start-up can collect a maximum of EUR 250,000 through the tax shelter. In addition, only investments in newly issued shares are eligible, and contributions in kind are not allowed.

Investor requirements
To qualify for the full tax credit, the shares must have been held by an individual for at least four years. In addition, the investment is limited to EUR 100,000 per year.

The investor's family members and the start-up's employees can also benefit from the tax shelter, but not shareholders.

Investments in so-called start-up funds are also eligible for the tax credit. To date, however, there are no such funds meeting the criteria set out in Article 48 of the Act.

Red tape
On his or her income tax return, the investor must prove that s/he meets the criteria set out above. A royal decree will clarify how this should be done. Investments made from 1 July 2015 onwards are eligible for the tax shelter.

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Under a lease, the leasing company owns the equipment. On the other hand, if a loan is taken out to purchase the equipment, the company will own the equipment once the loan is paid back. Depending on the type of lease, the leased equipment may or may not appear on the company's balance sheet. The choice of lease or loan will depend on the company's tax situation and the criteria imposed by the financial institutions.

From a tax perspective, an operating lease will give rise to periodic payments which will, in principle, be tax deductible. In the case of a financial lease, the asset will no longer appear on the lessor's books but rather on the books of the lessee, resulting in (tax-deductible) depreciation. Thus, both types of leases can generate tax-deductible expenses. However, for timing and financial reasons, one type of lease may be preferred.

Further, please note that certain types of assets may qualify for specific R&D tax incentives (see question "Are there any tax incentives available to R&D companies and, if so, how can I benefit from them?").

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Belgium is a very interesting jurisdiction in this regard. Indeed, Belgium actively promotes R&D and IP-intensive businesses through various tax incentives, some at the corporate level and some applicable to employees. Belgium is continuously improving on and expanding the scope of these incentives.

The main corporate tax incentives are the following:

  • Accelerated depreciation: assets used for R&D may qualify for accelerated three-year depreciation rather than the standard five-year schedule
  • R&D investment deduction: in addition to (ordinary) depreciation of research costs, the company is allowed an additional 13.5% one-time or 20.5% spread deduction for R&D investments, resulting in the deductibility of up to 120.5% of the investment
  • Patent income deduction (PID): the PID allows taxpayers to deduct 80% of qualifying patent income from their taxable income, resulting in a 6.8% maximum effective tax rate. The PID applies not only to licence payments (milestone payments, upfront fees, etc) but also to a percentage of turnover on patented goods and services. The requirements to benefit from the PID were recently relaxed and, as a result, an R&D centre is no longer required in all cases (making the PID particularly interesting for YICs)
  • Other corporate tax benefits: the notional interest deduction, tax exemptions for regional subsidies, energy-savings deduction, and an established advance ruling practice (cost plus transfer pricing method for R&D, rulings allowing a downward adjustment of the taxable profit if it could not have been realised in a stand-alone situation, etc).

The main employment-related incentives are the following:

  • R&D payroll tax incentive: 80% of taxes withheld through the payroll on wages for qualifying research need not be remitted to the tax authorities. This incentive reduces the salary cost of researchers working on qualifying R&D projects by about 25%, allowing companies to put these savings to better use
  • Expat tax status for executives and researchers: foreign executives and researchers temporarily assigned to Belgium may qualify for a special non-resident tax status (ie they will only be taxable on income sourced in Belgium) and receive tax-free allowances of up to EUR 29,750, tax-free reimbursement of certain expenses (installation costs, school fees, etc), and a business travel exemption
  • Other employment-related tax benefits: tax-deductible R&D premium (up to one month's gross salary per employee, exempt from social security contributions and income tax), etc

YICs may qualify for all of the abovementioned tax incentives. Since many YICs do not break even in their first few years, they will particularly appreciate these incentives, which will have a direct (positive) impact on their cash flow and accounting position

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An ideal way of maximising the involvement of executives and employees is the use of stock options, which are taxable upon grant (rather than exercise) on a lump-sum basis.

Apart from stock options, there are a number of other employee-related R&D tax incentives (see question "Are there any tax incentives available to R&D companies and, if so, how can I benefit from them?").

Another way of remunerating or rewarding employees is the use of fringe benefits (company car, mobile phone, tablet computer, luncheon vouchers, etc), which are often taxed on a lump-sum basis and subject to reduced employer's social security
contributions. Please note that a tax ruling is frequently sought in these cases.

Finally, (pension and hospitalisation) insurance plans are also frequently used, as they allow substantial savings on employer's social security contributions whilst offering short- and long-term benefits to employees.

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Belgium is a very interesting jurisdiction in this regard. Indeed, Belgium actively promotes R&D and IP-intensive businesses through various tax incentives, some at the corporate level and some applicable to employees. Belgium is continuously
improving on and expanding the scope of these incentives.

The main corporate tax incentives are the following:

  • Accelerated depreciation: assets used for R&D may qualify for accelerated three-year depreciation rather than the standard five-year schedule
  • R&D investment deduction: in addition to (ordinary) depreciation of research costs, the company is allowed an additional 13.5% one-time or 20.5% spread deduction for R&D investments, resulting in the deductibility of up to 120.5% of the investment
  • Patent income deduction (PID): the PID allows taxpayers to deduct 80% of qualifying patent income from their taxable income, resulting in a 6.8% maximum effective tax rate. The PID applies not only to licence payments (milestone payments, upfront fees, etc) but also to a percentage of turnover on patented goods and services. The requirements to benefit from the PID were recently relaxed and, as a result, an R&D centre is no longer required in all cases (making the PID particularly interesting for YICs)
  • Other corporate tax benefits: the notional interest deduction, tax exemptions for regional subsidies, energy-savings deduction, and an established advance ruling practice (cost plus transfer pricing method for R&D, rulings allowing a downward adjustment of the taxable profit if it could not have been realised in a stand-alone situation, etc).

The main employment-related incentives are the following:

  • R&D payroll tax incentive: 80% of taxes withheld through the payroll on wages for qualifying research need not be remitted to the tax authorities. This incentive reduces the salary cost of researchers working on qualifying R&D projects by about 25%, allowing companies to put these savings to better use
  • Expat tax status for executives and researchers: foreign executives and researchers temporarily assigned to Belgium may qualify for a special non-resident tax status (ie they will only be taxable on income sourced in Belgium) and receive tax-free allowances of up to EUR 29,750, tax-free reimbursement of certain expenses (installation costs, school fees, etc), and a business travel exemption
  • Other employment-related tax benefits: tax-deductible R&D premium (up to one month's gross salary per employee, exempt from social security contributions and income tax), etc

YICs may qualify for all of the abovementioned tax incentives. Since many YICs do not break even in their first few years, they will particularly appreciate these incentives, which will have a direct (positive) impact on their cash flow and accounting position

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From a tax perspective, the main decision you will need to make when financing your business is whether to use equity or debt. For equity and equity-like financing (shares, warrants, options, etc), the contributor bears the business risk. For debt financing, however, the contributors are in principle ensured a periodic return and are paid back before equity stakeholders.

The holders of equity (instruments) qualify for dividends or share redemptions and the like. The holders of debt instruments receive interest. For the company, dividends are not deductible as a business expense, whereas interest on debt is. Leveraged financing can thus help to decrease the corporate tax base. To help level the playing field between equity and debt, the Belgian legislature created the notional interest deduction (aftrek voor risicokapitaal/déduction fiscale pour le capital à risque), which allows companies to deduct a percentage of their adjusted equity as fictitious interest.

In startups and research-intensive companies and joint ventures, mixed financing is often preferred (or even required by foreign investors and venture capitalists), whereby debt financing is initially used which can be converted into equity at a later stage (convertible bonds, etc).

As mentioned above, interest on business loans is in principle tax deductible. There are, however, several rules to avoid abuse of interest deductions, such as the thin capitalisation rule and the non-deductibility of excessive interest.

Certain types of financing are hybrid, meaning they are considered equity in one jurisdiction and debt in another. Such hybrid instruments can be particularly interesting from a tax perspective, as they may eliminate withholding tax or even qualify
for a double deduction of costs (one in each jurisdiction).