A favourable investment climate
As part of the Belgium tax system, West Flanders offers investors a favourable tax system. Since the financial year 2006, a unique rule has been effective in Belgium, namely, the so-called ‘notional interest deduction’, which is a rule pertaining to company tax that can be applied by companies as from assessment year 2007.
Through this rule, companies can use equity capital to invest in their business, thus enjoying tax benefits. When companies want to make large investments, they usually borrow money from a bank. The interest on those loans is tax-deductible. This notional interest fiscal measure also enables companies to fiscally deduct the interest stemming from investments made using equity capital. In fact, it is a fictitious interest that is deducted, resulting in companies owing less tax.
Through this measure the government aims to create a more favourable investment climate in Belgium in order to reduce the tax burden on companies. After all, this fictitious deduction can be enjoyed by all Belgian and foreign companies that are subject to Belgian company tax provided that they prepare annual accounts.
| A.Y.2010 | A.Y.2009 | A.Y.2008 | A.Y.2007 | |
| General rate | 4.473 | 4.307 | 3.781 | 3.442 |
| SME-type company rate | 4.973 | 4.807 | 4.281 | 3.942 |
The rate of the notional interest deduction is 4.473 % for assessment year 2010. For small and medium-sized enterprises this percentage is raised by 0.5 %, bringing the amount to 4.973 %. There is an increasing trend in the amount of the notional interest deduction.
Note to the fiscal instrument of the notional interest deduction or tax deduction for venture capital: as from assessment year 2007, each year a company can deduct from its taxable profit an amount corresponding to a percentage of its adjusted net asset value using the company tax return form.
This deduction is made immediately after the DBI (Definitively Taxed Income) deduction but before the recovery of previous fiscal losses. In the absence of sufficient profit, the unused deduction can be carried forward to the next seven years. The exact amount of the deduction for venture capital is obtained by multiplying the venture capital by the applicable interest rate.
For additional information and a detailed example, download the official brochure of the Federal Public Service FINANCE of Belgium.
