What is the notional interest deduction ? May I reduce my company taxes to… ZERO ?
The system of notional interest (also known as “deduction for risk capital “) that exists in Belgium creates a unique playing field for tax payers that actually may determine the amount of taxes their companies will pay based on the amount of their contributed capital.
This notional interest system also replaces the old tax regime of coordination centers in an original and unpreceded way, thus attracting more capital in our beautiful country.
Belgium thus offers corporate taxpayers to enjoy a fictitious interest rate on their equity. These fictitiously calculated interests will be deductible from the taxable base of the company. Logically then, the higher the contributed equity, the greater the notional interest deduction.
Moreover, compared to loan interest, the notional interest is a permanent advantage (meaning that contrary to the deductions of interest on loans that require a new contract when the loan ends, the tax deduction for risk capital does not require new capital injections).
Note that since the 2013 tax year, non-allocated notional interest stocks are no longer carried forward, with an exception for notional interest stocks accrued during the years prior to the 2013 tax year.
For the 2016 tax year, notional interest rate is as follows: 1.630 % for large enterprises and 2.130 % for Small and Medium Enterprises (SMEs).
With sufficient capital – and assuming that there are no rejected equity components – one may thus reduce one’s company taxable income to zero.
For the 2015 income year, the necessary capital is:
Turnover € 50.000,00 € 200.000,00 € 500.000,00
Large entreprises € 3.067.484,66 € 12.269.938,65 € 30.674.846,63
SMEs € 2.347.417,84 € 9.389.671,36 € 23.474.178,40