Reform of the Belgian investment deduction regime

The Belgian Federal Government has recently approved a reform of the investment deduction regime, which Parliament is expected to approve in the coming weeks. The draft law introduces three categories of investments qualifying for a tax deduction (on top of the standard amortization for tax purposes): a general category with a basic deduction of 10% for SMEs, a category of thematic deductions at 40% (SMEs) or 30% (MNEs) and, as a third category, a technology deduction of 13,5% (which essentially covers the existing investment deduction for patents and environment-friendly investments in R&D). Apart from the new categories of investments and percentages that will apply, the general conditions of the investment deduction remain largely unchanged compared to the current regime. If adopted, the new rules will apply to investments as from 1 January 2025.

SMEs and qualifying individuals can currently benefit from the ordinary investment deduction, a deduction from the taxable income base amounting to 8% for investments made as from 1 January 2023. The new basic deduction replaces the ordinary investment deduction and foresees in an increase of the rate from 8% to 10%. 

For investments in qualifying digital assets an increased rate of 20% will apply. According to the explanatory memorandum, this covers software and equipment to support digital payment and invoicing systems, digital accounting systems, digital CRM systems, digital e-commerce platform systems and digital systems for information and communication technology security. The nature and technical characteristics of the eligible investments will be further determined by Royal Decree.

The basic deduction will not apply to fixed assets based on or using substances that are harmful to the environment and climate with the exception of assets for which no economically comparable carbon emission free alternative exists. A list of such assets will be published.

The basic deduction can be applied without a formal application procedure. The use of the forms 275U and 276U – as currently already applicable to the ordinary investment deduction – will however be retained.

Today, there are also a number of specific investment deductions. These will all be replaced under the new regime by "the increased thematic deduction". This deduction foresees in a general deduction of 40% for natural persons and SMEs and 30% for other companies. To be eligible for the investment deduction, the investment should belong to one of the following "themes" or categories:

1. Investments in efficient energy use and renewable energy
2. Investments in carbon emission free transportation
3. Environment-friendly investments
4. Digital investments supporting the three previous categories.

For each of the above categories a limitative list of qualifying investments will be published by Royal Decree (taking into account the advice from the relevant authorities). The respective lists are valid for three years, with an extension of two years when a new list would not be adopted in time. A maximum qualifying investment amount for specific investments can also be established by Royal Decree.

The law also provides for two exclusions:

• First, the increased thematic deduction cannot be applied by companies in difficulty or by a company subject to a recovery order following a decision by the [European] Commission declaring an aid granted by Belgium to be unlawful and incompatible with the internal market.
• Next, the increased thematic deduction cannot be applied "to fixed assets for which regional aid is requested." Provided that the Royal Decree may provide for an exception to this rule.

An attestation from the competent authority must be added to the tax return in order to benefit from the investment deduction. The attestation must demonstrate that the specifications in the lists that will be established are met with respect to the specific investment. The competent authority responsible for the issuing of the attestation must also motivate this in the attestation, as well as confirm that the investment does not cause unreasonable harm to the environment. The term "unreasonable harm" must be assessed according to the circumstances and possibilities of the specific investor. 

Further guidance on application and formalities will be determined later by Royal Decree.

Since years, taxpayers have the option to benefit from the increased investment deduction for patents and environment-friendly investments in research and development (R&D) in the form of a deduction in basis or a refundable tax credit. This requires obtaining a certificate from the regional competent authorities confirming the environmentally friendly nature of the investment. For assessment year 2025, the rate amounts to 15.5% for the one-off deduction and 22.5% for the spread deduction.

Under the new law, the investment deduction for environment-friendly investments in R&D and patents will be renamed as technology deduction. The qualifying investments under this deduction remain:

• Patents
• Fixed assets used to promote research and development of new products and advanced technologies that have no impact on the environment or aim to minimize the negative impact on the environment of existing products and technologies as much as possible.

The percentages for the technology deduction will be fixed at 13.5% for the one-off deduction and 20.5% for the spread deduction. There is also still the possibility to opt for a tax credit calculated at 25% of the amount of the investment deduction. Recently, the R&D tax credit regime was updated in view of the global minimum tax rules and made refundable after 4 years already (instead of 5 in the past). 

Here are a few other notable provisions foreseen in the draft law:

• The 120% deduction of costs to encourage the use of bicycles or speed pedelecs by employees for commuting is abolished, but there is an increased thematic investment deduction for carbon emission-free transport (see above).
• When wages which benefit from the (partial) wage withholding tax exemption are included in the acquisition value of assets, the exempt amount may not be included in the calculation basis of the investment deduction, which eliminates the possibility of double deduction. This principle was already applied in the context of the R&D tax credit and is now extended to all categories of investment deduction in the new law.

 Should you have any questions, do not hesitate to contact your KPMG adviser.