Belgium's 2025-2029 Coalition Agreement

With the formation of the new Belgian federal government and the unveiling of the Federal Coalition Agreement for 2025-2029, significant tax reforms are on the horizon. These changes are poised to reshape the economic landscape, offering both challenges and opportunities for M&A activities.

The most important tax measures of the Coalition Agreement that are relevant for M&A are summarized below.

Under the Parent-Subsidiary Directive, dividends from subsidiaries to parent companies are exempt from withholding tax and (double) taxation at the parent level. The current dividends-received deduction will become an exemption. Although this seems like a mere technical change, we would expect it to solve many of the problems with the current system (such as the interaction with the Belgian tax consolidation – see below).

The minimum participation requirement remains at 10%, but the alternative acquisition value threshold increases from 2.5 MEUR to 4 MEUR. For participations under 10% with a 4 million EUR acquisition value, the investment must be a financial fixed asset. This additional condition should ensure the dividends-received deduction is preserved for companies with a sustainable relationship.

These stricter conditions would apply only to (and between) large companies, not SMEs, as per art. 2, §1, 4°/1 BITC.

In practice, several existing management incentive plans and carried interest structures aim to benefit from the liquidation reserve regime (10%) or the VVPRbis regime (15%).

The liquidation reserve regime will align with the VVPRbis regime: the waiting period will decrease from 5 to 3 years, and distributions after this period will be taxed at 6.5% instead of 5% withholding tax, starting January 1, 2026, for new liquidation reserves. Upon liquidation, the 6.5% rate is not applied, and the regime essentially remains unchanged from the current system.

Earlier distributions will be taxed at 30%.

In its current form, the Belgian tax consolidation (group contribution regime) has proven to be rather inefficient in the context of M&A, mainly due to a required 5 year holding period.

The Federal government now seeks to make the Belgian tax consolidation more attractive by (i) allowing tax consolidation for new entities and (ii) allowing for tax consolidation between indirect affiliates.

Furthermore, the tax-technical interaction between the Belgian participation exemption on dividends (dividends-received deduction) and tax consolidation, which implied that often no tax consolidation could be applied when upstreaming dividends, will be resolved.

An outbound migration from Belgium is considered a deemed liquidation for Belgian tax purposes, unless the assets would remain within a Belgian permanent establishment, thereby typically resulting in a deemed (liquidation) dividend. Based on current case law and ruling practice, no withholding tax would however be due on such deemed dividend under the current rules. Based on the government agreement, it can be expected that a withholding tax obligation will be introduced on such deemed dividend going forward. For corporate shareholders that meet the requirements for a withholding tax exemption on the basis of the EU Parent Subsidiary Directive, an exemption should logically be available. 

One of the most discussed topics is probably the introduction of a capital gains tax in Belgium. A tax (so-called “solidarity contribution”) of 10% will be introduced on realized capital gains on financial assets, including crypto assets, built up as from the moment of introduction of the tax. Historic capital gains would be tax exempt. Capital losses on financial assets realized in the same year can be deducted from capital gains, without carry-forward.

For small investors, the first 10,000 EUR (to be indexed) will be exempt, excess capital gain would be taxable at 10%.

In case of a considerable participation of at least 20%, the first 1 MEUR will be exempt, and excess will be taxable at progressive rates:

• Capital gain between 1 and 2.5 MEUR will be taxed at 1,25%.
• Capital gain between 2.5 and 5 MEUR will be taxed at 2,5%.
• Capital gain between 5 and 10 MEUR will be taxed at 5%.
• Capital gain as from 10 MEUR will be taxed at 10%

The Coalition Agreement leaves many questions unanswered regarding its practical implementation.  Additionally, how this measure will interact with the introduction of a carried interest regime remains unclear (see below for more details).

The new federal government will establish a specific, competitive regime regarding carried interest compared to the existing regimes in neighboring countries, in order to stimulate fund activity in Belgium. This regime will provide for a tax rate of up to 30% on investment income and will have no impact on existing plans.  There is currently no definition of “carried interest”.  It is uncertain how this new regime would interact with the new solidarity contribution (capital gains tax on shares) and the VVPRbis or liquidation reserve regime. 

The new federal government agreement features a dedicated section on combating fraud, with key initiatives such as hiring 300 additional staff to bolster enforcement efforts. Notably, this section also emphasizes improving the relationship between taxpayers and tax authorities. This includes a greater focus on the mediation service and abolishing the automatic imposition of a 10% fine in the penalty system.

Another significant change that benefits taxpayers is the adjustment of tax audit and assessment periods. Previously, extended periods of up to 10 years were implemented for audits starting from the 2022 financial year. The new agreement revises these timelines. The standard limitation period remains at three years, but the audit period for semi-complex and complex tax returns will now be reduced to four years, down from six or ten years. In cases of fraud, the audit period will be shortened to seven years instead of ten.

These changes will be relevant in the context of a tax due diligence. 

The new federal government agreement pledges to support Regions that aim to address share deals involving real estate companies. Unlike direct real estate transfers, which incur real estate transfer taxes for the Regions, share deals do not trigger such taxes. The specifics of how this 'assistance' will be provided remain unclear, as does the rationale for its inclusion in the federal government agreement.

The new federal government is also planning a reform of the Private Privak regime, aiming to provide more investment freedom and reduce administrative burdens. This could create new opportunities for those looking to invest in private equity.

A Private Privak is a tax-friendly investment vehicle allowing investors to invest in non-listed companies. It's a popular choice for investors who want to support the growth of private businesses.

The new federal government agreement foresees the following changes:

• More flexibility in investment opportunities
• Less administrative red tape
• Attractive tax incentives