Belgium: Reconstruction reserve regime allows certain profits to be exempt from tax (COVID-19)

Companies with an operating loss need to consider applying the reconstruction reserve regime

Reconstruction reserve regime allows certain profits to be exempt from tax

Companies with an operating loss for FY 2020 and expecting a taxable profit for FY 2021 need to consider applying the reconstruction reserve regime and then record the reserve in the annual accounts of FY 2021. The reconstruction reserve was introduced last year in response to the coronavirus (COVID-19) pandemic.

Provided certain conditions and limits are satisfied, companies will be able to claim as exempt a part of their profit for the tax periods 2021, 2022, and 2023 (linked to assessment years 2022, 2023 and 2024) by recording that profit on an exempt “reconstruction reserve.” This reconstruction reserve is an intangible reserve. The amount is limited by a double ceiling—the operating loss of income year 2020 and an absolute maximum of €20 million.

The reconstruction reserve thus allows companies to keep future profits within the company in a tax advantageous way and to rebuild their equity to levels before the pandemic. However, equity and employment must be maintained:

  • The reconstruction reserve is taxable when there is a capital reduction, dividend distribution or liquidation.
  • An employment condition also applies. If the personnel cost of the companies drops below a certain level, the tax advantage will be reduced. The personnel cost for income year 2020 and the following three years must equal at least 85 % of the personnel cost paid in 2019. If not, part of the reconstruction reserve will become taxable.

Finally, the regime is not available for a company that has a direct participation in companies located in tax haven jurisdictions or that makes payments into tax havens that cannot be economically or financially justified.

Read a December 2021 report prepared by the KPMG member firm in Belgium


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