Belgium: Changes to investment deduction under proposal for first phase of tax reform

The proposal for the first phase of tax reform, released by the Minister of Finance earlier year (read TaxNewsFlash) and proposed to apply as of 1 January 2024, includes a measure that would reform the investment deduction by substantially increasing the deduction and creating a system of accelerated, double depreciation.

Under the proposed reform, the deduction would be transformed into a system of three mutually exclusive categories:

• Basic deduction
• Increased thematic deduction
• Technology deduction

In addition, under the proposed reform, certain taxpayers would be excluded from the new system:

• The taxpayer must not have any overdue debts with the National Social Security Office.
• The taxpayer may not be classified as a company in difficulty on the last day of the taxable period in which the fixed assets in question were acquired or created.
• No state aid repayment order may be outstanding against the taxpayer.
• No regional aid may have been or be applied for (unless the maximum aid intensity is not exceeded).

Investment deductions would also exclude investments based on or using fossil fuels, except for those allowed under the increased thematic or technology deduction or if no economically comparable carbon-free alternative is available. The 120% deduction for bicycle and speed spedelec use would also be revoked. These vehicles would, however, be able to enjoy the increased thematic deduction (emission-free transport) in the future.

The basic deduction, which is similar to the current ordinary deduction, would be 10% for natural persons and small enterprises and would not be applicable to large enterprises. To benefit from this deduction, no special notification procedure would be required.

The purpose of this deduction is to support taxpayers to make investments that are necessary in the day-to-day operations of the business, and these would bring future benefits to the business.

The increased thematic deduction would be 40% for individuals and small businesses, and 30% for large companies.

The purpose of this deduction is to encourage companies to make certain investments that pursue a societal purpose. The law mentions the themes within which the investments should be made, which include investments in energy efficiency and renewable energy, investments in emission-free transport and environmentally friendly investments. Digital investments that support previous goals would also be able to enjoy the deduction. The list of particular investments would not be included in the law, but would be provided by the tax authority. The list would remain valid for a period of five years. In line with the stated purpose, this deduction would be denied if the investment would cause unreasonable harm to the living environment.

For investments benefiting from the increased thematic deduction, it would also be possible to make use of double linear depreciation. This means that an annual depreciation could be applied equal to twice the normal linear depreciation annuity on investments in fixed assets listed by the tax authority at the time of acquisition or creation.

The technology deduction, which is similar to the current enhanced investment deduction, would be granted for investments in patents and investments in environmentally friendly research and development (R&D). It would be required that the fixed assets used to promote the R&D of new products and future-oriented technologies have a clear and demonstrated positive impact on the environment or that aim to minimize the negative impact on the environment of existing products and technologies. Again, the deduction would be refused if the investment causes unreasonable harm damage to the living environment.  

The amount of the deduction would be 13.5% or 20.5%, depending on whether it is taken at one time or over multiple tax years. In case of a deduction over multiple tax years, the deduction would happen in parallel to the depreciation period.

Read a May 2023 report prepared by the KPMG member firm in Belgium