Belgium: Special liquidation reserve, small companies and liquidation bonuses

Belgium: Special liquidation reserve

The rate of withholding tax on liquidation bonuses was in 2014 increased from 10% to 25%, and since then, the rate has increased to 30%.

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A transitional measure has been introduced to allow small companies to set up a special liquidation reserve from taxed reserves for tax periods relating to tax years 2012, 2013 and 2014. By paying a separate contribution of 10%, these reserves can be recorded in an account separate from liabilities, and then be distributed on tax-advantageous terms (at a rate of 5% or 0%).

To be eligible for this treatment, there are a number of conditions, including:

  • Qualification as a “small company” according to the criteria of the Belgian company law (assessed on a consolidated basis)
  • The timely presentation of a special 275A declaration and the timely payment of the separate assessment
  • The timely filing of annual accounts relating to the tax year in question
  • Attaching a copy of the special declaration to the corporation tax return for the relevant tax year

Companies applying this regime would have already received a registered letter from the tax administration with details.

First, the tax administration confirmed that the separate 10% fee paid is accepted as a “regular payment,” provided that the liquidation reserve has not been rejected. In addition, the tax administration informed taxpayers of the right to request reimbursement of this contribution within six month if the conditions of application were not met. Finally, the tax administration indicated that the special liquidation reserve may be subject to review in the future.

On the basis of the statements made in the press, the position of the tax administration appears to be that the separate contribution paid would be lost if, after expiration of the six-month complaint period, all the conditions of application were not met (meaning that a withholding tax of 30% would be applied on distribution of the special liquidation reserve).

KPMG observation

Tax professionals have observed that practically speaking, the special liquidation reserve is not a simple measure to apply, especially given the number of conditions that must be met and given a number of questions about its interpretation. The letter from the tax administration seems to indicate that in the future, this special liquidation reserve will still be the subject of specific control actions, and tax professionals suspect that the tax administration will apply a strict standard in verifying that all the legal conditions have been met. Yet, the Minister of Finance has already confirmed that failure to attach a copy of the form 275A to the corporate income tax return will not compromise the application of the favorable regime.

Some have questioned whether outside the normal control period of three years could a special liquidation reserve be reversed and whether after the expiration of the complaint period could a separate contribution paid be recovered. In any event, tax professionals believe it is prudent to verify that the special liquidation reserve has been correctly applied (and whether all the tax conditions have been met) and if not, file a complaint.


Read a January 2021 report (French) prepared by the KPMG member firm in Belgium

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