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
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.