Tax reforms for management companies in Belgium
Facing a growing budget deficit, the government is seeking new sources of revenue to strengthen public finances. In this context, the executive aims to curb the growth of management companies, from which it hopes to generate additional income. According to Statbel, their number has more than doubled in five years, rising from around 20,000 to 55,000 entities. Their cumulative profits have also increased significantly. The attractiveness of these companies mainly lies in the tax advantages they offer.
The new budget agreement, therefore, redefines the tax rules for management companies, focusing primarily on two aspects:
-
The liquidity reserve regime
-
The minimum salary for company directors
In Belgium, dividend distributions are normally subject to a 30% withholding tax. However, several reductions and exemptions exist, including the VVPRbis regime. This scheme was designed to support entrepreneurship. It encouraged small companies to build financial cushions and allowed them to distribute dividends subject to a reduced withholding tax under certain conditions. This mechanism was widely used by SMEs as well as management companies, as it allowed for a lower tax burden compared to personal income taxation, for example. During budget negotiations, a €100,000 cap was considered to limit this advantage, but this option was ultimately abandoned. The government opted instead to increase the applicable reduced rate.
What changes concretely for the liquidation reserve regime:
-
The reduced withholding tax rate on dividends will rise from 15% to 18%.
-
The waiting period for distributing a reserve is reduced from 5 to 3 years.
-
This early distribution will now be subject to a slightly higher withholding tax of 6.5% instead of 5%.
The tax reform for management companies also targets an increase in the minimum salary for directors:
-
To continue benefiting from the reduced corporate tax rate of 20% on the first €100,000 of profits, directors will now have to receive a minimum salary of €50,000, up from €45,000.
-
Benefits in kind (BIK) will be limited to a maximum of 20% of the annual gross salary.
What are the impacts for SMEs?
The measure is officially intended to target “the broadest shoulders.” However, it will not only apply to management companies. All companies that create reserves and distribute dividends will be affected. This also includes very small businesses (VSBs), incorporated self-employed individuals, and liberal professions. These entities will be impacted from the very first euro distributed. A €100,000 cap would have largely spared them. A transitional period is planned, though: existing companies will only have to apply the new 18% rate starting in 2029.
A reform that does not eliminate the value of management companies
The reform will likely increase Belgian state tax revenues. Nevertheless, it does not call into question the usefulness of management companies: despite the higher reduced rate, these structures remain, in many cases, advantageous and necessary for self-employed individuals. As highlighted by the UCM, it is important to place this reform in a broader context: recurring debates about these structures reveal a lack of a global and coherent vision of entrepreneurial taxation, which requires both competitive taxation and sustainable support to promote the Belgian economy as a whole.
