Impact of the corporate tax reform on the Tax Shelter: The Tax Shift Effect

Companies that end their tax year from 31 December 2020 onward will be able to exempt up to €1,000,000 of their profits through the Tax Shelter.

Rolled out in several waves, the corporate tax reform has brought this tax below the 30% mark. From 33.99% to 29.58% initially. And as of the end of this year, companies that close their fiscal year on or after 31 December 2020 will be subject to a 25% tax. In order to guarantee investors an equivalent return on their investment, adjustments have been provided for in Article 194ter of the CIR 92. Companies can now exempt up to €1,000,000 of their profits thanks to the Tax Shelter.

Last update on : 14.05.2020

New exemption rate of 421%.

In order to "ensure consistency" with the system "as it was designed before the corporate tax reform", the exemption ceiling initially set at 750,000 euros has been revised upwards.

In order to guarantee investment levels equivalent to those of the previous period, the maximum amount to be exempted has thus been increased to 850,000 euros and will rise to a new level of 1,000,000 euros for companies that will close their fiscal year on or after 31 December 2020 (tax year 2021). This change in the exemption ceiling and the tax rate (which descends to 25%) is accompanied by a readjustment of the exemption rate for Tax Shelter investment, which rises to 421%.

This change therefore means that the investment capacity per company and per year is maintained at around EUR 240,000 (1,000,000/4.21 = 237,529).

For investors who find themselves in a "carry-over" situation after having invested too much in previous years in relation to their capacity (legal limits), a multiplying coefficient may be applied to the amount of the sums which could not be exempted. The calculation will thus be made on the basis of the tax rate in force during the taxable period in which the investor signed the Framework Agreement and the rate in force for the period over which the transfer is made, so that the investor maintains his expected tax return.

The potential overall net gain from a Tax Shelter transaction, combining the tax yield and the payment of a financial premium, amounts to almost 10% of the amount invested in the scheme.

The risks inherent in a Tax Shelter investment must be taken into account before any investment decision is made.

Last update on : 14.05.2020


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