The Tax Shelter and reform of corporation tax: new prospects

The recent taxation reforms have seen the rate of corporation tax reduced to below the 30% mark, a move not without effect upon the Tax Shelter.

The percentage of exemption, previously fixed at 310%, has therefore been adjusted in parallel so as to generate an equivalent fiscal yield. But precisely what yield can be expected? Here are the figures for the coming financial years.

Last update on : 26.03.2021

The tax reform in brief

Companies will essentially pay gradually less tax, but a distinction still needs to be made between SMEs and larger firms. For “large companies”, the rate is changing from 33.99% to 29.58% for the 2019 and 2020 financial years, then to 25% from the following financial year (2021). SMEs, meanwhile, will be subject to a more favourable rate of 20.4% on the first tranche of €100,000 for the first two financial years (2019 and 2020), and then 20% from the 2021 financial year. It should, however, be noted that in order to benefit from the reduced rate, companies must be classed as a “small business” within the definition of the Companies’ Code and pay the company’s managing director a salary of at least €45,000.¹

1. Small companies which don’t have a tax base equivalent to at least €90,000 can also obtain the reduced rate by allocating a salary to at least one director (a natural person) that reaches half of its tax base (after deduction of these fees).

Last update on : 26.03.2021

And the Tax Shelter?

Let’s say that you’ve invested 100 euros in the Tax Shelter: the percentage of tax exemption has thus far generated you a tax yield of 5.37% (i.e. 100 x 310 % x 33.99%). In order to avoid a fall in the yield generated by the Tax Shelter under the new reform, the legislator has raised the exemption rate to 356% (financial year 2019-2020) or 421% (as from financial year 2021) from the previous 310%, making the calculation of the new tax yield very close to the previous one: 5.25% (100 x 421% x 25%).

Last update on : 26.03.2021

The yield for large companies

The Tax Shelter is a real alternative to the corporate tax for large companies with a positive pre-tax profit, regardless of the amount invested, up to the ceiling authorized by the legislation on Tax Shelter which now stands at 237,529 euros and allows a maximum of 1,000,000 euros to be exempted per year and per company.

Following the health crisis, the exemption ceilings were temporarily doubled, until the closings of December 31, 2021: companies that have the capacity can exempt up to 2,000,000 euros for the year, which corresponds to an investment of 475,058 euros.

An exceptional measure that is aimed at large companies but allows the audiovisual sector to balance fundraising made more precarious by the uncertain prospects of SMEs.

Last update on : 26.03.2021

The yield for small companies

For “small businesses” that qualify for a reduced tax rate, the tax yield varies depending on the pre-tax profit and the amount invested in the Tax Shelter. For instance, there is no tax interest for “small businesses” to invest in the Tax Shelter if their pre-tax profits do not exceed €100,000. From €160,000 upwards, SMEs benefit from the same conditions as those described for large companies. The following table provides an overview of the various possible scenarios:

Generally speaking, if an investor is subject to a marginal tax rate that is less than the normal rate (29.58% for the 2019/2020 tax year or 25% as from 2021), the overall net gain of the operation may be negative. In any event, investors are advised to examine their own specific situation with their usual tax adviser prior to making any investment decision.

A case-by-case evaluation is consequently a must for small businesses. The calculation of the ideal Tax Shelter investment requires a precise estimation of the pre-tax balance sheet profit, ineligible tax expenses and tax deductions. As a pioneer on the Belgian Tax Shelter market, SCOPE deploys its technical expertise on behalf of businesses, along with an online calculation tool.

Last update on : 26.03.2021