Company law reform: Tax implications

Belgian business law is undergoing a thorough reform. New bankruptcy and insolvency rules entered into force on 1 May 2018 and since 1 November 2018 the notion of “merchant”, together with the Commercial Code, has been abolished and replaced by the Code of Economic Law.

The final piece of this reform is the new Code on Companies and Associations, which has been submitted to parliament for approval on 4 June 2018.

Whereas it was the intention to have those rules in place on 1 January 2019, they, most likely, will apply as of the second half of 2019.

On 22 November 2018, the federal government submitted a draft bill (54-3367) to parliament to reconcile the federal tax rules (among others the Income Tax Code, VAT-Code and Inheritance tax Code) with the reform.

The bill provides for the following substantial amendments:

  1. Because the “real seat” doctrine will be replaced by the “incorporation” doctrine, having as a consequence that companies resident for tax purposes in Belgium are not necessarily governed by Belgian company law anymore, autonomous definitions and tax and accounting rules will be introduced (e.g. . in respect of reorganizations and making sure that companies governed by the company law of another country keep accounts in according with Belgian GAAP);
  2. Because the concept of “capital” is being abolished for private companies, specific definitions will be introduced in the Income Tax Code in respect of the “paid-up” and “authorized” capital. Also, special rules will be introduced in respect of capital decreases;
  3. Because the incorporation doctrine could lead to the application of foreign conversions rules, whether or not in combination with a transfer of the seat of effective management or with a change in nature (i.e. transition from the legal entities tax to the corporate income tax or visa-versa) specific rules will be implemented to deal with this new reality;
  4. Because many concepts of the old code on companies or to the law on associations are being abolished (e.g. the difference between commercial and civil companies) or renamed (e.g. the reduction and rebranding of the types of companies from 17 to 8), the tax federal tax codes will be amended to reflect these new concepts.

The amendments should be neutral from a tax perspective.

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