After much discussion and negotiation, the famous Belgian “notional interest deduction” has not been cancelled but the rules have been tightened up.
As a reminder, the notional interest deduction allows Belgian resident companies as well as Belgian branches of non-resident companies to claim a tax deduction calculated on the basis of a fixed percentage of their adjusted net equity.
Under the rules to date, the rate of notional interest to be applied on this adjusted net equity was fixed on a year to year basis by reference to the average interest rate on Belgian government 10 year bonds, subject to a maximum cap of 6,5 %.
In addition, the unused part of notional interest deduction could be carried forward for a maximum of 7 years.
Under the new rules to be applied by the new Belgian government the maximum interest rate is reduced to 3% (3,5% for small and medium sized companies) for 2012, 2013, and 2014. For the following years, this maximum rate may be modified.
Furthermore, for the future, the possibility to carry forward the unused notional interest deduction will be cancelled. However, the unused NID as per 31 December 2011 will be subject to specific rules. Under these rules, the deduction will be the last operation in the tax return and will be limited to 60 % of the otherwise taxable income (except for the first 1 million euros) and the unused portion of the deduction will be available for carry-forward to the following year.
In general terms these new rules are less strict than what many companies feared and, indeed, some pundits had predicted that the whole notional interest deduction would be abolished.