Choose your language:
News 21st of May 2019 By Hannelore Durieu and Biene Ongenaert

Pay attention to withholding tax on contracts with a foreign company

Be attentive to the withholding of withholding tax on contracts with a foreign company!

What are royalties?

  • +a copyright to a literary, artistic or scientific work, 
  • +a patent, an industrial trademark or trademark, a drawing, design, plan, secret recipe or secret method, or 
  • +information concerning experiences in relation to industry, trade or science.

Tax consequences

If, for instance, a Belgian company sells a licence to a customer in Italy for EUR 1,000, withholding tax of 30% will be withheld from the fee in Italy. As a result, the Belgian company will only receive EUR 700. This EUR 700 will then be subject to Belgian corporation tax. 

Solutions?

In our previous example, it is possible to limit the withholding tax in Italy to 5% based on the double taxation treaty between Belgium and Italy. Pursuant to the application of the treaty, the Belgian company will receive EUR 950, as opposed to EUR 700 without application of the treaty.
In our example, the Belgian company will be able to set off the foreign withholding in its corporation tax return via the FBB system. After this set-off and the corporation tax (29.58%) in Belgium, the Belgian company will have a profit of EUR 787.05. This results in a total tax burden of 21.30%.  In 2020, this tax burden will decrease even further to 16.18% when the Belgian corporation tax rate becomes 25%.

Royalties: blessing or curse?

Disclaimer
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.
Hannelore Durieu
Hannelore Durieu
Biene Ongenaert