Companies and sole traders with taxable results are encouraged to make advance payments. After all, if a company or sole trader does not pay enough in advance during the taxable period, or does not make an advance payment at all, this increases the amount of tax they will owe. It is important for companies and sole traders to be aware of the rules in order to avoid such an increase.
Companies are subject to corporate income tax if they have profit-making activities and a registered office or principal establishment in Belgium. Normally, they will be obliged to pay tax over the total amount of taxable profit. The usual practice is for a company to file its corporate tax return after closing the financial year. In exceptional cases, a financial year may be cut short or extended, due to liquidation or a merger for example.
To avoid a tax increase, companies must make advance payments during the financial year in which a profit is realised. In other words, they must pay their taxes even before the taxable base is definitively known. This obligation applies to both Belgian companies subject to corporate income tax and to foreign companies subject to non-resident tax that engage in business or profit-making activities.
If they do not make advance payments, or do not pay enough, companies will be obliged to pay a tax increase over all or part of the amount they would otherwise owe. For the 2023 assessment year, this concerns:
The rate of the tax increase for companies is 6.75% for the 2023 assessment year. In other words, the amount of tax they must pay will increase by 6.75% for the portion they fail to pay in advance. This increase applies from the very first euro the company fails to pay in advance. The increase is a true tax increase, not a tax-deductible expense. In contrast, interest paid to finance such advance payments is, in fact, a tax-deductible expense.
An exception to this rule is formed by ‘small enterprises’ during the first three assessment years after their incorporation. These are not required to make advance payments during this period. Unlike sole traders, however, they also will not receive any rebate (see below) for advance payments made in these first three years. Art. 1:24 of the Company Code defines small companies as companies that did not exceed more than one of the following criteria on the balance sheet date for the last financial year:
If a company exceeds, or no longer exceeds, more than one of these criteria, this only has an effect if it occurs for two successive financial years. There will be no consequences until the next financial year.
To avoid the 6.75% tax increase, companies can make advance payments. For companies with a financial year corresponding to the calendar year, the advance payments for 2022 must be made by 11 April 2022, 11 July 2022, 10 October 2022 and 20 December 2022 at the latest. These are the dates on which payments must be deposited in the account of the tax authorities’ service for advance payments. After that date, the amount will count towards the next quarter’s payment.
For companies using a different accounting period, the payments must be made on the tenth day of the fourth, seventh and tenth months and the twentieth day of the final month of the financial year. If one of these dates falls on a weekend, the deadline will move to the next business day. Companies with a financial year of less than 12 months lose one or more of these opportunities to make a prepayment. For companies with a financial year exceeding 12 months, only the last four dates will apply.
Each prepayment entitles the company to a reduction in their tax increase. The earlier a payment takes place, the larger this reduction will be. Applicable reductions:
For example, paying EUR 100,000 in advance on 11 April 2022 will reduce the tax increase by EUR 9,000, while paying the same EUR 100,000 on 20 December 2022 results in a reduction of only EUR 4,500. In other words, if a company pays precisely one quarter of the total amount of tax owed in advance every quarter, the entire tax increase of 6.75% will be neutralised. By concentrating all advance payments in the first quarter, a company need only to pay 75% of the total amount in advance to avoid a tax increase. Alternatively, if it waits until the final quarter, it will need to pay one and a half times the amount owed in advance to avoid an increase.
Others who must pay in advance to avoid a tax increase include the self-employed, people in liberal professions, managers and assisting spouses. The calculation base is equal to 106% of the taxation of the net profit or net fees for self-employment or a liberal profession and the remuneration received as a manager or assisting spouse. The amount of the income is reduced by any withholding tax or other deductible items relating to this income. Based on this 106%, a tax increase is calculated. For the 2023 assessment year, this increase is 2.25%. This amount is then multiplied by 90%. If the final amount of the increase is less than 0.5% of the tax that would normally be owed or less than EUR 80, no increase will be applied. We will illustrate this with an example.
Charles expects to owe EUR 20,000 in taxes for earnings from self-employment in the 2022 tax year (2023 assessment year). If he does not make any advance payments, his expected tax increase will be: EUR 20,000 x 106% x 2.25% x 90% = EUR 429.30.
He can make these payments on the same dates as companies with a financial year corresponding to the calendar year: Monday 11 April 2022, Monday 11 July 2022, Tuesday 10 October 2022 and Tuesday 20 December 2022. And again, the earlier a prepayment is made, the greater the resulting reduction will be. For the 2021 assessment year (2020 tax year) and 2022 assessment year (2021 tax year), the amount of this benefit will be equal to the sum of the following calculations:
As before, the average of these four percentages is equal to the tax increase of 2.25%.
No advance payment is required to avoid a tax increase for new entrepreneurs. These are defined as entrepreneurs who first became self-employed as their main business activity in the calendar years 2020, 2021 or 2022. If they do make such payments, however, this will entitle them to a rebate. The amount of the rebate is calculated as follows:
In some cases, a self-employed person or entrepreneur may also choose to take out a loan in order to deploy liquidity for other purposes. This will enable them to spread the expense across the entire year and they can deduct the interest from their taxes. Additionally, the bank will ensure the tax authorities receive the required payments correctly and in a timely fashion. In most cases, loans can be concluded for a minimum of eight months and a maximum of twelve months.
In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.
Read our latest insights and news releases to stay abreast of changes in your industry.