Personal tax benefit: Equity investment in Belgium start-up business
13 Jan 2016
The New measures to support small and medium-sized enterprises (‘SMEs’) were introduced into Belgium tax law in 2015. In particular, to support Belgium start-up businesses that may face a cash flow or funding gap, a tax incentive (tax shelter) was created whereby a Belgium or foreign tax resident (natural person) who provides additional funds by way of an equity investment in the Belgium start-up business will be entitled to a Belgium tax credit. The tax shelter rules apply to an equity investment made from 1 July 2015 either directly into the start-up business or indirectly through a recognised start-up fund established in the EEA.
If an equity investment is made in a qualifying ‘micro-company’ the tax credit is 45% of the invested amount, otherwise, if made in a ‘SME’ it is 30%. It should be noted however that the personal tax credit relief will only apply if the following conditions are satisfied:
1) The start-up business must be a Belgian or EEA tax resident company or must have a permanent establishment in Belgium or the EEA;
2) A director of the start-up business cannot personally make the tax shelter investment (note this does not apply to the spouse, children or close family members of a director);
3) If the tax shelter investment exceeds 30% of the start-up business' statutory capital, the excess investment is not eligible for Belgium personal tax relief;
4) The equity investment attracting the tax shelter credit relief is limited to EUR 250,000 (maximum) of the start-up business's statutory capital;
5) Each investor can make an annual tax shelter investment of EUR 100,000 (maximum);
6) The tax shelter investment should be fully paid-up in cash;
7) From the time of the equity investment and for the next 48 months, the start-up business: i) Cannot be a management company, real estate company, patrimonial company, investment company, treasury company or finance company; ii) Cannot be used to fund a dividend distribution, to grant a loan or to buy shares; and, iii) Cannot face insolvency issues;
8) In a prior financial year the start-up company must not have distributed a dividend or made a capital reduction; and,
9) The start-up company cannot be quoted on a stock exchange.
The shares of the start-up business (equity investment) should be retained by the investor for at least four years, except in case of death, otherwise, a recapture rule applies on a monthly basis.
Please note, due to recent changes in Belgium tax law, crowdfunding loans granted by natural persons to start-up businesses are encouraged.
In summary, the new Belgium tax rules encourage equity investments in start-up businesses and are highly welcomed. It should be noted however that there are various conditions which must to be complied with and, therefore, before making any investment decision to benefit from the tax shelter personal tax benefits, each individual should carefully reflect as to whether the conditions are manageable or not.
For further information or advice concerning the personal tax benefit arising from an equity investment in a Belgium start-up business, or any other matter concerning Belgium tax, please contact Kurt De Haen at [email protected]