Belgium reduces tax benefits for companies under receivership, but extend them to private receivership schemes

The old tax regime

Under the previous system, a company facing difficulties that benefitted from certain restructuring schemes and could benefit from a favorable tax regime in Belgium. The disappearance or reduction of debts granted as part of the restructuring generally generates an exceptional profit, which should be subject to corporation tax. As an incentive for recovery, the tax legislator initially introduced a system of exemption for this type of profit, in the context of restructuring under the authority of the courts. The exemption was provisional as soon as the plan or agreement (under judicial authority), was adopted and became definitive for the year in which the plan was implemented. The advantage was unavailable for restructuring operated on a purely amicable basis, the main advantage of it was its private character. Of course, this is a major boost for the resumption of business. Opting for this kind of “private” restructuring resulted in a tax cost (corporate tax on the profit derived from the written-off debts).

The new tax regime

The new tax regime, introduced by a law of December 28, 2023, is applicable to all forms of restructuring organised by law, including the new amicable extra-judicial agreement scheme and the plans using new pre-pack techniques (such as the private judicial restructuring). Opting for a non-public restructuring method will trigger application of the same tax regime as for the public forms.

However,the new tax system is less advantageous than the previous system. Exceptional income is temporarily exempt until the plan or agreement (judicial or extra-judicial) is implemented. The temporarily exempted income will then become taxable on a staggered basis - over four years - from the third year following the year in which the plan (or agreement) is implemented until the sixth year. This amounts to adding 25% of this profit over four years. If the company ceases trading, the untaxed balance of the profit becomes taxable.

In addition, a special regime is provided for written-off debts that would reappear following the fulfilment of a claw-back provision. That part of the profit which was not taxed yet in respect of those debts, become taxable when the claw-back occurs. However, those debts are as a matter of principle deductible items, so that the result should be neutral tax wise.

As a result of the new tax regime, companies which have overcome a restructuring will keep on benefitting from a provisional tax exemption during a few years but must prepare for a tax burden if they want to continue operating. Only the future will tell if this represents a real threat to the continuity of companies that have successfully undergone restructuring.

Entry into force of the new tax regime

The deferred integration of the exceptional profit for four years entered into force on January 8, 2024, but only for amicable agreements and homologated restructuring plans which took place as from that date. Inclusion of previously non-taxed result deriving from debts subject to a claw-back provision is applicable for claw-backs occurring as from the same date, regardless of the date on which the debt was forgiven.