Belgium: Increase of the withholding tax on dividends – Does this reform really undermine the attractiveness of management companies?

Despite the recent tax measures, single-person management companies remain a structurally attractive and operationally flexible model for organising professional collaborations in Belgium. The economic rationale behind their use is unchanged.

A reform that generates reactions

Earlier this year, the Belgian legislator introduced several measures affecting management company structures. First, the minimum director’s remuneration required for SMEs to benefit from the reduced 20% corporate income tax rate was increased. In the same spirit, a new cap was introduced on benefits in kind, limiting them to 20% of the director’s gross annual salary; exceeding this threshold results in the loss of the reduced corporate income tax rate.

A few days ago, as part of the 2025 budget agreement, the government announced another measure specifically targeting management companies: an increase in the reduced withholding tax rate under the VVPRbis regime, from 15% to 18%. A similar increase has been announced regarding the liquidation reserve regime. 

These measures have sparked strong reactions among the business community, with some observers predicting the end of the Belgian management company as a viable model.

But is that really the case? Let’s take a closer look.

Why management companies are traditionally a strong option for structuring work relationships in Belgium

The use of a single-person management company (also referred to as a “personal service company” or PSC) is a well-established way to structure professional collaborations in Belgium. The mechanism is simple: a self-employed professional incorporates a company that invoices management services or highly specialised technical services to a client that requires these services for its business operations.

Once invoiced, the service fees form part of the management company’s taxable basis for corporate income tax purposes (standard rate of 25%, with a reduced 20% rate available for SMEs on the first €100,000 of taxable profits). The self-employed individual then decides if, when and how the net profits are withdrawn. The two main methods are:

1. Director’s remuneration (typically monthly) – This remuneration is generally fully deductible for corporate income tax purposes at the level of the management company. For the self-employed individual, it is taxed at progressive personal income tax rates and subject to social security contributions, resulting in an overall tax and para-fiscal burden broadly comparable to that of an employee.
2. Dividends – Dividends are not tax-deductible for the management company. At the individual’s level, they are taxed separately through a withholding tax withheld by the company upon distribution. The standard rate is 30%, but subject to certain conditions, a reduced rate of 15% may apply under the VVPRbis regime. A similar reduced rate can apply to dividends stemming from a liquidation reserve, subject to specific requirements. Even with the rise to 18 percent under the reform, dividends still allow an overall tax burden well below that applying to employment income. 

Although dividend distributions may result in a lower total tax burden than an equivalent amount of employment income – particularly when both the 20% SME CIT rate and the 18% reduced withholding tax rate apply (resulting in a combined burden of around 34%, compared with a marginal rate of 50% on employment income) –, the main advantage stems from the absence of social security contributions, which do not apply to dividends. 

Any undistributed profits can remain within the company and be used to build reserves, acquire real estate, or invest in financial instruments. For example, the company could use part of the invoiced fees to build a cryptocurrency portfolio (Bitcoins, stable coins, etc.), the returns on which could later be distributed to the individual as dividends. These profits can also be used to compensate for the shortcomings of the reduced social protection linked to the choice of self-employed status, for example by financing a supplementary pension, or by taking out income-protection insurance in the event of an accident or incapacity for work, or enhanced health-care insurance.

From the corporate client’s perspective, engaging a management company can generate significant cost savings compared with hiring an employee. Employing someone with a gross annual salary of EUR 100,000 generally results in a total cost of around EUR 128,000 once mandatory employer social security contributions and payroll-related charges are factored in. By contrast, paying the same EUR 100,000 as a service fee to a management company does not trigger employer social security contributions or payroll taxes on the client’s part.

Beyond tax and social security savings, a major advantage for the corporate client is administrative flexibility. The relationship is governed by contract law rather than labour law, which namely, means there are no payroll formalities, no local work rules to be drawn and filed, no employment declarations, no salary withholdings to be deducted and re-paid to the authorities, no obligations relating to working time tracking, holidays, sick leave, or complex termination protections and procedures.

The counterpart to this flexibility is that the client cannot exercise any authority over the service provider with respect to how the work is organized and performed. The parties may agree on milestones and general guidelines, deliverables, and deadlines, but the practical modalities of the work (such as work schedules, or daily working hours) remain at the discretion of the management company and no daily work monitoring is allowed.

For this reason, contracting with a management company is most suitable for highly skilled professionals or managerial profiles with ample autonomy whose work does not require the degree of day-to-day supervision typically associated with traditional employees.

For the service provider, the benefits of operating through a management company are more nuanced. Considering the administrative, accounting, and tax compliance costs associated with maintaining a company, the model is only genuinely advantageous for the portion of service fees that is not paid out as monthly director’s remuneration, since such remuneration is subject to taxation broadly comparable to that applicable to ordinary employment income. As to the para-fiscal social charges due on such remuneration, they are the same as for self-employed workers, approximately half the cost of those due for employees, but the social benefits they provide are very limited (e.g., no entitlement to unemployment allowance or to sick pay, and low pension accrual). As a result, this structure mainly benefits individuals who can afford to keep a substantial portion of the service fees within the company, rather than withdrawing them immediately, allowing the funds to be used for long-term planning, wealth-structuring purposes, or to compensate for the weaknesses of the inadequate social protection associated with this status.

Regarding the application of contract law rather than labour law, the increased flexibility is often appreciated by business leaders and autonomous executives, for whom the traditional employment framework may appear overly restrictive. However, this freedom also comes with additional administrative responsibilities, as the management company itself becomes responsible for various statutory declarations (e.g., director’s fee reporting, payroll tax filings).

Given the advantages this model provides, many Belgian and international companies rely on it. It offers contractual clarity, operational efficiency, and legal certainty, while enabling the service provider to pursue meaningful estate and financial planning opportunities.

A typically Belgian model, deeply embedded in practice

The single-person management company is, above all, a Belgian construct. In many neighbouring jurisdictions - notably France, Germany and Spain - similar structures are systematically reclassified as disguised employment and are therefore practically unusable. Belgium has taken a different route: it expressly recognises the model and provides it with a clear legal framework.

This has led some political commentators to describe it provocatively as a form of “legalised social fraud”, a wording that reflects its economic attractiveness rather than its legality.

In reality, management companies are entirely lawful and widely used. They have become standard practice among executives, consultants, and specialised professionals, forming an integral part of Belgium’s entrepreneurial landscape.

Despite recent legislative tightening, their popularity continues to grow. The trend is unmistakable: Belgium counts more than 80,000 single-person management companies today, compared with around 25,000 only seven years ago.

Compliance is manageable 

A point of attention is the potential requalification of the collaboration into an employment relationship. In practice, there is no such risk when the structure accurately reflects the true nature of the relationship: an autonomous professional operating with substantial responsibility, in circumstances where the conditions for an employment relationship are not met because no possible hierarchical link exists between parties and genuinely acting as an independent service provider rather than a disguised employee. This assessment must always result from a thorough legal and factual analysis.

When Belgian authorities scrutinise these structures, they focus mainly on two aspects: (i) the presence - even potential - of a subordination link, and (ii) the consistency between the contractual framework and the day-to-day organisation of the collaboration.

With proper governance, clear documentation, and a coherent allocation of roles, the structure can be made robust.

Compared with certain new intermediary employment models, which face increasing scrutiny in Belgium and the EU, management companies often present lower and more predictable risks. 

Our view: an adjustment, not a paradigm shift

The tax measures announced and adopted this year against management companies are, above all, political. They do not fundamentally alter the economic rationale underpinning the use of such structures. The cost gap between employing someone and contracting with a single-person management company remains noticeable. What these legislative measures will do is slightly reduce the tax and para-fiscal advantage on the service provider’s side.

However, they do not affect the core strengths of the model: the flexibility it offers in structuring work relationships, nor the ability for the service provider to use the company as a personal estate-planning vehicle. A management company is not an alternative to employment when possible legal subordination exists, but it remains a highly efficient vehicle for genuinely independent professionals, especially in top management functions such as C-level roles.

In a labour market where traditional employment increasingly fails to reflect modern business realities, and where companies seek greater agility, the management company remains, without question for genuinely independent contractors, one of the most efficient and predictable frameworks for operating in Belgium while optimising the overall (para)fiscal and administrative burden.

Conclusion: a model that remains essential

The recent tax reform will not undermine the core advantages of management companies. They will continue to provide a markedly more cost-efficient and operationally flexible structure for independent professionals in situations where the conditions for standard employment are not met. For businesses looking to work with highly skilled consultants or establish a presence in Belgium without significantly increasing their structural costs, the management company remains an essential solution, or at the very least a serious option to consider.

Our employment and tax specialists can help you understand the practical impact of these reforms on your current setup, unlock optimisation possibilities, and strengthen your contractual framework to safeguard flexibility, predictability and compliance.