Tax consequences of the incorporation theory in the new company law code

Following the corporate law reform that entered into force as per May 1, 2019, Belgium adopted the ‘incorporation theory’ while previously it adhered the ‘real seat theory’. 

The applicable theory is important to determine the ‘nationality’ of a company and hence the company law it is subject to.

According to the incorporation theory, a company is subject to the company code of the country where it has its registered seat while according to the real seat theory, it is the country of the  actual centre of management, administration and/or business activity whose company law applies. 

 

Corporate law versus tax law

For tax purposes however the real seat continues to prevail.  This means that a company is subject to the income tax code of the country where its centre of management is situated. 

Thus a dissociation is created between the ‘nationality’ and the ‘tax residence’ of a company.

In practice it is therefore possible that a company is subject to Belgian corporate law because it has its registered seat in Belgium while for tax purposes it is subject to the corporate income tax of the country where it has its actual seat.

Vice versa, a company with registered seat abroad and actual seat in Belgium will be subject to foreign company law and Belgian income tax law. 

 

Rebuttable presumption in tax law

It is presumed that a company that has its registered office in Belgium also has its seat of management and therefore its tax residence in Belgium.

This presumption can however be refuted by proving that the actual seat of management is situated abroad, and that the company is a tax resident of the other state under both domestic law and the tax treaty.

 

Accounting principles

Companies that are subject to foreign company law but are taxable in Belgium, are subject to foreign accounting rules.  As the taxable basis needs to be determined according to Belgian standards,  those companies must comply with Belgian accounting rules.

 

Foreign bodies without legal personality

To be subject to corporate income taxation, the company needs to have legal personality. For foreign bodies with legal personality that are taxable in Belgium because they have their actual seat in Belgium there is no problem.  They are subject to Belgian corporate taxation as a domestic company.

Foreign bodies without legal personality are also fiscally treated as a company provided they have a legal form that is similar to the one of a Belgian company.  If not, taxation arises at the level of their partners.

 

Conclusion

Following the introduction of the incorporation theory in the new company law, some adjustments were made to the corporate tax code to ensure fiscal neutrality.