‘Arizona’ Government Agreement: practical details of tax plans for investors

More information on capital gains tax for private investors.

More information on the anti-abuse provisions for the annual tax on custody accounts.

More information on capital gains tax for entrepreneurs.

If a company pays dividends to shareholders who are natural persons, in principle 30% withholding tax is applicable. Using the VVPRbis tax reduction scheme (see below) and liquidation reserves, this tax burden can be reduced under certain conditions.

If a liquidation reserve is created, an additional 10% corporation tax is payable on the amount of the reserve. In exchange, the reserve can be distributed later at a favourable tax rate. The liquidation reserve regime was amended in the Programme Act of 18 July 2025. The Budget Agreement reached within government on 24 November would change this new arrangement with immediate effect.

• Under the original regime, existing liquidation reserves (and presumably also liquidation reserves created before 31 December 2025) can be distributed after a waiting period of five years at a 5% withholding tax rate. Net tax burden: 13.64%.
  • It is also possible to opt for a three-year waiting period before distribution of the liquidation reserves. In that case, however, 6.5% withholding tax will have to be paid upon distribution. Net tax burden: 15%.
  • The new rate increase agreed in the Budget Agreement (raising the total tax burden to 18%) would not apply to these previously accumulated liquidation reserves.
• For reserves created from (presumably) 31 December 2025, the waiting period would always be three years. However, under the recent Budget Agreement, the total tax burden on these reserves would rise further to 18% (by raising the withholding tax rate on distribution after three years to 9.8%).
• On liquidation, no further tax is currently due on liquidation reserves. This would continue to be the case.

Entrepreneurs will have to carefully weigh up what is most advantageous in their specific situation with regard to liquidation reserves that have already been created: accelerated distribution at a withholding tax rate of 6.5% (if there are liquidation reserves that were created three or four years ago) or waiting until the five-year period has expired and then distribution at a withholding tax rate of 5%. Many factors come into play here: how quickly and for what purpose the entrepreneur needs the money for their personal use; what alternative funding options are available from their private assets, etc.

Note that a FIFO (first in, first out) principle applies when distributing liquidation reserves. If you decide to distribute liquidation reserves that are less than five years old, those that are four years old must be distributed first. However, you may be able to distribute those reserves within a few months at (only) 5% withholding tax (especially once they have been retained within the company for five years).  

Under the VVPRbis scheme, dividends can be distributed from available profits from the third financial year following the financial year of the company’s incorporation (or capital increase), with withholding tax being applied at a (current) rate of 15%. Note that not every company can use the VVPRbis tax reduction scheme. Only companies incorporated after 1 July 2013 (or companies that have since issued new shares in a capital increase or contribution increase) may be (fully or partially) eligible.

Dividends on shares meeting the conditions of the VVPRbis regime were subject to the following withholding tax rates in the initial arrangement:

• 30% on distribution of profits for the financial year of incorporation (or capital increase) and for the following financial year;
• 20% on distribution of profits for the second financial year after the year of incorporation (or capital increase);
• 15% on distribution of profits for the third financial year after the year of incorporation (or capital increase) and for all subsequent financial years.

The Programme Act of 18 July 2025 abolished the 20% 'middle rate', but only for shares issued after 31 December 2025, leaving only the standard rate of 30% and the concessionary rate (currently 15%) for these shares.

Under the Budget Agreement struck on 24 November, this latter rate is set to rise from 15% to 18%. According to the latest reports, the rate increase was scheduled to come into effect in the month following publication of the new Act. It is likely that this Act will not be passed until after 1 January 2026, but obviously things can move quickly. All dividends paid after the Act comes into force would immediately be subject to the higher rate, regardless of when the reserves were accumulated.

It may therefore be tempting or even appropriate to pay out another dividend as soon as possible under the VVPRbis scheme, while the 15% withholding tax rate still applies.

However, (accelerated) payment of a dividend raises a number of other questions (apart from the increase in the tax rate).

• Do you need to have funds in your private assets?
• How many years do you wish to continue working via the company?
• Can the company be sold in the long run (cf. potential impact on capital gains tax)?
• Does the company qualify as a family business (which can be inherited at a tax rate of 3%)?
• Will paying the dividend affect the ability to apply a reduced corporation tax rate?

We recommend that the potential tax rate benefit in the event of an accelerated distribution be expressed not just in percentage terms, but also in ‘cash’, and that you weigh this advantage against the other possible consequences of a decision. Of course, the company will also have to follow the appropriate company law procedure (extraordinary or ordinary general meeting of shareholders, net asset test and/or liquidity test, etc.).  

When a Belgian company receives dividends from another company, the dividend it receives can be exempted from Belgian corporation tax by applying the 'dividends received deduction' (DRD). For this tax deduction to be applied, three cumulative conditions must be met at the time the dividend is declared.

1. The taxation condition means that the dividends received must relate to ‘good’ shares, i.e. shares held in companies that are subject to ‘normal’ (and therefore ‘final’) taxation on their profits in the country where they are established. If the company distributing the dividend pays little or no tax on its profits in the country in which it is established (for example a tax haven), the dividend received cannot be exempted.
2. The holding period condition means that dividends received must relate to shares that are or were held in full ownership for a continuous period of at least one year.
3. Finally, the company receiving the dividend must hold a participating interest in the distributing company of at least 10% of the capital or with an acquisition value of at least 2 500 000 euros. This is known as the ‘holding size condition’.

The Programme Act changes (tightens up) the holding size condition. If the receiving company holds a participating interest in the distributing company of less than 10% of the capital, the minimum acquisition value will be maintained at 2 500 000 euros (the increase to 4 000 000 euros as per the Coalition Agreement has not been implemented). If the recipient of the dividends is a large company, from assessment year 2026 a participating interest (holding) of less than 10% will moreover have to take the form of a 'financial fixed asset' to be eligible for the dividends received deduction.

For the term 'financial fixed asset', reference is made to the meaning assigned to it in accounting legislation. This implies that the shares held should be included under 'participating interests in affiliated entities', 'participating interests in companies linked by participating interests' or 'participating interests in other financial fixed assets'. Disclosing the participating interest under these line items implies that the company intends to establish a lasting and specific connection with the company in which it invests and therefore does not see the participating interest purely as an investment.

Since the conditions applying for the dividends received deduction and the exemption from capital gains on shares in corporation tax are similar, there is an additional consequence for large companies. Capital gains on shares can only be exempted (for participating interests of less than 10% and subject to a number of specific exceptions) if the acquisition value of the shares is at least 2.5 million euros and they are recorded as financial fixed assets.

This stricter holding size condition will apply with immediate effect from assessment year 2026! Changes made between 3 February 2025 and the closing date of the financial year will not be accepted unless it can be demonstrated that the change was motivated by economic (i.e. non-tax-related) considerations.

For small companies, the conditions applying for the dividends received deduction and capital gains exemption on shares will however not change. A company is deemed to be small if at the balance sheet date it does not exceed more than one of the following criteria:

• Annual average number of employees: 50
• Annual turnover, excluding value-added tax: 11 250 000 euros
• Balance sheet total: 6 000 000 euros

(Not) exceeding more than one of these thresholds will only have consequences if it occurs during two consecutive financial years. Please note that when assessing the criteria, not only the data of the company itself but also of 'affiliated companies' must be taken into account.

A DRD Bevek is an investment company that has to meet a number of conditions. For example, a DRD Bevek must distribute at least 90% of the net income it receives.

A DRD Bevek offers a tax-efficient alternative to equity investments, as it allows the investor to benefit from exemption of dividends and capital gains on shares without having to meet the strict holding size condition and holding period condition (see above). However, the taxation condition must still be met for the DRD Bevek. A DRD Bevek can receive both qualifying and non-qualifying income. Qualifying income is income that meets the taxation condition. The ratio of qualifying income to total income (qualifying + non-qualifying) is calculated on an ongoing basis and produces the 'DRD coefficient'.

Specifically, the company investor can:

• Receive capital gains exemption on sale of shares of a DRD Bevek in proportion to the DRD coefficient. However, under the Miscellaneous Provisions Act, exempt ‘capital gains’ realised on shares of DRD Beveks will in future be subject to 5% tax. In practice, however, the DRD Bevek will almost always buy back (and immediately cancel) its own shares. In that case, the company-investor does not realise a capital gain on shares, but receives a redemption bonus (= dividend), to which it will be able to (permanently) apply the DRD deduction. Moreover, the separate 5% assessment does not apply to this redemption bonus.
• Benefit from the DRD deduction on dividends distributed by the DRD Bevek in proportion to the DRD coefficient.

However, a DRD Bevek is required to deduct the appropriate withholding tax when it pays or declares a dividend (unlike a redemption or liquidation bonus, to which withholding tax does not apply). The deducted withholding tax can be offset against corporation tax and reclaimed by the company-investor.

However, pursuant to the Miscellaneous Provisions Act, from assessment year 2026, offsetting withholding tax against corporation tax will only be possible for dividends received from a DRD Bevek to the extent that the receiving company has paid the minimum remuneration for company managers in the income year in which it receives dividends from the DRD Bevek. Under the Coalition Agreement, the minimum managerial remuneration would be raised to 50 000 euros (indexed).

Example

Company V pays the minimum remuneration to its manager and receives a dividend of 100 euros from a DRD Bevek.

The DRD coefficient of this Bevek is 95%. If Company V receives a coupon of 100 euros, 30 euros in withholding tax will initially be deducted.

As 95% of the coupon is eligible for the DRD deduction, 95% of the withholding tax deducted (28.5 euros) can be offset.

Company V will pay corporation tax (standard rate of 25% = 1.25 euros) on 5% of the coupon (given the DRD coefficient of 95%). 5% of the withholding tax deducted (1.5 euros) will also be offsettable. Total tax burden = 1.25 euros on a coupon of 100 euros (30 euros withholding tax can be offset against total corporation tax payable).

Suppose Company V does not pay the minimum remuneration to its manager and receives a dividend ('coupon') of 100 euros from a DRD Bevek. The DRD coefficient of this Bevek is 95%. If Company V receives a coupon of 100 euros, 30 euros withholding tax will be deducted.

• As 95% of the coupon is eligible for the DRD deduction/exemption, 95% of the withholding tax deducted (28.5 euros) will no longer be offsettable (remuneration condition not met). However, 28.5 euros will be tax-deductible as an expense. Tax burden (assuming Company V pays 25% corporation tax) = 21.375 (28.5 x 0.75).
• However, 5% of the withholding tax deducted (1.5 euros) will still be offsettable, as Company V will pay corporation tax (standard 25% = 1.25 euros) on this 5% of the coupon (given the DRD coefficient of 95%).
  Total tax burden = 22.625 euros (21.375 + 1.25) on a coupon of 100 euros.

For an 'ordinary' Bevek, the total tax burden on dividends will be 25 euros (standard corporation tax rate).

The possibility cannot be ruled out that there will be another legal change that will qualify the non-deductible withholding tax as a disallowed expense (and thus no longer as a tax-deductible expense), which would increase the total tax burden (if the minimum remuneration is not paid) to 29.75 euros (28.5 + 1.25).

More information on the anti-abuse provisions for the annual tax on custody accounts.