Corporate tax: prepayments in corona times

Categories:

One of the corona tax measures we should keep an eye on during the entire year is announced on 3 April. It concerns prepayments for companies. In order to protect your liquidity position during the months March until May/June, the advantage of the prepayments for the last two quarters was increased.

Corporate tax rules

Belgian companies subject to corporate tax and foreign companies subject to non-resident tax, and which are engaged in exploitations or activities of profitable nature are obliged to prepay their taxes through prepayments.

If not, the tax due is increased. This is no fine or sanction; it is just the price the company must pay to have kept the corporate tax due longer to itself.

The calculation base for the tax increase equals 102% of the tax due which is susceptible for increase. Withholding tax and other deductible elements with respect to this income are taken into consideration.

For tax year 2021 (income 2020) the rate is 6,75%.

In case the company prepays, it receives a compensation depending on the date the amount is transferred. For a company for which the accounting year equals a calendar year, the advantage of prepayments for tax year 2021 – income 2020 is as follows:

amount of the 1st prepayment (PP1) x 9,00%
amount of the 2nd prepayment (PP2) x 7,50%
amount of the 3rd prepayment (PP3) x 6,00%
amount of the 4th prepayment (PP4) x 4,50%

A company which prepays too much, cannot obtain a bonus, contrary to self-employed persons.

An example

If you have to pay 50.000 euro tax for tax year 2021, the tax increase equals 6,75% of 51.000 euro, i.e. 3.442,50 euro. If you pay 1/4 of 51.000 euro (=12.750 euro) or each quarter in 2020, then the advantage of the prepayments equals 3.442,50 euro.

(PP1) 12.750 euro x 9,00% = 1.147,50 euro
(PP2) 12.750 euro x 7,50% = 956,25 euro
(PP3) 12.750 euro x 6,00% = 765,00 euro
(PP4) 12.750 euro x 4,50% = 573,75 euro
total = 3.442,50 euro

You see: if you prepay less in the first quarter, you have to pay more in the following quarters to obtain the same advantage.
Imagine that you only pay 10.000 euro in PP1, than you have an advantage of 900 euro and you run 247,50 euro behind schedule. In order to obtain an advantage of 247,50 euro, you should pay 3.300 euro more in PP2, in PP3 4.125 euro and in PP4 even 5.500 euro more.
Indeed: you pay in PP1 2.750 euro less, which you pay additionally in PP4 … Well, notwithstanding the fact that you have prepaid 51.000 euro, you will have a tax increase because you are considered having paid 2.750 euro too late.

Changed percentages due to COVID-19

Early April the government decided to increase the percentages of the prepayment advantages for the third and fourth expiry dates (in 2020 these are 12 October and 21 December) for companies facing liquidity problems due to the corona crisis.

For the third prepayment the percentage is increased from 6,00% to 6,75% and for the fourth prepayment from 4,50% to 5,25%.
So the new table looks as follows:

amount of the 1st prepayment (PP1) x 9,00%
amount of the 2nd prepayment (PP2) x 7,50%
amount of the 3rd prepayment (PP3) x 6,75 % (instead of 6,00%)
amount of the 4th prepayment (PP4) x 5,25% (instead of 4,50%)

If your company therefore pays less in April and July, it can be easier compensated later in the year.

We refer to the above example: you do not prepay 12.750 euro, but 10.000 euro. So you run 247,50 behind schedule.
Well, if you want to compensate this with an extra prepayment in PP3, then you need 3.666,67 euro (instead of 4.125 euro) and 4.714,29 euro (instead of 5.500 euro) in PP4.

The percentages of the increase remain unchanged at 6,75%, the same goes for the expiry dates of the prepayments.

Condition

These measures are meant for companies facing liquidity problems. You do not have to provide proof for these liquidity problems. On the other hand you should not behave as having sufficient liquidity. Therefore these measures do not apply if you purchase own shares, decide to decrease capital or grant or pay dividends between 12 March 2020 and 31 December 2020. If the company does so, the initial percentages apply.

What does it brings?

The lockdown makes it even more difficult than before to calculate the taxable profit of your company. You will know the damage of the pandemic for your business, but how will the economy and your company rebound afterwards? Maybe you will recover in the second part of the year, maybe not. By giving the prepayments for October and December a higher impact in the calculation, you have after all the possibility to see what will happen and make appropriate prepayments.