Various subsidies were briefly described in the article by our colleagues from Strategy and Operations. They explained that they can assist you and your company with guidance on subsidies, from A to Z.1 In this context, we would like to discuss the tax framework for subsidies: how are awarded subsidies treated tax-wise within companies? Are these subsidies exempt from corporation tax and, if so, what specific conditions must be met in order to benefit from the exemption? Below you will find the different tax treatment of several types of subsidies, with concrete examples.
In principle, capital subsidies are government subsidies obtained for investments in fixed assets, as a result of various legislation. Pursuant to Articles 24 and 183 of the Income Tax Code (ITC) 92, capital subsidies are part of the taxable profit, and are therefore, in principle, immediately and fully taxable under corporate income tax. In other words, there is no exemption.
However, there are various types of capital subsidies. For capital subsidies that arise through the implementation of a specific government policy, an exemption arrangement is often provided for. As such, it is important to determine what type of capital subsidy it is, to ascertain whether or not an exemption applies. For example: the so-called strategic transformation support is not exempted. Nonetheless, the subsidies received will be exempt in the context of economic expansion legislation (see below).
Exception: the staggered taxation of awarded capital subsidies
In addition, Article 362 of ITC 92 provides for an authorised derogation, and permits the staggered taxation of awarded (non-exempted) capital subsidies, provided that the following cumulative conditions are met:
- They must be capital subsidies (and not interest subsidies).
- They are awarded from the government.Government refers to any level of any public body: European institutions, Belgian federal, regional, provincial and municipal bodies.
- The subsidy is awarded to acquire or establish intangible and tangible fixed assets (meaning that operating subsidies are also excluded from the exemption arrangement).
If the above cumulative conditions are met, the awarded capital subsidies are only regarded as profit from the taxable period in relation to the depreciations and impairments on the subsidised assets which are accepted as professional costs. In other words, staggered taxation occurs.
Unlike capital subsidies, no special tax provisions apply for interest subsidies. Interest subsidies are financial interventions by a government in the interest that a company pays on its outstanding loans with the bank. This type of subsidy is taxable under the standard applicable rules. Consequently, the awarded interest subsidy will qualify as a taxable profit component of the taxable period in which it was awarded. One example here is the interest allowance for SMEs inconvenienced by public works (since replaced by the 'inconvenience bonus') and the investment support for farmers and horticulturists from the Flemish Department of Agriculture and Fisheries.
Given that these subsidies are often awarded in the form of annual instalments, the subsidy in question will also be included every year in the taxable profit. If, on the other hand, the interest subsidies are not staggered but are exceptionally awarded in one go, while the subsidy relates to an investment that will be depreciated over several years, the awarded interest subsidy will be taxed in a staggered way, as described above for the capital subsidy.
Exemption from capital and interest subsidies: tax processing
The exemption for capital and interest subsidies is realised in the corporate tax return via an adjustment in more of the opening balance of the reserves. Bear in mind that if they are capital or interest subsidies which need to be included in the taxable basis on a staggered basis, the exemption will also only be applied on a staggered basis. The non-taxed part of the subsidy then needs to be included in the exempted reserves, and therefore only included in the result in subsequent taxable periods. If the company is requested to repay the bonus or subsidy to the region at a later stage, the related cost is obviously not deductible.
Specifically exempted regional bonuses, capital and interest subsidies
Exemption under the economic expansion legislation
The 'Generation Pact' from late 20052 introduced an exemption for capital subsidies, interest subsidies and/or bonuses awarded in the context of the economic expansion legislation, to acquire or establish intangible and tangible fixed assets. One example in this case relates to the 'ecology bonus'.
This exemption is envisaged pursuant to Art. 193bis, §1 of ITC 92, and came into force for bonuses served on a date that falls at the earliest within the taxable period linked to assessment year 2007.
Exemption for support received for research and development
Also exempt from corporation tax are bonuses and capital and interest subsidies on intangible and tangible fixed assets awarded to companies in the context of support for research and development, by the competent regional bodies, with due observance of European regulations on State aid.3 This clearly includes the VLAIO (Flanders Innovation & Entrepreneurship) subsidies from the Environmental and Energy Technology Innovation Platform (MIP in Dutch) and VLAIO subsidies for research and development4. The exemption is envisaged pursuant to Art. 193ter, §1 of ITC 92, and came into force for bonuses served on a date that falls at the earliest within the taxable period linked to assessment year 2008.
Other exempted regional bonuses
Also exempted pursuant to Art. 193bis, §1 ITC 92 are the employment and occupational transition bonuses that are awarded to companies by the competent regional institutions, and which additionally qualify as state aid for employment under European regulations5. One example of an eligible bonus is the occupational transition bonus for unemployed persons over 50.
Non-exempted bonuses (regional or otherwise)
If no explicit legal exemption is provided for the support measure in question, the general principle of taxability of subsidies will be applied.6 The above-mentioned exemptions pursuant to Art.193bis and 193ter ITC 92 therefore constitute exceptions to the general principle that awarded bonuses and subsidies are taxable income of the company.
Consequently, not all subsidies or bonuses you can take advantage of, for example through the intervention of VLAIO, are exempt from corporation tax. Examples of these non-exempt bonuses/subsidies include, among other things, fees resulting from the SME portfolio, the strategic transformation support, and subsidies received from Flanders Investment and Trade (FIT). Other types of (non-regional) subsidies, including European subsidies from the European Social Fund (ESF) and other federal support measures, will also constitute taxable income.
Naturally, the taxability or exemption of a certain type of subsidy does not prevent you from looking for an additional form of funding for your company for planning specific investments, recruiting personnel or organising training courses for which you or your company may be eligible for receiving a certain subsidy or bonus.
 Article 114 of the Law of 23 December 2005 on the Generation Pact (Belgian Official Gazette 30 December 2005).
 Articles 106 and 107 of the Law of 25 April 2007 containing various provisions (Belgian Official Gazette 8 May 2007).
 This includes the former so-called 'IWT support' (Innovation through Science and Technology) awarded via the Flemish Institute for the encouragement of innovation through Science & Technology.
 Commission Regulation (EC) No 2204/2002 of 5 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment, or which are accepted or accepted by the European Commission in this context.
 Ghent, 17 May 2016.