ISoc

What is corporate income tax?

Corporate income tax (ISoc/Vennb) is the tax on the net taxable profit of a Belgian company. Unlike personal income tax, it is proportional: the rate does not depend on the level of profit, except through the reduced rate on the first band.

The taxable base is the accounting result adjusted for tax purposes: some costs are not deductible, others only partly. It is this adjustment, more than the rate, that accounts for most of the gap between the accounting result and the tax due.

The two rates

The standard rate is 25%. A company that meets the conditions of the SME regime pays 20% on the first €100,000 of profit, with the rest still taxed at the standard rate.

The difference is worth up to €5,000 in tax per year. That is what makes the conditions for the reduced rate decisive when deciding on the director's remuneration.

The conditions for the reduced rate

They are cumulative: missing just one pushes all the profit back to the standard rate. The remuneration threshold is set at €50,000 gross per year.

• The company qualifies as an SME (art. 1:24 of the Code of Companies and Associations)
• Remuneration of at least one director equal to the statutory threshold, or to taxable profit if that is lower, of which no more than 20% in flat-rate benefits in kind
• Not a financial company: the shares it holds do not exceed 50% of paid-up capital plus taxed reserves
• At least 50% of the shares held by individuals

Deciding on the director's remuneration

The remuneration condition is the one that causes the most difficulty in practice. Paying less than the threshold to reduce the director's personal income tax means losing the reduced rate, and the company then pays 25% on the whole first band.

Contrary to what you often read, no separate levy penalises insufficient remuneration: the 5% levy planned in 2017 was withdrawn by the Act of 13 April 2019 and never applied. The penalty is the loss of the reduced rate, and that is enough. There is, however, a separate non-deductible levy of 7.5% on the portion of flat-rate benefits exceeding the 20% cap, applicable from tax year 2027. The full calculation is done with your accountant on the year's figures, never by guesswork.

This remuneration is also the basis for calculating the 80% rule, and therefore the ceiling of the IPC (individual pension commitment, EIP/IPT). Reducing it automatically lowers the director's capacity to build up a pension, an effect rarely taken into account in the trade-off.

What happens after corporate income tax

The profit left after tax can be kept in reserve, distributed as a dividend or allocated to a liquidation reserve. Each route has its cost: 30% withholding tax on movable income as a general rule, 18% under the VVPRbis regime, or the liquidation reserve's own regime.

Reasoning on the corporate income tax rate alone gives an incomplete picture: it is the combined rate, corporate income tax plus the exit levy, that determines what the director actually receives.

Not to be confused with

The terms close to ISoc and what sets them apart.

ISoc and personal income tax

Personal income tax is progressive, from 25% to 50%, and is levied on an individual's income. Corporate income tax is proportional and is levied on a company's profit.

ISoc and withholding tax on movable income

Corporate income tax is levied on profit at company level. Withholding tax is then levied on the distributed dividend at shareholder level. The two add up.

Further reading

• Company director
• Dividends
• Liquidation reserve
• Ultimate beneficial owner
• All glossary terms

ISoc: frequently asked questions