Belgian tax shelter for gaming industry as from 2023

On 30 June 2022, the Belgian Federal Parliament approved a bill containing a wide range of technical amendments and clarifications in relation to income tax, VAT, customs and excises, tax procedures, and so on. The bill also focuses on the fight against tax fraud and ratifies several Royal Decrees.

This alert only highlights the relevant changes in the corporate income tax field, mainly focusing on the new Belgian tax shelter for the gaming industry (as from 2023), as well as other changes to the existing tax shelter regime for audiovisual works and performing arts, and the corporate income tax deduction for charging stations used by electric cars.

Tax shelter for gaming industry

Belgian tax law already provides for a beneficial tax incentive for companies investing in the production of audiovisual works and performing arts in Belgium. In order to support the rapid growth of the gaming and e-sports industry, the Belgian legislator was working on an expansion of the tax shelter regime to investments in the video gaming industry for quite a while now. This expansion was already approved by the Parliament in March 2019, but did never enter into force as the European Commission argued that the territorial spending requirement in Belgium may violate the European freedom to provide services and the free movement of goods.

This new bill includes the required legislative adjustments to comply with European law and to receive the European Commission’s approval (still pending, but expected to be approved shortly). Apart from amending the territorial spending requirement (expenditures to be made within the EEA, rather than in Belgium only), the bill introduces a cultural test which is in line with European law and will be applied by the regional authorities in Belgium. Video games will only qualify as a valid tax shelter investment if such cultural test is satisfied (in additional to certain other requirements).

The tax shelter extension to investments in video games will enter into force as from 1 January 2023, meaning that potential investors and video game producers can conclude framework agreements as from that date.

Other changes to the tax shelter regime

The legislator seized the opportunity to implement certain legislative amendments to the tax shelter regime for audiovisual works and performing arts in order to clarify some existing ambiguities and to prevent abuse.

• The law already required that the development and production of the audiovisual works, performing arts or video games should be the principal purpose of the production company. The bill now requires that this should also be the “core activity” of the production company, based on an assessment of its profit and loss statement. The profits derived from such development and production activities should equal at least 50% of the total amount of profits. If this is not the case, the company is then not considered to be an eligible production company. However, this is only a presumption, and can be refuted if the company can prove that at least 50% of its expenses relate to the development and production activities.
  
  
• The bill provides for a legal basis for the suspension or the withdrawal of the formal recognition as a production company (e.g. if the development and production is not the core activity and principal purpose of the company, in case of infringements of the law, etc.). Any possible suspension or withdrawal will not impact (the tax exemption linked to) tax shelter certificates that were provided earlier.
  
  
• The definition of a qualifying audiovisual work is slightly adjusted for the sake of clarity. The tax shelter should not be applicable for commercial movies, or audiovisual works that are not produced for a broad audience (such as corporate movies). The bill also clarifies that the way an audiovisual work is showed (e.g. streaming, web fiction, webcasting or by means of other new online platforms.
  
  
• The law already provided for the possibility to use tax shelter funds to cover the development and/or production expenses already made prior to signing a framework agreement. However, these expenses cannot be more than 50% of the total amount of development and production expenses. For the sake of clarity, this maximum cap applies to all framework agreements for a particular audiovisual work, performing art or video game, not each framework agreement individually. Note that the bill also made some adjustments to the list of qualifying expenses.
  
  
• From an administrative perspective, all framework agreements must be notified no later than the completion date of the audiovisual work, performing art and/or video game. The production company should also request the tax shelter certificates within a 9-month period following the completion date. These deadlines provide the investing company with a certain level of comfort about its investment (and the corresponding tax exemption).

The moment when the aforementioned amendments enter into force is not linked to the signing date of a framework agreement, but to the date when the request was filed with the regional authorities to get clearance on the eligibility of an audiovisual work, performing art or video game. Hence, these new rules will kick when this request was filed as of the first day of the month following the publication of the law in the Belgian State Gazette.

Charging stations for electric cars

Companies investing in charging stations for electric cars may benefit from an increased cost deduction for Belgian corporate income tax purposes, as soon as the charging stations become operational and publicly accessible. An increased deduction of 200% can be claimed for investments made in the period running from September 1, 2021 to December 31, 2022. The increased tax deduction drops to 150% for investments made between January 1, 2023 and August 31, 2024.

However, given the significant disruptions in international logistics, due to the COVID-19 pandemic, the delivery of parts for charging stations is experiencing material delays. Consequently, some companies may not be able to benefit from the increased cost deduction of 200%, only resulting from the significantly longer order lead times. The bill provides for an extension of the first investment period (in which the 200% deduction can be claimed). As a result, the deadline of December 31, 2022 will be pushed to March 31, 2023. The second investment period (in which the 150% deduction can be claimed) will then kick off as from April 1, 2023.

Furthermore, the bill abolishes the notification requirement for public charging stations and makes it impossible to combine the increased deduction (either 150% or 200%) and the investment deduction for the same investment in a charging station. The bill indicates that the aforementioned changes are deemed to be applicable as from September 1, 2021, when the increased tax deduction initially entered into force.

Autonomous definition for SMEs

The bill introduces an autonomous definition for small and medium-sized enterprises (“SMEs”) in the Belgian Income Tax Code (ITC). Currently, the ITC refers to the definition included in the Belgian Code of Companies and Associations. However, as it is possible for companies to have its place of effective management in Belgium (and hence be subject to Belgian corporate income taxation) without necessarily having its statutory seat in Belgium (which is needed to be subject to Belgian corporate law), an autonomous definition for Belgian tax purposes was needed.

Carat tax and tonnage tax: payments to tax havens to be reported

Belgian corporate taxpayers are obliged to report direct and indirect payments to tax havens on form 275F, being a specific attachment to the corporate income tax return. Non-reporting results in the non-deductibility of such payments for Belgian corporate income tax purposes.

However, Belgian companies making such payments without reporting them, while benefitting from the carat tax or tonnage tax regime (providing for a lump-sum calculation basis in the Belgian corporate income tax) are currently not penalized with the non-deductibility. The bill now introduces a legal basis for including non-reported payments to tax havens in the taxable profit, even when benefitting from one of the aforementioned lump-sum regimes.

In case of any further questions regarding the new bill, please do not hesitate to reach out to your EY contact.