15% withholding tax on interim and final dividends?
July 2021 – In principle, dividends are subject to a withholding tax (Précompte Mobilier/Roerende Vorheffing) of 30%. However, there are various reduced rates, especially for dividends from so-called VVPR-bis shares. The tax authorities recently announced that interim dividends and dividends on VVPR-bis shares are also eligible for the reduced rate.
VVPR-bis
The acronym VVPR stands for "verlaagd tarief - précompte réduit". The 'bis' was added to avoid confusion with a similar scheme that already existed in the 1990s. Dividends from shares of this type therefore benefit from a reduced rate of Pr. M. (Précompte Mobilier) This reduced rate can be 15% or 20%.
Conditions for access to the reduced rate:
the company distributing the dividends must be an SME;
the dividends come from new registered shares;
the shares were acquired by means of new cash contributions;
the contribution took place after 1 July 2013;
the shares have been fully owned by the taxpayer since the capital contribution.
The rate is 20% if the dividends are allocated or allocated in the profit distribution of the second financial year after the year of the contribution. The rate drops to 15% if the dividends are distributed later (i.e. from the third financial year after the year of contribution).
For example: a company increases its capital in 2018 (we assume that the accounting year coincides with the calendar year). The dividends distributed in 2019 and 2020 are subject to the Pr. M.at a rate of 30%. Dividends distributed in 2021 may be subject to the M.P. at a rate of 20% and those distributed in 2022 at a rate of 15% as well (each time for the part of the shares that meet the conditions of course).
When was the profit made?
If the law prescribes that the dividend can only be distributed in the second or third financial year after the year of contribution, this could give the impression that only the profit realised in the year of contribution or in subsequent years can be distributed.
This would mean that reserves that already existed before the contribution cannot benefit from the reduced rate.
This is not the case. The Minister has already made it clear that the law only specifies the point in time from which dividends can benefit from a reduced rate, but does not prescribe that they must be taken from a particular profit. Thus, profit that has been allocated to a reserve in the past and is only now being distributed (attached to VVPR-bis shares) can just as easily benefit from the reduced rates.
And this rule does not only apply to the past. A circular from the tax authorities confirms that it is also possible to distribute a recent profit quickly and at a reduced rate. This concerns advances on dividends and interim dividends.
What is meant by interim and final dividends?
The Accounting Standards Committee (ASC) writes about interim dividends that they are intended to distribute the profit of the current year. The exact terms of this distribution are defined in the ASC. In order to determine the profit of the current financial year, the loss carried forward must be deducted and the profit carried forward can be added. However, it is not permitted to deduct amounts from existing reserves.
Interim dividends are paid out of the distributable profit as shown in the annual accounts as at the date of the last financial year. These dividends do not therefore come from the profit of the current financial year, but from, for example, an available reserve or the profit carried forward from previous annual accounts.
The tax authorities consider that there is no reason to exclude these particular dividends from the benefit of the reduced rate. It is only the timing of their distribution that is important. The circular of the tax authorities gives the following example to clarify matters:
Let us imagine a company incorporated in November 2015 with a first financial year ending on 31 December 2016. The shares qualify for the reduced rate.
Distribution of an interim dividend on 30.11.2019
An advance on dividends is an interim dividend paid out of the profit for the current financial year (2019). The rate of Pr. M. is 15%, as the dividend is distributed in the profit distribution of the third financial year after the year of contribution (November 2015 - 31 December 2016).
Interim dividend distribution on 30.11.2019
The interim dividend is paid out of the available reserves of the last financial year (i.e. 2018). This dividend is also subject to the Pr. M.at the rate of 15%, as it is distributed at the time of the profit distribution in 2019, i.e. the third financial year after the year of contribution (November 2015 - 31 December 2016).
