Investment Deduction: new rules as of 2025

Although a fundamental reform of the Belgian investment deduction regime ("ID") was initially part of the Government’s major tax reform, no political consensus on that topic could be reached at the time.

However, late last year and only a few months before the elections, the Government still managed to find an agreement and the draft act of 29 February 2024 containing various tax provisions was approved by the Finance Commission. It is expected that the Parliament will shortly issue its final vote. Once voted, the new regime will apply to investments made from 1 January 2025.

Below we provide a brief overview of the current regime and its conditions, followed by the most prominent changes that are being envisaged by said draft act and the (expected) impact thereof.

Current regime: complex set of qualifying investments and annually changing rates

The ID aims to encourage businesses to invest, by granting a deduction from their taxable profits or gains amounting to a specific percentage of (i) the acquisition or investment value of new fixed assets or (ii) the annual depreciation. This regime comes in addition to the normal deprecation of the investments concerned.

Its application is subject to several conditions. As such, the ID can only be applied to tangible fixed assets acquired or created in a new state or new intangible fixed assets solely used for business in Belgium and provided that their depreciation is spread over at least 3 taxable periods. Certain assets, like cars, are excluded.

Under the existing regime, qualifying individuals and small companies can benefit from an ordinary one-off ID at the base rate of 8%. An increased ID applies to specific investments, equal to a basic percentage on the acquisition or investment value (which is set at 5,5% for tax year 2025) increased by a factor that varies according to the nature of the investment (e.g., 10% for patents and 17% for fixed assets to secure professional premises). These percentages consider inflation and hence vary from year to year.

Besides said one-off deduction, a spread ID, equal to 12,5% of the annual depreciation, is available for small companies. An increased spread deduction of 22,5% can be applied for environmentally friendly investments in R&D made by individuals or companies. In principle, any excess deduction can, subject to certain limitations, be transferred to subsequent taxable periods.

New regime: three categories of deductions

The reform of the ID regime is driven by a desire to update the outdated list of eligible investments, encouraging "green" investments and aligning it with today's sustainable transition needs, to enshrine the percentages in law, and streamline and simplify the applicable procedures and formalities.

The general application conditions, the transferability regime and excluded investments largely correspond to the current regime. The main changes relate to the qualifying assets and the applicable rates, which will be fixed, unlike the current regime.

According to this new regime, a taxpayer can choose between three alternative categories of deduction for each qualifying asset:

Ordinary deduction

As for the current ordinary one-off ID, the ordinary deduction is only open to individuals and small companies. The deduction amounts to 10% of the asset's acquisition value and an increased rate of 20% applies for qualifying investments in certain digital fixed assets (including software and hardware supporting digital payment and billing systems, CRM and e-commerce platform systems, digital accounting etc.).

The deduction can however not be claimed for assets using environmentally and climatically harmful substances unless no economically comparable carbon emission-free alternative exists. The specification of the nature and technical characteristics of the assets, as well as a specific list of excluded investments, will be determined by royal decree.

Apart from filing a form 275U or 276U with the income tax return, no other formalities have to be fulfilled with regard to this ordinary deduction.

Increased thematic deduction

Subject to stricter conditions, the increased thematic deduction can be applied by both individuals and companies. This deduction only applies to investments made in one of the following categories: (i) efficient energy consumption and renewable energy, (ii) carbon-free transport, (iii) environmentally friendly investments and (iv) supporting digital investments related to the three aforementioned categories of investments. For each category a list of qualifying assets should be published through royal decree and updated every three years.

The applicable deduction rate amounts to 40% (of the acquisition value) for individuals and small companies, and 30% for other companies.

To claim this deduction, the taxpayer must obtain a certificate from the competent Authority confirming that the investment corresponds to a qualifying investment included in the thematic lists and that it does not cause unreasonable damage to the environment. This results in an administrative burden which is not entirely in line with the objective behind the reform.

Technology deduction

The "technology deduction" corresponds to the current ID for patents and environmentally friendly investments in R&D. As regards the one-off ID for said investments, the applicable rate is 13,5%, while a rate of 20,5% will apply for the spread deduction for environmentally friendly investments in R&D.

Takeaway

Based on this draft act containing the main changes, we can conclude that this new regime appears simpler and more transparent than the current regime. Nevertheless, it will be crucial to monitor the legal developments closely, as there are still some uncertainties regarding the eligible assets and formalities.

In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.