Change in the tax definition of an SME

The tax definition of small companies (SMEs) recently changed. Associations, establishments and institutions can now meet this definition, provided they fulfil a number of conditions. This change has repercussions on a number of exemptions from advance payment of withholding tax.

Definition of an SME

The tax definition of an SME referred to small companies according to the criteria set out in the Companies and Associations Code.

This gave rise to strict interpretations according to which legal persons that are not companies in the company law sense of the word (e.g. non-profit organisations) were not considered SMEs.

The tax definition of an SME has therefore been adapted. Since 25 July 2022, the notion of small company includes:

• a company in the company law sense of the word that is qualified as a small company under Article 1:24, §§ 1 to 6 of the Companies and Associations Code;
• any company, association (e.g. a non-profit organisation), establishment or institution to which this Article 1:24, §§ 1 to 6 does not apply but that meets mutatis mutandis the criteria set forth in this Article. These are associations, establishments or institutions that operate a business or carry out activities for profit and have legal personality. Associations, establishments or institutions under foreign law that do not have legal personality may also meet the definition of a company under certain conditions.

The criteria of Article 1:24, §§ 1 to 6 above stipulate, among other things, that the company may not exceed more than one of the following criteria on the balance sheet date of the last closed financial year:

• annual average of the number of employees: 50;
• yearly turnover, excluding VAT: € 9,000,000;
• balance sheet total: € 4,500,000.

This article also contains special provisions for start-up companies, companies with financial years of more than 12 months and linked companies. There are also special provisions when more than one of the criteria are (no longer) exceeded.

Impact on exemptions from advance payment of withholding tax

Certain exemptions from advance payment of withholding tax are reserved for SMEs. Other exemptions provide for different, more advantageous conditions of application for these companies.

We briefly outline the implications of qualifying as an SME.

Structural exemption

This exemption from advance payment of withholding tax corresponds to a percentage of the gross amount of remuneration before deduction of personal social security contributions. Associations, establishments and institutions that now meet the definition of an SME benefit from a structural exemption of 0.12% (for the profit sector) or 1.12% (for the non-profit sector).

Exemption for start-up companies

Start-up companies (= companies that have been registered in the CBE (Crossroad Bank for Enterprises) for no more than 48 months) do not have to pay to the Treasury 10% of the withholding tax withheld on the remuneration they pay or grant to their employees. The exemption scheme only applies to SMEs. Associations, establishments and institutions that now meet the definition of an SME also benefit from this exemption.

Exemption for scientific research

The exemption from advance payment of withholding tax for researchers with a bachelor's degree is limited, if necessary, to 25% of the total amount of the exemption calculated for researchers with specific master's or doctor’s degrees or with civil engineering degrees and who are working on research or development projects or programmes. If the definition of an SME is met, the percentage of the limitation is increased to 50%.

Exemption for training

Employers who allow their employees to attend more training than is provided for by law or regulation benefit from an exemption of 11.75% of the total taxable earnings of all employees who qualify for the exemption.

One of the conditions is that employees must have attended one or more training courses which, in total, last at least 76 hours over an uninterrupted period of 30 calendar days. 

If the employer meets the definition of an SME, the minimum duration of 76 hours over an uninterrupted period of 30 calendar days is replaced by a minimum duration of 38 hours over an uninterrupted period of 75 calendar days.

Customer of Partena Professional?

If your company now meets the tax definition of small companies, please contact your Payroll Consultant to determine the consequences of the possible application of the above-mentioned exemptions from advance payment of withholding tax.

If you have any legal questions about the adaptation of the definition of an SME, please contact our Legal Partners at legalpartners@partena.be.

Source: Law of 5 July 2022 containing various tax provisions (1), Belgian Official Gazette of 15 July 2022.