Notional interest deduction rates for assessment year 2023
The rates of the notional interest deduction (NID) i.e. the deduction for risk
capital are determined every year. The basic rate for assessment year 2023 was
published in the Belgian Official Gazette of 19 September 2022. That base rate
is negative again, but
Increase compared to assessment year 2022
The notional interest deduction is a fictitious interest deduction for companies
with a lot of equity. The base rate of the deduction was -0.160% for tax year
That rate will rise to -0.057% for tax year 2023. That percentage is
still negative and so the final rate of the notional interest deduction is still 0%.
SMEs do enjoy an increased rate, namely 0.5% above the basic rate. That is
0.443% for tax year 2023.
Calculation of the NID rate
The notional interest deduction rate is calculated on the basis of the average
of the reference indices J related to 10-year linear bonds (OLOs) for July,
August and September of the penultimate year before the tax year. For assessment
year 2023, this was the average of the reference indices for July 2021 (0.061),
August 2021 (-0.121) and September 2021 (-0.110) which gives an average of
Small companies (SMEs) receive a bonus of 0.5%, so that they can apply a
deduction of 0.443% for tax year 2023. For this rule, a small company is defined
as a company with legal personality that does not exceed more than one of the
following criteria on the balance sheet date of the last closed financial year
(art. 1:24, §1 to §6 of the new CAC Companies and Associations Code):
annual workforce average: 50
annual turnover, excluding VAT: 9 million euros
balance sheet total: 4.5 million euros.
The new rate may never deviate by more than 1 percentage point from the rate of
the previous assessment year.
The percentage may also never exceed 3% for
large companies and 3.5% for SMEs.
Neither threshold was exceeded this
Risk capital calculation
To determine the basis of the notional interest deduction, you need to look at
the average increase in equity over a five-year period. That is to say: the risk
capital amounts to 1/5th of the positive difference between the adjusted equity
at the end of the financial year itself and the adjusted equity of the 5th
preceding financial year.
One of the measures taken by the government to finance the budget deficit is to
abolish the notional interest deduction for large companies. But since the
deduction due to the low interest rates on bonds has already been '0' in recent
years, the impact of this measure seems limited.
However, now that the interest on government bonds is starting to rise, there is
indeed a saving for the government.
On the other hand, it is remarkable to note that when the Belgian notional
interest deduction was introduced, the measure was received with applause. And
just when the European Union starts to regard the notional interest deduction as
an economically meaningful measure, Belgium partly abolishes that measure.