Tax shelter for start-ups and tax exemption for loans to start-ups via crowdlending

Tax shelter start-up: tax benefits and investment in a start-up company

To qualify for this tax advantage, the investment must first be made when a company is incorporated or through a capital/equity increase within four years of incorporation. 

The tax authorities have also specified that a company is deemed to be incorporated :

• the date on which the deed of incorporation is filed with the clerk of the company's court; or
• the date of filing of a similar formality in another Member State of the European Economic Area.

When the activity of the start-up company consists of the continuation of an activity that was previously carried on by a natural person or a legal entity, the company is deemed to be incorporated respectively :

• when the individual first registers with the Crossroads Bank for Enterprises;
• or at the time when the deed of incorporation is filed with the clerk of the company's court by this other legal entity;
• or the completion of a similar registration formality in another Member State of the European Economic Area by that natural person or other legal entity.

The legislator has therefore not restricted this tax reduction to investments made in companies operating in specific sectors (subject to compliance with the conditions listed below and excluding property companies).

 

Tax shelter for start-ups: what types of investment? 

The investment must be made in cash; investments in kind or in industry will not qualify for this tax reduction.

In addition, investors must receive new shares issued by the company in return for their investment. Debt securities or other financial instruments (profit shares, warrants, bonds, ....) will not be eligible for the tax shelter.

 

Conditions to be met by the company making use of the tax shelter start-up scheme

Article 145/26 of the CIR/92 lays down a whole series of conditions that the company receiving the investment must meet in order for the investor to benefit from this tax advantage:

1° the company is a resident company or a company whose principal place of business or place of management or seat of administration is in another Member State of the European Economic Area and which has a Belgian establishment as referred to in Article 229 which was formed no earlier than 1 January 2010; or^er January 2013;

(2) the company is not formed as part of a merger or demerger of companies;

3° the company is deemed to be a small company on the basis of article 1:24, §§ 1 to 6, of the Companies and Associations Code for the tax year relating to the tax period in which the capital/equity contribution takes place; 

(4) the company is not an investment, treasury or finance company;

5° the company is not a company whose principal object or principal activity is the construction, acquisition, management, development, sale or rental of real estate on its own account, or the holding of interests in companies with a similar object, nor a company in which immovable property or other rights in rem over such property are invested, for the use of which natural persons who exercise a mandate or functions referred to in Article 32, paragraph 1, 1°, their spouse or their children, where such persons or their spouse have the legal right to the income from such property;

(6) the company is not a company formed for the purpose of entering into management or administration contracts or which obtains most of its profits from management or administration contracts;

7° the company is not listed on the stock exchange;

8° the company has not yet (i) made any reduction in capital/equity, other than a reduction to offset an incurred loss or to create a reserve to cover a foreseeable loss, or (ii) distributed dividends;

(9) the company is not the subject of collective insolvency proceedings or is not under the conditions of collective insolvency proceedings;

10° the company does not use the sums received for the distribution of dividends or for the acquisition of shares, nor does it use them to grant loans;

11° the company has not received, after payment of the sums referred to in § 1, paragraph 1, a and b, by the taxpayer or the financing vehicle respectively, or of the investment referred to in § 2, paragraph 3, 1°, by a public starter fund or a private starter investment fund, more than 250,000 euros through the application of this article.

These conditions must be met by the company at the time of the investment benefiting from the tax shelter. However, conditions 4°, 5°, 6° and 10° must be met by the company within 48 months of the company's shares being paid up.

The amount of investments benefiting from this tax reduction received by an eligible company cannot therefore exceed EUR 250,000 and this throughout the life of the company. 

The company must also be considered a small company within the meaning of article 1:24 of the Companies and Associations Code. In other words, it must be a company with legal personality which, on the balance sheet date of its last completed financial year, did not exceed more than one of the following criteria:

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

Companies starting their activities must make a good faith estimate of these criteria at the beginning of the financial year. If this estimate shows that more than one of the criteria will be exceeded in the first financial year, this must be taken into account in the first financial year. This means that if, on the basis of the financial plan, it is clear from the outset that the thresholds will be exceeded, the company cannot be considered small.

 

Tax shelter start-up: what conditions must investors meet?

To qualify for this reduction, the investor must be a natural person subject to personal income tax or non-resident tax in Belgium. 

This measure therefore does not apply to investments made by one company in another.

Company directors (administrators, liquidators, similar functions, independent directors, etc.) will not be able to benefit from this measure for investments made within their own company. 

However, if you decide to invest in another company in which you are not a company director, you will be able to benefit from this tax reduction for that investment. 

However, the tax authorities have accepted that a company director can benefit from the tax reduction provided that : 

1. his appointment is not provided for in the deed of contribution; and 
2. it is not remunerated.

The investment made by the investor and benefiting from this tax reduction may not represent more than 30 % of the company's share capital.

Similarly, the investor will have to hold his stake in the company for a period of 48 months from the date of investment in the company. 

If this is not the case, the tax advantage obtained will be reduced by the period remaining to reach the 48-month holding period.

 

What are the tax benefits of tax shelter start-ups? 

In return for their investment, individuals will be granted a tax reduction equal to 30% of the amount invested in the start-up company. 

However, this amount is limited to EUR 100,000 per taxable period and per taxpayer. 

The investment does not have to be made in a single company; the investor can invest in several companies and benefit from this measure, provided that the amount of his investments benefiting from this tax reduction does not exceed EUR 100,000 per tax period. 

This tax reduction can be increased to 45% of the amount investedi the company in which the investor decides to invest is considered a microcompany. 

To qualify as a micro-company, the company must not have exceeded more than one of the following limits in its last financial year:

• the balance sheet total does not exceed 350,000 euros;
• sales, excluding VAT, do not exceed €700,000;
• the average number of workers during the year is no more than 10.

Lastly, the tax reduction obtained by the investor may not be reimbursed or carried forward to a subsequent taxable period if, due to insufficient tax payable by the investor, it cannot be deducted in full. 

 

Example 

Two founders decide to set up a company together. After a year, they decided to raise funds to develop their company. A private investor is interested and decides to invest EUR 100,000 in the company. However, he was not appointed as a director of the company. At the time of this investment, the company is considered to be a micro-company. The investor will therefore obtain a tax reduction equal to EUR 45,000.

If the investor has to pay an amount of tax equal to EUR 40,000 for the tax period in which he makes this investment, the amount of the tax reduction obtained for this investment will be reduced accordingly. The EUR 5,000 not deducted cannot be carried forward to the next tax period, nor will it be reimbursed by the government to the investor.

A year after this investment, the company raised a second round of funding from new private investors for EUR 200,000. 

These new private investors will only be able to benefit from the tax shelter on their investments up to an amount of EUR 150,000, since the company can only receive investments eligible for this tax reduction up to a total amount of EUR 250,000 throughout the company's lifetime.

 

Tax exemption for interest on loans to start-ups via a crowdfunding platform 

In addition to the "tax shelter for start-ups", the Programme Law of 10 August 2015 also introduced another measure to help early-stage companies: the "tax shelter for start-ups".exemption from withholding tax on interest on loans to start-ups via a crowdfunding platform.

Start-up companies: conditions for exemption from withholding tax on loans granted via crowdfunding platforms

The conditions for benefiting from this measure are set out in Article 21, 13° of the CIR 92 : 

• the loan must be provided by a natural person (not a company);
• the loan must be made to a start-up company. For this criterion, we refer to the explanations given above regarding the tax shelter for start-ups;
• the loan must be made to a small company within the meaning of article 1:24 of the Companies and Associations Code. Here again, we refer to the discussion above on tax shelter startups. Note, however, that for the purposes of this tax exemption, the legislator has not made any distinction between a small company and a micro-company;
• the loan is granted on the basis of annual interest for a period of at least four years;
• the loan is made through a crowdfunding platform authorised by the FSMA or by a similar authority in another Member State of the European Economic Area;
• they must not be refinancing loans.
  
  

Start-ups: activities and purpose of financing

Unlike tax shelters for start-ups, there are no (restrictive) conditions regarding the activities that the borrower may engage in. 

The only stipulation is that the loans granted must be used to finance iew economic initiatives. The explanatory memorandum gives no indication or example of what is meant by such "new economic initiatives". Presumably it will be up to the crowdfunding platform to make a selection in this respect.

Directors can benefit from exemption from withholding tax on interest on loans granted to their own start-up companies via a crowdfunding platform. 

Unlike the tax shelter for start-ups, under this exemption company directors are not excluded from this measure. 

Company directors can therefore lend funds to their company and benefit from tax exemption on the interest (provided all the above conditions are met). 

This clarification is explicitly confirmed by the explanatory memorandum of the law: ". entrepreneurs and company directors acting in a private capacity can also benefit from the exemption ".

If these conditions are met, the lender will benefit from a tax advantage in the form of an exemption from withholding tax on the interest on the first €15,860 (indexed amount for the 2021 tax year) lent per year, for a period of four years. Only interest for the first four years is therefore eligible for the exemption.