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Clarification on tightened VVPR bis regime

Tuesday 19/07/2022

As of 1 January 2022, the application conditions of the VVPRbis regime have been tightened. If you want to benefit from the regime today, the initial contributions must be fully paid up. As a result, many companies that reduced their capital by a full payment exemption in order to bene-fit from the VVPRbis when the new Companies and Associations Code (WVV) came into effect now have to regularise in order to still benefit from it.

The application of the VVPRbis regime has already undergone some changes since the introduction of the new Companies and Associations Code (WVV). -Are you still with us?

What is the VVPRbis regime?

The VVPRbis regime allows dividends of small and medium-sized companies to be paid under certain conditions at a reduced withholding tax rate of 15% or 20%. Normally that rate is 30%.

In order to qualify for that reduced rate, the dividends must arise from, among other things, new registered shares issued on the occasion of a contribution in cash made as from 1 July 2013. In addition, the entire contribution must be paid up in full at the time of the dividend payment.

New company law has unintended consequences for VVPRbis

At the time the VVPRbis regime came into force, certain companies could only be formed with a minimum capital set by law. Companies for which there was no minimum capital requirement, such as a limited partnership, were eligible for the VVPRbis regime only if they met the capital requirement of a private limited company.

The new company law no longer requires private limited companies to have minimum capital. The capital requirement for the application of the VVPRbis regime was abolished as a result. Existing companies whose capital was only partially paid uptherefore reduced their capital by means of a full payment exemption. In this way they also tried to take advantage of the VVPRbis regime. But that was never the intention of the legislator.

Tightening of conditions of VVPRbis

The application conditions of the VVPRbis regime have therefore been tightened since 1 January 2022. To benefit from this regime today, the initial contributions must be fully paid up.

For companies that decided between 1 May 2019 (entry into force of the new WVV) and 15 December 2021 to proceed to an exemption from full payment of the subscribed shares, a transitional measure applies. They will still be eligible for the VVPRbis regime, provided that they implement a capital increase to the initial level of the subscribed contribution.

It is not prohibited, but also not required, to issue new shares on the occasion of this capital increase. The planned capital increase will not affect the waiting period applicable to the dividend payment under the VVPRbis regime. This waiting period runs from the date of the initial contribution and therefore does not start running again after the capital increase.

What about preferred shares?

The Explanatory Memorandum to the programme law that instituted the VVPRbis regime states that the newly issued shares cannot be preferred shares. For a long time, there was ambiguity about the interpretation of the concept of "preferred" shares. The law containing various tax provisions of 21 January 2022 clarifies this. No pre-emptive rights may be attached to the shares “with respect to participation in the capital or profits or with respect to the distribution of the company's assets”.

Circular clarifies full payment obligation and origin of contributed funds

Despite the change in the law, it was still not entirely clear whether companies that had implemented a capital reduction by exemption from full payment could still benefit from the VVPRbis regime in the case of dividend payments after 1 January 2022 provided that they effected a timely regularisation after that.

The Circular no. 2022/C/42 clarifies that point. A dividend payment after 1 January 2022, followed by a timely regularisation (before 31/12/2022) of the capital, is not sufficient. However, a literal interpretation of the law may lead to a different conclusion. According to the Circular, the VVPRbis regimemay only be used again for dividends paid after the capital reduction has been regularised and the initial contribution is fully paid up.

The Circular also sheds light on the origin of the sumscontributedon the occasion of the capital increase. Sums arising from a distribution of liquidation reserves as of 1 May 2013 and subject to 5% withholding tax cannot leadto the application of the VVPRbis regime. This exclusion applies only if the distribution was made by a company that is affiliated or associated with a person and if that same person invests in the capital of another company.

Regularise or consider alternative?

The application conditions of the VVPR-bis regime have been tightened again. To benefit from the regime to date, the initial contributions must be fully paid up. Companies that reduced their capital by exemption from full payment in response to the new Companies and Associations Code must now regularise this. For a great many companies, such as SMEs whose shares are held by natural persons, it may therefore be interesting to consider the creation of liquidation reserves as an alternative.

Do you have any questions or would like more information about this? If so, contact our experts.

Contact one of our experts

An Lettens

An Lettens

Partner Tax & Legal Services

Maarten Hurtecant

Maarten Hurtecant

Associate Tax & Legal Services