Back in August 2015, the Belgian government implemented tax incentives for investors to support entrepreneurship including the Tax Shelter. Entrepreneurs are instrumental in creating jobs and boosting the economy, but in the current financial ecosystem, they often struggle to access the financing needed to fund their business model.
The Tax Shelter intends to minimise this funding gap by facilitating the access to capital, in particular by reinforcing their capabilities to raise that capital through alternative financing. Indeed, as a young company, it will become much easier to find investors since those individuals will benefit from a significant tax incentive.
How does it function?
The tax shelter provides for a tax reduction in the personal income tax for private investors who invest in young companies. This can be done either directly, through an accredited crowdfunding platform or via a starter fund.
The problem was that at the time of the adoption of this tax law, there was no regulation on the accreditation of crowdfunding platforms. So until today, the tax shelter was only accessible for private investors (often called “Business Angels”) investing directly in an eligible company. Finally, on December 15th in 2016, a new law was adopted by the Belgian Parliament setting out the rules for the accreditation of crowdfunding platforms.
This law will come into effect as of February 2017, at which point it may take up to several weeks before the crowdfunding platforms can be accredited and offer the incentives introduced by the Tax Shelter to their investors.
So which companies are eligible to raise money whilst benefiting from the Tax Shelter mechanism?
First of all, the company must be a Belgian company incorporated as from 1st January 2013 and the fundraising through tax shelter should take place within four years since its incorporation.
Secondly, the tax shelter is applicable to two types of companies: the micro-companies and SMEs. Since an investment in the first category is more risky, the corresponding tax reduction for investors is higher. Here investors can benefit from 45% of tax reduction on the amount invested instead of 30% as provided for investment in SME’s.
Enterprises from all sectors can benefit from the Tax Shelter, but of course the law has provided that some sectors, such as real estate companies and listed undertakings should be excluded in order to avoid abuses.
Each company can raise up to €250.000 through the tax shelter mechanism, it being understood that an entrepreneur investing in its own business may not benefit from this advantage.
SME vs micro-entreprise definition
Your company is qualified as an SME if your company meets at least 2 of the three following criteria:
- Balance Sheet: < €4.500.000
- Turnover: < €9.000.000
- Average amount of workers employed over the year: < 50
And in order to be qualified as a micro-entreprise, your company must meet at least two of the three following criteria:
- Balance Sheet: < €350.000
- Turnover: < €700.000
- Average amount of workers employed over the year: < 10
By Sarah Kawa
A jurist at MyMicroInvest