No corporation tax on the earnings of a DRD bevek
The dividends and realised gains accruing from this investment are 100% exempt from tax.
An alternative to individual shares
Investing tax-efficiently in individual shares is subject to numerous conditions for a business. A DRD bevek, by contrast, has to meet far fewer requirements in order to qualify for tax relief.
Fund managers take care of the tracking
The fund’s managers use their knowledge and expertise to manage the equity portfolio on your behalf.
What is the DRD?
The DRD (dividend received deduction) is a tax exemption scheme applying to businesses that invest in the shares of other businesses.
Under the terms of the coalition’s 2017 summer accord, they are able, subject to certain conditions, to deduct share dividends and capital gains 100% from their earnings. The income had already been taxed at the distributing company, and so this approach avoids double taxation.
What are the conditions?
- You must have held the shares for at least one year without interruption (holding requirement).
- The profits of the distributing company must be taxed within a normal tax regime (taxation requirement).
- Either you must own at least 10% of the shares in the company or the investment must amount to at least 2,500,000 euros (shareholding requirement).
How can I take advantage of the DRD in an easy way?
Those conditions might well have left your head spinning. It’s not every firm, of course, that has 2.5 million euros to invest. That’s what makes a DRD bevek1 an alternative to investing in individual shares. A DRD bevek is a distribution fund2 that’s subject to fewer requirements.
The following conditions are the only ones that have to be met to benefit from a dividend received deduction with a DRD bevek.
- The DRD bevek pays out at least 90% of its earnings each year as a dividend.
- Dividends qualify for the DRD and the capital gains derive from shares that qualify for capital gains exemption.
What makes a DRD bevek attractive in tax terms?
The coalition’s 2017 summer accord has tightened up the conditions for tax-efficient investment in individual shares with effect from tax assessment year 2019, making it less beneficial for entrepreneurs to choose this option. If you do not fully meet the conditions, the dividends will be liable in full for corporation tax, which will gnaw away at your investment return.
A DRD bevek is a worthy alternative with which to avoid these onerous conditions and to benefit in an easy way from the dividend received deduction. There are associated risks, though, as with individual shares.
Under the coalition’s 2017 summer accord, the DRD rose from 95% to 100%, which means you can set your accrued dividends and realised gains against your taxable earnings in full. However, the ratio of this so-called ‘good income’ to the DRD fund’s total income needs to be borne in mind. This determines the extent of the DRD and is reflected in the DRD coefficient.
Since you don’t have to pay corporation tax on the portion of your investment profit that qualifies for the DRD, this is an attractive solution for your surplus cash.
Tax treatment
The DRD system applies to companies subject to Belgian corporation tax or to non-resident corporation tax. The tax treatment will depend on your personal situation and may change in the future.
| Stock market tax |
0% |
| Tax treatment in Belgium |
30% withholding tax on dividends |
Example
This example compares a share with a DRD bevek at a capital gain of 10,000 euros. Because the DRD bevek benefits from tax relief, your return is clearly maximised. Our calculation is based on DRD coefficients of 85%.
| Share | DRD bevek (85%) | |
| Purchase | 100.000 | 100.000 |
| Value on sale | 110.000 | 110.000 |
| Capital gain | 10.000 | 10.000 |
| DRD exemption | 8.500 | |
| Taxable base | 10.000 | 1.500 |
| Corporation tax | -2.500 | 375 |
| Total net return | 7.500 | 9.625 |
* Shares are taxed at between 20% and 25%. For the purposes of this example, we have assumed a tax rate of 25% and a capital gain after one year of 10 000 euros.
What are the risks?
- DRD beveks invest in shares. This means that the value of the fund is more likely to fluctuate, but its long-term return prospects may also be better.
- Bear in mind that DRD beveks do not offer a fixed return, capital protection or have a maturity date.
Would you like to invest tax-efficiently too?
Make an appointment with an Enterprise Wealth Management expert for more information on the tax advantages of investing in a DRD bevek. They specialise in optimising businesses’ liquid assets.
They will work with you and, where appropriate, your bookkeeper, to identify tax-friendly alternatives to individual shares. You will also run through your existing portfolio together to look for potential improvements in line with your business’s goals.
This page contains only marketing information. It does not contain any investment advice or investment research, just a summary of the product’s features. The information could change in the future.
1 ‘Bevek’ stands for BEleggingsvennootschap met VEranderlijk Kapitaal in Dutch (‘Sicav’ – Société d’Investissement à CApital Variable in French). A ‘bevek’ is an open-ended investment company, a statutory UCI, a legal entity and usually a company with limited liability. A typical feature of an open-ended investment company is that it can increase its capital at any time, without any formalities, by issuing new units or can decrease its capital by buying back existing units. As a result, investors can buy or sell units in the fund at least twice a month, at the net asset value.
2 ‘Fund’ is the common name for an Undertaking for Collective Investment (UCI). The term can refer to a sub-fund of an open-ended investment company under Belgian law (bevek), a sub-fund of an open-ended investment company under Luxembourg law (sicav), a collective investment fund or a sub-fund of a collective investment fund.