This deduction narrows the discrimination between funding with equity and funding with loans, as currently, interest paid is deductible for the borrowing company while dividends paid are not.
The notional interest deduction equals a percentage (based on the return on a 10-year state bond – 4,473% for assessment year 2010 – 3,8 % for assessment year 2011) of the equity (including retained earnings), determined according to Belgian accounting law. Participations in other companies and real estate used by directors a.o. have to be deducted from the equity. The unused deduction is transferable for seven years.
Together with the repeal of the 0,5% registration duty on capital contribution since January 1, 2006, this measure benefits small- to medium-sized enterprises (SMEs) and larger companies (national and international) by encouraging the strengthening of their equity.