Not required, but recommended!
Corporations and independent contractors are not required to make prepayments on their taxes. But when they don't, they do face a tax increase. The percentage of this tax increase depends on the evolution of interest rates. Due to rising interest rates, this percentage has now risen to as much as 9% for income in 2024.
An example: you estimate your company's taxable profits at EUR 100,000 by the end of fiscal year 2024. The tax for a corporation is then EUR 25,000 (EUR 100,000 x 25%). If you make no prepayments, then the tax increase is as much as EUR 2,250 (EUR 25,000 x 9%).
To reduce this tax increase, prepayments can be made. How big the benefit of prepayment is depends on which quarter the payment was made in.
| Prepayments | Saving |
| By April 10, 2024 | 12% |
| By July 10, 2024 | 10% |
| By Oct. 10, 2024 | 8% |
| By December 20, 2024 | 6% |
The average of those four percentages is again 9%.
So making a first prepayment before April 10, 2024, is most interesting.
Does your company have too little cash to make an upfront payment? Then you can take out a loan for this purpose. The interest payable is tax deductible for corporate income tax purposes. This is in contrast to the increase due to insufficient prepayment, which is not a tax-deductible expense.
Exemptions
Newly formed companies and corporations are exempt from upfront payments and thus tax increment during their first 3 fiscal years.
Establishing a liquidation reserve does not affect your tax increase
Points of interest
It is also important to check whether the company still qualifies as a "small business. If, for example, the minimum remuneration requirement for company directors is not met, this may result in additional taxes. In this case, your profits will be taxed at 25% instead of possibly 20%. This also potentially impacts upfront payments.
Do not hesitate to contact us here contact us with questions.
Unsure about the right approach for your business? Then contact your client manager!
