Parent companies can, under certain conditions, exempt dividends from subsidiaries from corporate income tax through the DBI (Definitively Taxed Income) deduction. For large companies, these conditions will soon become more stringent.
To apply an exemption on any capital gains on shares of subsidiaries, the same conditions apply as for the application of FDI deduction.
Consequently, the planned changes in terms of FDI deduction will also impact the possible exemption of capital gains on shares in large companies.
What are the requirements for FDI deduction?
The conditions for the exemption of dividends received on behalf of the parent company are:
- Appraisal Condition: the company paying the dividends must be subject to a normal tax regime.
- Participation condition: your company should Hold at least 10% of capital Or have a participation with a acquisition value of at least 2.5 million euros, at the time the dividend is declared or made payable.
- Standing Condition: participation must at least one year continuously at full ownership are held.
Are not all of these conditions met?
Then the dividend received is simply taxed at the standard rate in corporate income tax (20% or 25%). By the way, the same conditions apply to the exemption of capital gains on shares.
In short, these cumulative conditions are crucial for both the exemption of dividends received and the exemption of realized capital gains.
Tightening participation requirement for large companies
- For large companies becomes a additional condition linked to the threshold of 2.5 million euros. The participation of the parent company in a subsidiary with an acquisition value of at least 2.5 million euros will from now on also have the nature of a 'financial fixed asset' must have. This additional condition applies only to the threshold of 2.5 million euros and not on the 10% participation requirement.
- For small and medium-sized enterprises does not change the participation condition. The participation in the subsidiary need not be in the nature of a financial fixed asset.
- If the company has a affiliated company is, the criteria on annual sales and annual balance sheet total are set at consolidated basis determined. To determine the average headcount of a related company, the average headcount of each of the related companies involved during the taxable period is added up.
When does the tightened participation requirement take effect?
The tightened participation requirement for large companies goes into effect as of the taxable period associated with assessment year 2026. Any change in the fiscal year end date from Feb. 3, 2025 is not objectionable to the tax authorities unless there is evidence of motives other than tax avoidance.
Conclusion
Unlike proposed changes earlier this year, the impact limited to large companies with a holding of less than 10% of its subsidiary's capital. Thus, the participation with an acquisition value of 2.5 million euros will henceforth also have to qualify as 'financial fixed asset'.
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