Taking money out of a company risks becoming more expensive from a tax perspective. On 11 December, the Council of Ministers decided to amend the regime for both the liquidation reserve and VVPR-bis. The federal government intends to increase the tax burden from 15% to 18% on distributions for both ‘VVPR-bis dividends’ and dividends drawn from accumulated liquidation reserves. The new regimes would come into effect once the law has been approved and published.
This raises quite a few questions among entrepreneurs. In this article, we explain what the liquidation reserve and the favourable VVPR-bis regime are, what was decided at the Council of Ministers and what this could mean in practice once the new law enters into force.
[I’d like to know more]
What are the liquidation reserve and the favourable VVPR-bis regime?
Under the favourable VVPR-bis regime, shareholders of small companies can distribute dividends at a reduced withholding tax rate of 15%, provided that, among other things, the waiting period of three financial years has been met and insofar as the shares were issued following a cash contribution, made as from 1 July 2013.
In addition, there is also the liquidation reserve regime. This offers entrepreneurs a way to take money out of their company at a favourable tax rate. Pending the new law, the rules are as follows: 'ordinary’ dividends are typically taxed at 30%, but a small company can also choose to allocate its profits for the financial year to a liquidation reserve, subject to payment of an advance levy of 10% in the year of allocation, with a view to a favourable rate upon later distribution.
For liquidation reserves that were set up before 31 December 2025, the existing system applies: after a waiting period of five years, the liquidation reserves can be distributed subject to an additional withholding tax of 5%. If you wish to distribute after three years, the additional withholding tax amounts to 6.5%. If the liquidation reserves are distributed in the context of the liquidation of the company, no additional withholding tax is due on these distributions.
What do we already know?
At the Council of Ministers of 11 December, the federal government announced its intention to amend both regimes. This amendment will only apply once the new law has been effectively approved and published. The reform fits within broader plans to increase the tax burden on distributions, both for VVPR-bis dividends and for dividends from liquidation reserves.
Liquidation reserve
Under the new regime, nothing would change for liquidation reserves that have already been set up: as before, they would be distributed at 5% after five years, or 6.5% after three years. For new liquidation reserves that are set up from 31/12/2025, including for the financial year ending on 31 December 2025, a new rate is being proposed. Upon distribution after the waiting period, a withholding tax of 9.8% would apply, in addition to the advance levy of 10% already paid earlier. In concrete terms, this means that the total tax burden on such a distribution would increase to 18%.
Do you work with a broken financial year? If so, take extra care: financial years that end no later than 30 December 2025 still fall under the old regime.
VVPR-bis
Under the VVPR-bis regime, a reduced withholding tax rate of 15% currently applies, provided the conditions and waiting period have been met. According to the plans, this rate would increase to 18% once the new law enters into force. Emphasis is placed on the fact that historical profits could then fall under the higher rate once the law effectively applies.
[I’d like to know more]
Do you need to take action?
Under the new regime, nothing would change for liquidation reserves that are already set up. Existing liquidation reserves remain subject to the current regime and can still be distributed at 5% after five years or 6.5% after three years, or without withholding tax upon liquidation. The announced amendment mainly affects new liquidation reserves that are set up from 31 December 2025.
For ‘VVPR-bis dividends’, timing plays a more significant role as, according to the plans, the withholding tax would increase from 15% to 18%, regardless of the financial year in which the distributable profit was earned, including undistributed ‘historical’ profits from previous financial years. However, as long as the law has not yet been approved and published, a distribution at the current rate of 15% remains possible.
I want assistance with my choice
What can you do now?
As an entrepreneur, it is essential to clearly map out your dividend strategy and plan ahead. Discuss this with your trusted PIA accountant or Advisory expert. Together, identify which profits can be distributed under VVPR-bis (and whether you meet the conditions and waiting period) and determine which profits you have (already) allocated to liquidation reserves and when these were set up. This will immediately clarify which liquidation reserves still fall under the existing regime, with distribution at 5% after five years or 6.5% after three years, which future liquidation reserves from 31/12/2025 may fall under the new rate once the law is passed, and whether distributions under VVPR-bis are still possible at the current rate as long as the new law has not yet been approved and published. Profound insight and thoughtful planning will help you make fiscally well-considered choices.
At PIA Advisory, we understand this is not a straightforward choice. That is why we are ready to support you with personalised advice tailored to your situation. Feel free to contact us for more information about VVPR-bis, the liquidation reserve or other tax-related options.
