Using the notional interest deduction for risk capital to lower your tax rate in Flanders
The notional interest deduction (NID) allows companies to deduct a specific percentage of their ‘adjusted’ equity capital from taxable profits. It’s a tool to offset operational or financial income, lowering your effective tax rate in the process.
Incremental NID
This deduction is granted based on the average 5-year increase of a company’s full net equity, known as ‘incremental equity’.
In other words, the annual amount of NID that is tax deductible for a given financial year (x) will be 20% of the company’s qualifying net equity for financial year (x) reduced by the corresponding net equity amount of financial year (x-5).
Currently, the NID rate amounts to 0.443% for SMEs (fiscal year 2023). The exact rate is determined based on the linear bonds (OLO) interest.
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