What is the impact of the Notional Interest Tax Deduction system on investments in Belgium?

Authors Avatar

                Candidate Name: Sanay Shah

                Subject: Economics

                Candidate Number: csy131

Extended Essay

“What is the impact of the Notional Interest Tax Deduction system on investments in Belgium?”

Word Count: 3985 words

Table of Contents

Title                                                                        Page Number(s)

1. Abstract                                                                        3

2. Acknowledgements                                                         4

3. Introduction                                                                5 - 6


4. Benefits of the NITDS                                                        7 - 11

5. The balance between Debt and Equity financing                        12 - 14

6. Drawbacks of the NITDS                                                        15 - 16

7. International Awareness                                                        17 - 19

8. Changes encountered in statistics                                        20 - 21

9. Other reasons for investing in Belgium                                        22 - 23


10. Conclusion                                                                24 - 25

        10.1 Conclusion

        10.2 New Questions

        10.3 Limitations

11. Bibliography                                                                26

12. Appendices                                                                27 - 32

1. Abstract

My Extended Essay was based on the innovative tax system that had newly been launched in Belgium for companies to gain greater possibilities of making larger profits. With the recent recession looming over all financial markets and companies, I felt it was interesting to see what the effect of this tax regime, which benefits companies, would have on investments in Belgium. Since the tax system was first to be established in Belgium, by investigating the effect on investments, it would be easier to suggest to countries worldwide whether they should adopt the tax system in order to compete with the developing economies of Brazil, India, China and Russia (BRIC countries.)

The investigation was conducted thoroughly, and firstly I interviewed Mr Steven Gils and Dirk Eilers who are tax specialists in order to understand the system. To evaluate whether the tax system was actually benefiting the economy, I looked at the statistics issued by the National Bank of Belgium along with other publications by banks and other countries in order to conclude how effective the new tax regime was. In order to focus my study on the investments in from America, I discussed the issue with Marcel Klaes.

By looking at the statistics as well as economic ideas, I could deduce that investment in Belgium has increased after the introduction of the NITDS. Even though Belgium has other factors that it can offer in order to increase investments, the introduction of the NITDS has seen a positive outcome on the economy and the country as a whole. Largely, the research carried out in my Extended Essay suggests that other countries should adopt this tax system in order to lure investors into their country so that they can ensure that they remain competitive internationally.

Word Count: 294 Words

2. Acknowledgements

I would like to thank my Extended Essay supervisor and teacher, Mr Ian Hibbert for his assistance and guidance.

In addition, I give my greatest gratitude to the following people for taking the time to help me:

  • Mr Steven Gils, Deloitte and Touche
  • Mr Marcel Klaes, Amcham
  • Mrs Helen Triegaardt, Economics Teacher
  • Mr Dirk Eilers, Eilers

3. Introduction

Belgium has one of the highest tax rates in Europe, at an average of 55.4% for a single earner, including social security, in comparison to an average of 42% within Europe. These figures signify the extent to which the Belgian tax rates are a problem to an average working person. In today’s world of competition it is imperative that each country proves itself to be a global power. In order to do this the Belgian government recently launched the Notional Interest Tax Deduction System (NITDS) in order to increase the volume of foreign and domestic investments in Belgium, and therefore to decrease the unemployment rate. Since these two macroeconomic objectives are considered to be of extreme importance for every country in modern society, this tax system was first created and drafted between January 2004 to 2005 and was applied as from the 2006 tax year. 

Recently the Notional Interest Tax Deduction System has been in the press on various occasions. The use of it is being questioned and challenged by many officials in Belgium and it will be interesting to see whether Belgium and its people will benefit from the system. I will therefore investigate ‘What the impact of the Notional Interest Tax Deduction System on investments in Belgium’ and conclude on what the evidence suggests.  

In order to place the matter into picture it is also important to take into consideration, that with Indian and Chinese markets growing at rapid rates, it was virtually impossible for Belgium to fuel the level of investments properly if this system would not have been introduced. We can see that India has ‘grown at 9.2% in 2007’  During the same period in time China has grown at 11.9% in 2007 , which meant ‘that China in 2007 stood as the second-largest economy in the world after the US.’  Therefore, in order to eliminate misunderstandings, it is important to understand exactly what the NITDS entails. By adopting the NITDS, all companies in Belgium will be able to ‘take a deduction from its taxable profits, calculated as a percentage of equity.’ The NITDS can benefit all companies located in Belgium since there are no limitations on the size or the turnover of the companies or on the amount invested.

Join now!

4. Benefits of the NITDS

Since this tax system has only been in place for two financial years, it is difficult to be precise the consequences although some have been measured. This tax system seems to have prospective benefits and can be linked closely to the competition and monetary policy of the European Union. This is due to new companies investing in Belgium; a rise in competition for local companies is noticed. The effect of this ...

This is a preview of the whole essay