The chance that the friends’ capital can repeat the success of the win-win loan seems minimal. The federal tax shelter offers a greater tax advantage to those who invest savings in the capital of a company. It will not be possible to profit from both tax benefits with the same investment, says Flemish Minister of Economy Hilde Crevits.
The Flemish government is launching friends’ capital to help companies through the corona crisis. In doing so, she hopes to repeat the success of the win-win loan. That system has existed since 2006 and is more successful year after year. At the end of 2019, more than 19,000 win-win loans had been registered for almost half a billion euros.
With the win-win loan, Flemish people can lend relatively small amounts to befriended entrepreneurs in exchange for a tax benefit and a guarantee against a possible bankruptcy. With the friends ‘capital, Flemings can invest in an SME, a cooperative or a citizens’ initiative under the same conditions. There is no one-off tax benefit if the company goes bankrupt.
Low tax benefit
Earlier this week, Steven Vanden Berghe, the chairman of the ruling service, warned via Twitter that with the Flemish friends’ capital and the federal tax shelter for start-ups, two tax benefits for the same capital increase may apply.
‘With the friends’ share you crawl into the capital. Investors who dare to take that type of risk also expect a consistent return. But compared to the federal tax shelter, the fiscal framework of the friends ‘share is meager,’ notes Frederik De Roo, advisor self-employed and SMEs at BDO.
Reginald Vossen, general director of Business Angels Network Flanders, is on the same wavelength. “Unless the fiscal framework of the friends’ capital can be combined with the much broader tax shelter, the Flemish system will become a stillborn child,” he fears.
Mainstream SMEs
For us it is logical that the tax benefits cannot be combined
‘The modalities must be further elaborated in the decree. But for us it is logical that the tax benefits cannot be combined, ‘says Flemish Minister of Economy Hilde Crevits (CD&V) when asked. She notes that ‘the federal tax shelter only focuses on SME start-ups and is not accessible to mainstream SMEs’.
‘Then the friends’ capital will only be of interest to those who miss out on the tax shelter. For example, retired entrepreneurs with a low statutory pension who pay little tax, ‘says De Roo. Those who pay little or no tax benefit from a tax credit, but not from a tax reduction (see box).
Tax shelter vs. friends capital
Via the friends’ capital, someone can invest a maximum of 75,000 euros in a friendly company. He will receive an annual tax credit of 2.5 percent for five years, with a maximum of 1,875 euros. Unlike with the win-win loan, there is no guarantee if the company goes bankrupt. With the win-win loan, there is then a one-off tax credit of 40 percent.
Via the federal tax shelter, anyone who invests up to 100,000 euros in a start-up or scale-up of up to four years old will receive a one-off tax reduction. The tax benefit amounts to 30 or 45 percent of the invested amount, depending on the size of the company in which the investment is made.
The federal government is also examining for its recovery plans whether and how this system can be expanded.
You can read more about the friends’ capital, the welfare fund and how the Flemish government wants to activate your savings in the Netto section on Saturday.
Tax credit or tax credit?
Suppose you have to pay 100 euros in taxes. But through the Flemish win-win loan you are entitled to 150 euros tax credit. Then you will be paid 50 euros by the tax authorities at the settlement.
Your neighbor also has to pay 100 euros in taxes. He is entitled to 150 euros federal tax relief via the tax shelter. Your neighbor does not get any tax back (but also does not have to pay anything extra).