24 May 2017
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Regime for Convenience-Carat Tax
The Carat Tax, according to AWDC will help end complex annual discussions over control and valuation of stock. Gunjan Jain has brought you in-depth information on the tax and the views of the industry.
By: Diamond World News Service
Feb 18 2017 3:35PM
Reference: 13907  

The Belgium diamond industry has been served the new ‘Carat Tax’ or the ‘Diamond Regime’, as the Belgian Parliament passed the new legislation on corporate tax for the industry. According to AWDC, the corporate tax will now be levied on a lump sum amount, calculated as a percentage of the turnover of the company and not on profits. This new tax is applicable from fiscal 2017 and considers income of the current year.

The AWDC believes the new tax will being about more predictability and stability, giving diamond trading companies the ease of forecasting their total corporate tax due based on their diamond sales. Also, the secondary effect of the tax will strengthen the capital base of diamond trading companies, improving their access to finance.

The Carat Tax Explained
The Carat Tax is a clearcut and predictable fiscal regime that applies to diamond trading companies. The regular corporate tax rate – or income tax rate for natural persons – will be levied on taxable income that is calculated on the basis of a lump sum margin instead of on the actual margin that is realised.

How does it work?

The total Cost of Goods Sold (COGS) is defined as a lump sum of 97.9 per cent of the turnover of a diamond trading company generated by genuine and habitual diamond trade. As a result, the gross margin used for taxation purposes is 2.1 per cent of that turnover.

Subsequently, expenses and tax deductions may be deducted from that gross margin. The net taxable income after deductions however cannot be lower than 0.55% of turnover. A slightly higher floor rate of 0.65% will be applicable only during the first year of implementation of the Carat Tax.

The turnover generated by genuine and habitual diamond trade is the sum of all diamonds sold during a given tax period, as reported on the invoices issued by the diamond trading company. This significantly increases the clarity and predictability of the total taxes due.

Like in the current fiscal regime, taxable income from diamond trade implies that at least one director receives remuneration that is no lower than a certain threshold. This threshold varies according to the total turnover of the company and will be specified in the Law.

When and to whom does it apply?
The Carat Tax will be applicable as from fiscal year 2016 (tax year 2017). The regime is compulsory for diamond-trading companies that are registered in Belgium, but its scope is restricted to the turnover generated by genuine and habitual diamond trade. Turnover generated by other activities, such as services provided, are taxed separately as they are not in the scope of the Carat Tax.

The Carat Tax is not compulsory for mining companies and their sales offices. These companies may choose to apply the Carat Tax instead of the normal corporate tax regime.

The Carat Tax does not apply to other companies active in the diamond industry that do not sell diamonds out of an inventory for their own account, such as service providers (brokers, forwarders, diamond laboratories, etc.).

Additional information

The Antwerp World Diamond Centre (AWDC) will provide an in-depth briefing to accounting firms that are active in the diamond industry. They will be the primary resource for additional information.

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