Expertise in DRD-funds since 1997
A DRD-fund is an interesting alternative to an investment in individual shares, because the dividends and capital gains can be 100% tax exempt under certain conditions.
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What does DRD
mean?
‘DRD ‘stands for Dividend Received Deduction and is an exemption regime for companies that invest in individual shares of other companies. However, dividends and capital gains from these investments can only be exempt from (double) taxation under strict conditions.
Conditions for the DRD-exemption
Capital gains and dividends derived from individual shares are taxed at company level. The applicable rate is 20% for SMEs and 25% for large companies. This tax is waived if the investment meets the following DRD conditions:
1.
Participation condition
The investing company must own a participation in the other company of at least 10% or with an acquisition value of at least 2.5 million euros
2. The investing company must own a participation in the other company of at least 10% or with an acquisition value of at least 2.5 million euros
Valuation condition
The company in which the investment is made, must be subject to a normal taxation regime
3. The company in which the investment is made, must be subject to a normal taxation regime
Condition of permanence
The investing company must hold its participation for at least 1 year
The investing company must hold its participation for at least 1 year
What is a DRD-fund
or DRD-bevek?
An investment in a DRD-fund does not have to meet these strict conditions to benefit from the exemption regime. Moreover, such an investment can be an interesting solution for your company’s excessive liquidities. However, the DRD-bevek, a distribution fund, itself must comply with a number of additional rules.
For example, a DRD-bevek must annually distribute at least 90% of its net income (after deduction of expenses, fees and commissions) as dividends. The investments held by the DRD fund itself must satisfy the taxation condition in order to benefit from the exemption regime. Therefore, such an investment constitutes an interesting solution for your excess liquidity.
For example, a DRD-bevek must annually distribute at least 90% of its net income (after deduction of expenses, fees and commissions) as dividends. The investments held by the DRD fund itself must satisfy the taxation condition in order to benefit from the exemption regime. Therefore, such an investment constitutes an interesting solution for your excess liquidity.
Advantages of investing
in a DRD-fund or bevek
- Diversification through the funds and therefore less risk than individual shares
- Cost optimization
- Dividends and capital gains are normally exempt from corporate income tax
- Withholding tax is normally recoverable through the corporate income tax
Are there risks involved?
- As with any investment in an equity fund, investing in DRD funds means that you are subject to fluctuations in the value of the fund, but also may have better longer-term return prospects
- DRD-funds have no fixed return, no capital protection and no maturity date
Taxation
The DRD-regime applies to companies subject to Belgian corporate income tax as well as to companies subject to non-resident tax.
A 30% withholding tax will be deducted when the dividend is paid out. The withholding tax paid is not a deductible professional expense and must therefore be processed as a disallowed expense in the corporate income tax return. However, this withholding tax is deductible and repayable, providing certain conditions are met. For this purpose, the amount of the withholding tax must be entered in the corporate income tax return under the 'deductible withholding taxes' box.
The tax treatment of the DRD-fund or bevek depends on the investor’s personal situation and may change in the future.
Why invest in DRD
through Degroof Petercam?
Experience
- Since 1997
DRD-mandate
- Economic and Monetary Union (EMU)/USA/World
- Actively managed portfolios
A wide range of
DRD-bevek
In principle, a company can invest its entire liquidity surplus in DRD-funds. However, there is a wide range of DRD-bevek on offer, which is why it’s important that you are well informed. After all, you have to take into account the service offered, the cost structure, the transparency, the spread of the underlying positions, the chosen investment strategy, the expected return, liquidity and investment horizon.
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