The Belgian Parliament last week passed the new legislation on corporate tax for the diamond industry, officially termed the ‘Diamond Regime’ though popularly referred to as the ‘Carat Tax’. The new system will be applicable from fiscal 2017, which means it covers income generated in the current year.

The AWDC says that the corporate tax will now be “levied on a lump sum amount, defined as a percentage of the turnover of the company”. It says that the new tax “increases predictability and stability, as diamond trading companies will be able to forecast their total corporate tax due based on their diamond sales” and “as a secondary effect....will strengthen the capital base of diamond trading companies, improving their access to finance”.

Under the new tax regime, turnover will be calculated based on 97.9% of cost of goods sold, with gross margin being defined at 2.1%, and expenses and other tax deductions being permitted. The law clarifies that “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 AWDC says that the tax will also put an end to “complex annual discussions over control and valuation of stock” and “fluctuations in inventory will not impact tax”. According to a European Commission (EC) report, Belgium is expected to generate more than three times more tax per year under a new fiscal regime.

The new regime will apply only to diamond-trading revenue and not to other activities such as services. It does not apply to brokers, diamond laboratories or other service providers and will also not be mandatory for miners and their sales offices, though these businesses may opt in.