Income shifting refers to the transfer of the tax base to a tax characterised by lower average or marginal rates. In the literature the focus is mostly on the shift from corporate taxes to income taxes and the effects of this shift on central governments revenues. In this paper, we focus on the effect on local tax revenues. In Belgium the local governments do not have access to the tax income from the corporate tax, which is levied on corporate income from specific legal persons. Only when a business is set up as a sole proprietorship, local governments’ income is affected, through the impact on the local income tax (LIT). We test whether the shift to other corporation forms influences the local government tax revenue per capita for 308 Flemish municipalities for the period 2005-2013. The cross-section fixed effects panel estimations show that the exit of sole proprietorships significantly impacts the creation of legal persons, which is in line with what is expected if income shifting should occur. In addition, the per capita revenues from the local income tax (LIT) are negatively affected by the exit of natural persons. Importantly, the analysis shows that the establishment of new corporations results in a significant decrease in the local per capita revenues of the local income tax (LIT), when controlling for community fixed effects and economic conditions.