Taxation of individuals in Belgium depends largely on the region where the individual lives (i.e., where he or she has his or her principal place of residence). Belgium is a federal state and consists of three regions: the Brussels Capital Region, the Flemish Region and the Walloon Region. The main tax laws were originally conceived at the national level.
Following subsequent state reforms, aspects of gift and inheritance tax (including applicable rates and exemptions), and, more recently, aspects of personal income tax, have been regionalised. Consequently, the taxation of individuals is diverging from one region to another and it is expected that this evolution will continue, although the basic rules remain controlled by the national government.
Matters such as property law, gifts and succession law are national law and based on the Civil Code. Hence, contractual freedom is the basic principle in these areas of the law.
Belgium has not enacted legislation aimed specifically at attracting foreign wealthy individuals. Specific tax incentives are focusing on companies, especially in the science and technology sectors.
Foreign wealthy individuals who choose to become Belgian residents, and thus administer their worldwide businesses and assets from Belgium, benefit from the same rights and obligations as Belgian nationals.2 As Belgian residents for tax purposes, they have access to the extensive network of treaties for the avoidance of double taxation that Belgium has with other jurisdictions across the globe.
In these turbulent times, the consensus remains so far uncontested that Belgium must continue to put itself in line with good legal and tax practices applicable in other jurisdictions within the European Economic Area and its internal market.
To illustrate what the jurisdiction has to offer to private individuals, Belgium does not apply its capital gains tax regime to capital gains within the scope of the normal administration of private assets. The scope of ‘normal administration’ is quite large and applies, in principle, notwithstanding the importance of the capital gain involved. It must be noted, however, that this ‘normal administration’ principle is under increasing pressure, following some recent share deals that were widely commented on in the national press. It seems rather unlikely, however, that the principle would be overturned in the short term.
A second example is that a gift of moveable assets does not have to be subject to gift tax. Belgian gift tax is a stamp duty: there is no obligation to register a gift of moveable assets. Depending on the region where the donor resides, inheritance tax is due on unregistered gifts from the three or seven years preceding the donor’s decease.
It must be noted that within the scope of this contribution, only the basic principles of existing legislation and new developments can be mentioned. The terminology used herein refers to the terminology of Belgian law.
i Personal income tax
Private individuals who are Belgian residents for tax purposes are subject to personal income tax on the basis of their worldwide income, notwithstanding their nationality. Non-residents may be subject to Belgian income tax on their Belgian source income (non-resident income tax).
Personal income tax involves income from real estate, income from moveable assets, professional income and a residuary category. In the latter category, there is no catch-all approach, since income within the scope of the normal administration of private assets is not taxable.
Income tax rates are progressive, and even moderate income is subject to high rates.3 The first €7,090 is exempt from personal income tax. The basic tariff scheme is as follows:
a 25 per cent from €0.01 to €8,710;
b 30 per cent from above €8,710 to €12,400;
c 40 per cent from above €12,400 to €20,660;
d 45 per cent from above €20,660 to €37,870; and
e 50 per cent from above €37,870.
Interest and dividend income are taxed at a flat rate, which has been increased several times and significantly over the last few years. Interest and dividend income tax is now at the basic rate of 27 per cent.
What differentiates Belgium is, first of all, its capital gains tax regime. Capital gains within the residuary category of taxable income, arising from whatever speculation or operation, are taxable, except for capital gains arising within the scope of the normal administration of the private assets of the taxpayer. These principles apply also to capital gains on shares, which is of particular interest for private individuals as the notion of ‘normal administration’ has quite a large scope. Consequently, capital gains on share or asset deals may be tax-exempt.
A specific anti-abuse rule applies if shares in a Belgian corporate legal person (i.e., legal persons that are companies) are sold to a legal person outside the European Economic Area, if and to the extent the taxpayer holds (or held) directly or indirectly 25 per cent in the Belgian corporate legal person. The applicable basic rate is 16.5 per cent, even if the operation would be within the scope of the ‘normal administration’ test.
Taxable capital gains (i.e., capital gains outside the scope of the exception) are taxed at a basic rate of 33 per cent.
It is also noteworthy to mention the Belgian expat tax regime. Qualifying expats are, sometimes wrongly, considered as non-resident taxpayers for income tax purposes. They are taxable on their Belgian source income, but the additional relocation costs paid by their employer are not considered to be part of their taxable salary (professional income). As for the company employing the expat, these relocation costs are tax-deductible in its corporate income tax.
Recent developments: ‘look through’ tax
In 2012, Belgium strengthened its general anti-abuse rule significantly. Following international developments, notably the series of ‘leaks’ in recent years, Belgium enacted a legal obligation, initially for private individuals, to declare the existence of trusts and similar legal arrangements as well as foreign legal persons (i.e., having legal personality distinct from its shareholder or settlor) of which they are settlor or third-party beneficiary in their yearly tax return.4 As far as the latter are concerned, this involved mainly legal persons from outside the European Economic Area, not subject to tax at all or subject to a low tax rate.5
These new rules involve a new self-assessment exercise for Belgian residents: first of all they need to assess whether the legal arrangement(s) or foreign legal person(s) of which they are settlor or third-party beneficiary must be declared.6 New for this tax year 2016 (concerning revenue from 2015) is that also legal persons subject to the legal persons income tax, such as foundations (see below), are subject to this duty to declare legal arrangements and foreign legal persons of which they are settlor or third-party beneficiaries.
The second part of the self-assessment exercise, is the new ‘look through’ tax since this tax year 2016 (revenue from 2015) for private individuals subject to personal income tax and legal persons subject to legal persons income tax: a duty to declare the revenue of the legal arrangement or legal person of which they are settlor. This revenue is now taxable income of the private individual or legal person, settlor of the legal arrangement or legal person directly insofar the taxpayer cannot prove that a third-party beneficiary within the European Economic Area received or is entitled to the revenue.
Following the most recent Panama Papers leak, there is increasing political pressure to at least evaluate the existing ‘look through’ tax and possibly even further strengthen it. The reader understands that the purpose of this legislation is discouraging offshore tax planning.
In response to a recent parliamentary question, the finance minister answered that the look through tax also applies to ‘double structures’: (i.e., legal entities constituted by legal arrangements or legal persons). The reasoning is that it would be unacceptable avoiding its application by setting up ‘double structures’.7
Also the significant increase in interest and dividend income tax which was mentioned earlier is a noteworthy recent development, illustrating a so called ‘tax shift’ from a very high taxation of professional income to taxation of other types of income (such as interest and dividend income) and towards taxation of non-sustainable behaviour and consumption.
ii Inheritance tax
Belgian inheritance tax is due on the worldwide assets of the deceased if the deceased had his principal place of residence in Belgium at the time he passed away. The applicable regional tax regime is the tax regime of the residence of the deceased in the five years preceding his death.
Although essential aspects of inheritance (and gift) tax are regionalised, the collection of these taxes remained entrusted to the national tax administration. Since 2015, the Flemish Region collects the inheritance (and gift) tax allocated to its territory itself.
This has given rise to differing administrative interpretations of sometimes long-established legislation and practices at the national level even if the law was not altered by the Flemish parliament. Consequently, legal uncertainty has arisen as to some important aspects of existing planning schemes in the Flemish Region.
An example of this is the residency test in the Flemish inheritance tax. The residency test refers to a complex of factual circumstances indicating that a person has its principal place of residence in Belgium. Contrary to Belgian income tax, Belgian (and Flemish) inheritance tax do not provide in a legal presumption that persons registered in Belgium (including expats and other immigrants, whatever the purpose of their presence and registration may be) are considered to have their tax residency for inheritance tax purposes in Belgium (or in the Flemish Region), the principle being that presumptions overturning the burden of proof must be created by law.8
If necessary, it would, therefore, be up to the tax administration to prove that the deceased was a Belgian resident for inheritance tax purposes.
The Flemish tax administration, however, proclaimed that persons registered in the Flemish Region are deemed to have their tax residency for inheritance tax purposes in the Flemish Region. The Flemish tax administration put forward that it would be up to the heirs to prove that the deceased was not a tax resident, thus overturning existing rules without altering the law. The statement by the Flemish tax administration does not mention expats or other registered immigrants in Belgium, even if they do not have their principal place of residence in Belgium. This has created legal uncertainty.
As for the Brussels Capital Region and the Walloon Region, the national tax administration continues to collect the Brussels and Walloon inheritance and gift tax. No such presumption is applicable in these regions.
iii Recent developments in income tax regarding cross-border structuring
The look-through tax, as mentioned above, should be highlighted here.
Also new is that legal persons that are subject to legal persons’ income tax, such as foundations, are subject to the look-through tax on revenue of legal arrangements or legal persons of which they are settlor as from 2015.
Another matter to be mentioned concerns a Belgian issue regarding the EU Parent Subsidiary Directive that exempts dividend payments between associated companies from withholding tax. The minimum participation to benefit from the exemption is 10 per cent. Under 10 per cent, the exemption from withholding tax does not apply.
Should a Belgian parent company have received dividends that were subject to a withholding tax at the level of the subsidiary, Belgian corporate income tax provides for a ‘dividends received deduction’ (DRD) at the level of the Belgian parent company: subject to conditions, 95 per cent of the dividends received are deductible from the parent’s taxable profit (corporate income tax). As for the parent subsidiary exemption, the DRD applies as from a minimum participation of 10 per cent, but the Belgian DRD is also applicable under 10 per cent if the purchase price of the participation is a minimum of €2.5 million.
The latter DRD rule, however, is not applicable if the parent company is not a Belgian company. The European Court of Justice held this contrary to the free movement of capital.9 Since 28 December 2015, the Belgian withholding tax on such dividend payments is (subject to conditions) reduced to 1.6995 per cent (which corresponds to the DRD deduction) for parent companies within the European Economic Area or in a jurisdiction with which Belgium has a double taxation treaty.
i Forced heirship rules
Belgium’s succession law is Civil Code-based and, therefore, forced heirship rules apply. Descendants and spouses are the main protected heirs, but without descendants, spouse or legal partner, ascendants are also protected heirs.
Legal partners are not protected by forced heirship rules. They have a limited intestate claim on the inheritance (i.e., they are entitled to the usufruct of the family home).
The forced heirship rules do not prevent giving away more than the unprotected portion of one’s assets, nor do they prevent someone from bequeathing more than the unprotected portion. Protected heirs have the right to take back what was given away beyond the forced heirship rules or may object to the execution of a will that would have failed to take care of their rights.
The unprotected portion of the estate is half the estate (one child), one-third of the estate (two children) or one-quarter of the estate (three or more children). The spouse is entitled to at least the usufruct of half of the estate. Spouses are entitled to the usufruct of the family home, even if the value of it would be more than half of the estate. The usufruct is the right to use an asset or the right to collect the revenue of an asset.
Belgium is bound by the EU Succession Regulation. Persons having their habitual residence within Belgium have to take the Belgian forced heirship rules into consideration even if they choose a different applicable succession law on the basis of the regulation.
Contractual arrangements between spouses or legal partners determine the composition of the estate. Without a matrimonial contract, spouses have a limited community regime: earnings are common, whereas gifts and inherited assets remain outside the community. Legal partners without an agreement are subject to rules comparable to a separation of goods.
Both marriage and legal partnership are open to same-sex couples. The same rights and obligations apply.
Since 1 January 2015, Belgium has had a co-maternity law. The female spouse of the mother of the child is automatically the co-mother of the child. The female legal partner of the mother can recognise the child and become the co-mother.
Consequently, forced heirship rules apply given the co-maternity relation between co-mothers and the children of their spouse or legal partner.
iii Future developments
Succession law is not an area of the law where major changes are to be noted every year. It is expected, however, that Belgium will modify its forced heirship rules and adopt more lenient rules allowing donors and testators to give away or to bequeath more than what is currently possible. However, the forced heirship principle, as such, seems not to be questioned.
IV WEALTH STRUCTURING & REGULATION
i Overview of commonly used vehicles
Commonly used vehicles for structuring private wealth in Belgium include partnerships and corporate legal persons (i.e., legal persons that are companies). Less commonly used is the private foundation.
The principle that a trust is ruled by its applicable law is recognised in Belgium.10 Belgian law, however, does not provide for its own trust arrangement. The principle is that trust arrangements may not violate forced heirship rules, but in fact it seems admitted that if the trust fund (i.e., the property held in trust) is held abroad, forced heirship claims may be ineffective.11
A partnership is a body without legal personality, ruled by its bylaws (i.e., the partnership agreement). Both private individuals and legal persons may participate in a partnership. A partnership may be used as a vehicle to administer private and business assets, or as a holding company. As there are few legal constraints and no publication formalities to partnerships, it is a flexible and private planning instrument. A partnership may facilitate a gift as the rules to administer the gift can be laid down in the by-laws instead of having to be detailed as conditions to a gift by a private individual.
Corporate legal persons are also widely used as planning vehicles, in particular as holding companies. Corporate legal persons are subject to publication formalities, but may offer a more adequate framework for asset protection and administration than a partnership, especially if more complex contracts with third parties are involved. Corporate legal persons have legal personality distinct from their shareholders. Belgian law provides for a corporate legal person with only one shareholder.
Private foundations are legal persons and are construed to set apart assets for a philanthropic purpose. A private foundation does not have shareholders. Private foundations are subject to publication formalities. A private foundation is administered by at least three directors. The obligatory philanthropic purpose may be taking care of family members.
A private foundation can be dissolved once its purpose has been realised. The principle rule is that its assets must then be assigned to the philanthropic purpose. Its by-laws, however, may provide that the settlor or his successors may take back the property that was put into the foundation or its equivalent value if the purpose of the foundation has been realised.
ii Overview of the tax regime
Contributions of assets to a vehicle
It must be repeated that within the scope of this contribution, only the basic principles can be mentioned.
Contributions of moveable assets to a partnership do not have to be registered in Belgium. No Belgian capital duty is therefore due. Belgian capital duty is a (national) stamp duty. Its rate has been reduced to zero per cent and cannot be increased again by Belgian law, thanks to EU legislation.12
In the (presumably uncommon) situation where immoveable assets are put into a partnership that has either its centre of effective management in Belgium or its registered office in Belgium and its centre of effective management outside the EU, such contribution must be registered.
Contributions of assets to a corporate legal person must be registered and are subject to a capital duty of zero per cent (i.e., the contribution must be registered, but in fact no proportional capital duty is due as the rate is zero per cent).13 Belgian capital duty is due if the corporate legal person has either its centre of effective management in Belgium or its registered office in Belgium and its centre of effective management outside the EU.
To contributions of property with a residential purpose or used as such, a more onerous tax regime applies. The principle is that such contributions are subject to the stamp duty regime applicable to a sale of immoveable property (the basic rate is 10 per cent in the Flemish Region and 12.5 per cent in the Brussels Capital Region and in the Walloon Region.
As for contributions to private foundations, the principle is that these are subject to a flat rate of 7 per cent in the Brussels Capital Region and in the Walloon Region. In the Flemish Region, however, the law is not clear anymore as to whether the flat rate of 5.5 per cent for ‘gifts’ to private foundations would also apply to contributions to a private foundation.
As a body without legal personality, a partnership is considered tax transparent. Income of a private partnership allocated to private individuals is taxable on the basis of their share in the partnership. Such income is subject to personal income tax if the shareholder is a private individual and Belgian-resident for tax purposes.
Belgian corporate legal persons are subject to Belgian corporate income tax. ‘Belgian’ means that the company has either its registered office, its principal establishment or its centre of effective management in Belgium.
Although a series of deductions may apply, the basic corporate income tax rate is still 33.99 per cent. Given developments in neighbouring countries, however, particularly but not exclusively in the UK, it is expected that this rate will be lowered significantly over the next few years for Belgium to remain aligned with its neighbours and predominant trade partners.
Private foundations that have their registered office, principal establishment or centre of effective management in Belgium are subject to the legal persons’ income tax. As regards the legal persons’ income tax, only the revenue defined by law is taxable. Interest and dividend income is taxable and has to be subjected to a withholding tax (the basic rate is 27 per cent).
Since 2015 (i.e., revenue from 2015), legal persons subject to legal persons’ income tax, including private foundations, are subject to the above-mentioned look-through tax.
The share of a deceased person in a partnership is subject to inheritance tax. The same applies to shares of a deceased person in a corporate legal person.
The inheritance tax regime for private foundations is very different and may offer opportunities for private individuals that are Belgian residents for inheritance tax purposes insofar as the philanthropic purpose of the private foundation is sincere and the directors act accordingly. It is noteworthy to mention that a general anti-abuse rule also applies to inheritance tax (and gift tax).
The decision to grant benefits to a private individual, not being the settlor or one of the directors (as this is prohibited by law) and always within the scope of the philanthropic purpose of the foundation, would not be subjected to inheritance tax as this is a decision by the directors of the foundation on the basis of its bylaws. This would apply if and to the extent that the bylaws normally cannot be considered as a contract granting a direct right to a beneficiary. The national tax administration (competent for the Brussels Capital Region and the Walloon Region) confirmed in 2015 its previous individual rulings on the matter.14
So far it is unclear if and to what extent the Flemish tax administration, competent since 2015 for successions related to its territory, will adhere to these rulings.
The national tax administration ruled in 2014 that benefits granted by a foundation (during the lifetime of the settlor) would not be subject to gift tax or income tax.15 It is so far unclear if and to what extent the Flemish tax administration, competent since 2015 for gift tax within its territory, would adhere to this.
Regarding trusts, the competent tax administrations have maintained their much-criticised position that benefits obtained from a trust should either be subject to inheritance tax at the time of death of the settlor (non-discretionary trusts) or at the time the benefit is granted (discretionary trusts). Please note that the notions ‘discretionary’ and ‘non-discretionary’ as used by the Belgian tax administrations may not have the same meaning under the law that governs the trust.
iii Developments in anti-money laundering rules
As the reader will be aware, Belgian lawyers, notaries, financial institutions and accountants, inter alia, are subject to strict anti-money laundering rules according to EU standards. This involves client identification obligations, including identification of beneficial owners.
Belgium will need to implement by mid-2017 the Fourth Anti-Money Laundering Directive, which requires ‘corporate and other legal entities incorporated’ in Belgium to obtain and hold ‘adequate, accurate and current information on their beneficial ownership, including the details of the beneficial interests held’.16 This information must be centralised and made accessible to the competent authorities and financial intelligence units of Member States ‘without any restriction’.
Belgian financial institutions have to file the identity of their clients and the reference number of their contracts (not the amounts or transactions) to a central register. This register may be accessed by the tax administration for income tax purposes. It is expected that the accessibility of the register will be enlarged, inter alia, for purposes of other Belgian taxes.
V CONCLUSIONS & OUTLOOK
Although some political parties would be in favour of strengthening the capital gains tax regime in Belgium, the Belgian capital gains tax regime remains friendly to private individuals, as capital gains within the scope of the normal administration of private assets are tax exempt. The capital gains tax regime applies to private individuals who are Belgian residents for tax purposes, notwithstanding their nationality.
Gifts of moveable assets do not have to be subjected to Belgian gift tax; however, afterwards inheritance tax may apply. The national tax administration collects the gift and inheritance tax of the Brussels Capital Region and the Walloon Region. Since 2015, the Flemish tax administration took over the collection of, inter alia, gift and inheritance tax within its territory, however, it still seems to be struggling to position itself within the boundaries of the rule of law, as some long-established rules and practices were questioned without a change of the law.
Following the most recent Panama Papers leak, a large consensus is growing that aggressive tax evasion should be tackled effectively.
The previous government introduced an obligation for private individuals who are Belgian residents for tax purposes to declare trust-like legal arrangements and not-taxed or low-taxed foreign legal persons in their yearly income tax return. The present government enacted a look-through tax for these legal arrangements and legal persons, applicable to private individuals and legal persons, subject to legal persons’ income tax.
Also given these developments, it is expected that the tax assessment period during which the tax administration can impose the taxpayer on his taxable income, will be prolonged to align with the new international information exchange rules in Belgian tax law, thus making tax assessment more effective.
1 Ferenc Ballegeer is a Belgian lawyer and the founder of FB-Private Wealth Law.
2 Article 11 Code Civil.
3 The amounts in euros are applicable to taxable income from the year 2015.
4 The tax duties imposed on settlors and third-party beneficiaries of legal arrangements or legal persons are often referred to as ‘Cayman tax’.
5 EEA: EU Member States, Iceland, Norway and Liechtenstein. So far only three EEA legal persons are within the scope of this Belgian legislation: the Liechtenstein ‘Stiftung’, the Liechtenstein ‘Anstalt’ and the Luxemburg ‘Société de Gestion de Patrimoine Familial’.
6 Please note that settlor and third-party beneficiary are defined by the Belgian Income Tax Code. The notions differ from what may be understood by it in other jurisdictions.
7 Kaaimantaks. ‘Dubbelstructuren’, Fiscoloog, 25 May 2016, nr. 1477, p.14.
8 Article 1352 Civil Code.
9 Court of Justice of the European Union, Case C 384/11 (Tate & Lyle Investments v. Belgium).
10 Article 124 Private International Law Code.
11 Andrea Bonomi in A. Bonomi and P. Wautelet, Le droit européen des successions – Commentaire du Règlement No. 650/2012 4 July 2012, Brussels, Bruylant, 2013, No. 98 and No. 102.
12 Article 8, 2° Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital.
13 Article 19, 5° and Article 115 Stamp Duty Code.
14 Ruling No. 2015.083 of 13 May 2015. A ruling is a decision on a case-by-case basis and does not technically apply to other cases.
15 Ruling No. 2014.593 of 16 December 2014.
16 Article 30 Directive 2015/849/EU of 20 May 2015.