As Belgium is a federal state, taxation of individuals in Belgium depends partly 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 Civil Code principles. 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 private individuals obtaining 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 reported in the national press. It seems rather unlikely, however, that the principle will be overturned in the short term.
A second example is that a gift of movable 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 movable 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 movable 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 relatively moderate income is subject to high rates.3 The first €7,730 is exempt from personal income tax. The basic tariff scheme is as follows:
- 25 per cent from €0.01 to €12,990;
- 40 per cent from above €12,990 to €22,290;
- 45 per cent from above €22,290 to €39,660; and
- 50 per cent from above €39,660.
Interest and dividend income are taxed at a flat rate, which has been increased several times and significantly over recent years. On 1 January 2018, the 30 per cent rate in personal income tax was abolished.
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 tax regime applies to capital gains on shares in a Belgian corporate legal person (i.e., legal persons that are companies) that are transferred to a legal person outside the European Economic Area if, and to the extent that, 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 and specific rule) are taxed at a basic rate of 33 per cent.
In the past, the advantageous Belgian capital gains tax regime was the basis of merely internal (intercompany) operations aimed at withdrawing cash or assets from a corporate legal person without paying dividend tax (now 30 per cent). Such operations included selling or exchanging shares to or with an internal holding company. Anti-abuse rules and more restrictive ruling practices in recent years have aimed to curb these operations. Since 1 January 2017, a new specific anti-avoidance rule has been put in place to further restricting such operations tackling, in particular, exchange operations.
It is also noteworthy to mention the Belgian expat tax regime. Qualifying expats are, sometimes fictitiously, considered as non-resident taxpayers for income tax purposes. They are taxable in Belgium on their Belgian source income only. 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.
'Look through' tax
In 2012, Belgium strengthened its general anti-abuse rule significantly to arrangements in breach of the purpose of a tax rule or a tax benefit.
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 (first category) as well as foreign legal persons (i.e., having legal personality distinct from its shareholder or settlor – second category) 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 At the end of 2017, a third category was added: contractual arrangements set up to invest in first or second category arrangements such as insurance contracts.
These new rules involve a self-assessment exercise for Belgian residents: first, they need to assess whether the trust-like legal arrangements, foreign legal persons or targeted contractual arrangements, of which they are settlor or third-party beneficiary, must be declared.6 Since 2016, legal persons subject to the legal persons income tax, such as foundations (see below), may also be subject to this duty to declare arrangements of which they are settlor or third-party beneficiaries.
The second part of the self-assessment exercise is the new 'look through' tax, introduced in 2016 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 as the taxpayer cannot prove that a third-party beneficiary within the European Economic Area received or is entitled to the revenue.
In response to a 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 This position was shared by the ruling commission and enacted by statute at the end of 2017.
At the same time, the specific anti-abuse rule for the look-through tax was strengthened to allow the application of the general anti-abuse rule.
Further, the significant increase in interest and dividend income tax, which was mentioned earlier, is another recent development, illustrating a 'tax shift' from very high taxation of professional income to taxation of other types of income (such as interest and dividend income) and taxation of non-sustainable behaviour and consumption.
Since 18 March 2018, Belgium has put in place a taxation on Belgian or foreign investment accounts held by natural persons and tax-transparent legal entities held by natural persons with qualifying assets (shares, bonds, etc.) of at least €500,000. The rate is 0.15 per cent per year on the value of the assets.
ii Inheritance tax
Belgian inheritance tax is due on the worldwide assets of the deceased if the deceased had his or her principal place of residence in Belgium at the time he or she passed away. The applicable regional tax regime is the tax regime of the residence of the deceased in the five years preceding his or herdeath. The top rate for descendants and spouses or partners is 27 per cent (Flemish Region) and 30 per cent (Brussels Capital Region – Walloon Region).
As of 1 September 2018, Flemish inheritance tax rates will be decreased for heirs other than descendants and spouses or partners: the highlight of this is the decrease of the top rate to 55 per cent (instead of the previous rate of 65 per cent). Besides this, spouses and partners are now entitled to an exemption on movable assets of up to €50,000 in the Flemish Region. It should be noted that spouses and some partners were already exempt from inheritance tax on the family home in the three regions.
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 arose as to some important aspects of inheritance tax law or existing planning schemes in the Flemish Region. To resolve this, the Flemish tax administration puts forward its view to issues in this regard by means of administrative positions.
An example is the residency test in the Flemish inheritance tax. The residency test refers to a complex of factual circumstances indicating that a person has his or her 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) 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.
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, as well as the tax on investment accounts.
Further, legal persons that are subject to legal persons' income tax, such as foundations, are subject to the look-through tax on revenue of trust-like legal arrangements, legal persons or contractual arrangements of which they are settlor.
Since 1 January 2018, Belgian corporate income tax law provides a dividends-received deduction (DRD) of 100 per cent instead of the previous 95 per cent. The principle in corporate income tax is that the same conditions apply to DRD as to the capital gains exemption on shares.
In December 2016, the existing catch-all rule in the Belgian non-resident income tax regime (NRIT) was modified to the benefit of private clients. The principle is that non-resident taxpayers pay NRIT on their Belgian-source income. A catch-all rule exists to avoid non-taxation of income that would have been taxable if the taxpayer was a resident taxpayer. The catch-all rule now applies only to professional income from 'whatever service' the non-resident taxpayer rendered. The new rule applies retroactively on income as of 1 July 2016. If no other Belgian taxation on it is due, Belgian income of non-residents from private investments is also out of the scope of the catch-all rule.
i Forced heirship rules
Belgium's succession law will be modernised significantly as of 1 September 2018. Belgium will prune its forced heirship rules and adopt more flexible rules allowing donors and testators to give away or to bequeath more. However, the forced heirship principle is withheld.
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. The latter changes: ascendants are no longer 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 claim 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.
If the deceased has children, the unprotected portion of the estate was half the estate (one child), one-third of the estate (two children) or one-quarter of the estate (three or more children). This changes the unprotected portion being half of the estate regardless of the number of 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 and the right to collect the revenue of an asset.
Belgium is bound by the EU Succession Regulation. Belgian forced heirship rules may be put aside if a different applicable succession law on the basis of the regulation would be applicable following a valid and effective choice of law. To a limited extent, an agreement as to succession will become possible under Belgian law.
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. Debts are subject to specific rules. Legal partners without an agreement are subject to rules comparable to a separation of goods (i.e., the separation of income and debts).
Both options of marriage and legal partnerships are open to same-sex couples. As of 1 September 2018, Belgian matrimonial property law will also be modernised. Spouses engaging in a separation of goods are offered tools to integrate into their marriage contract if they wish to mitigate the sometimes harsh consequences of a separation of goods, especially upon divorce. Spouses that have at least one child from a previous relationship may agree in a marriage contract to waive any inheritance claims towards the other, including regarding the family home, which is a new concept. Regarding legal partnerships, the option was taken to not strengthen the minimal property rules applicable to partners.
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.
IV WEALTH STRUCTURING and 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.8 Belgian law, however, does not provide for its own trust arrangement. The principle is that trust arrangements may not violate forced heirship rules, but if the trust fund (i.e., the property held in trust) is held abroad, forced heirship claims may be ineffective.
A partnership is a body without legal personality, ruled by its by-laws (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 currently few legal constraints and no publication formalities to partnerships, it is a flexible and private planning instrument. However, as of 1 November 2018, this will change. Partnerships will have to be registered in the register of companies and will have to adhere to accounting rules. Existing partnerships must be compliant by the end of April 2019. Further, 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 relations 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 or her 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.
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.9 Contributions of movable assets to a partnership do not have to be registered in Belgium. No Belgian capital duty is therefore due.
In the (presumably uncommon) situation where immovable 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, but the rate is 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).
Contributions of assets to a corporate legal person must be registered and are subject to a capital duty of zero per cent.10 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 situated in Belgium, a different and more onerous tax regime applies. Such contributions are subject to the stamp duty applicable to a sale of immovable 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 the flat rate of 5.5 per cent for 'gifts' to private foundations also applies to contributions to a private foundation.11
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 a Belgian-resident for tax purposes. NRIT may be due on the Belgian-source income of partnerships held by non-resident persons.
Belgian corporate legal persons are subject to Belgian corporate income tax (CIT). 'Belgian' means that the company has either its registered office, its principal establishment or its centre of effective management in Belgium.
CIT was reduced to 29 per cent in 2018 and will be further reduced to 25 per cent in 2020. For small and medium-sized enterprises, CIT is currently 20 per cent on the first €100,000 of taxable profits, subject to conditions. The purpose of these measures is to keep Belgium 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 30 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.
Recent developments: tax on transactions in listed financial instruments
The tax on transactions in listed financial instruments was modified on 1 January 2017. Instruments now regarded as taxable Belgian transactions include orders (such as a purchase or sale) via a foreign intermediary, either by a private individual having its principal place of residence in Belgium or by a corporate legal person acting for a registered office or an establishment in Belgium. This tax may thus also apply if no Belgian intermediary intervenes. Bonds and the like are subject to a rate of 0.12 per cent as of 8 January 2018; other financial instruments (such as shares) are subject to a rate of 0.35 per cent as of 8 January 2018 and often even 1.32 per cent.
The share of a deceased person in a partnership is subject to inheritance tax. The same applies to the share 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 by-laws. This would apply if and to the extent that the by-laws 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.12
The Flemish tax administration, competent since 2015 for gift tax within its territory, seems to adhere to this.13
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.14 The Flemish tax administration seems to adhere to this.15
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). 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 ultimate beneficial owners.
Belgium implemented 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 has been made accessible for all tax matters. It is not only the tax administration that has access to the central register but also notaries, etc.
V OUTLOOK and conclusions
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.
Gifts of movable assets do not have to be subjected to Belgian gift tax; however, inheritance tax may apply afterwards.
There is a large consensus in Belgium that aggressive tax evasion should be tackled effectively and to some extent there is a tendency to gold-plate international rules or standards on the matter. Other tax-evasion schemes (e.g., dealings within a group of companies) were also curbed in recent years. The greater scope of the Belgian tax on transactions in listed financial instruments may also be mentioned.
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.
As of 2018, CIT will be decreased gradually to the rate of 25 per cent in 2020. For small and medium-sized enterprises CIT is 20 per cent, subject to conditions.
The new succession law eases Belgian forced heirship rules and thus grants more planning opportunities and flexibility to private individuals. The new succession law also allows, within boundaries, agreements as to succession. The second phase of this modernisation has also been enacted: a new matrimonial property law.
Belgian company law will also be modernised significantly in the near future. The guiding principles here are to reduce the number of corporate structures and to enable more flexibility as to enhance the attractiveness of Belgian corporate structures, in particular from an international perspective. The 'nationality' of companies would also be determined on the basis of the registered office of the company.
1 Ferenc Ballegeer is a Belgian lawyer and the founder of FB-Private Wealth Law. He is also counsel at Brucher, Thieltgen & Partners in Luxembourg.
2 Article 11 Civil Code.
3 The amounts in euros are applicable to taxable income from the year 2018.
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 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 124 Private International Law Code.
9 Article 8, 2° Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital.
10 Article 19, 5° and Article 115 Stamp Duty Code.
11 Ruling 16049 of 14 November 2016.
12 Ruling No. 2015.083 of 13 May 2015. A ruling is a decision on a case-by-case basis and does not apply to other cases.
13 Ruling 16049 of 14 November 2016.
14 Ruling No. 2014.593 of 16 December 2014.
15 Ruling 16049 of 14 November 2016. The ruling does not deal with income tax.
16 Article 30 of Directive 2015/849/EU of 20 May 2015.