BELGIUM: An introduction
Belgium: An Introduction
Belgium is known for its rich history, diverse culture, and strategic location in the heart of Europe. For high net worth individuals (HNWIs), Belgium can offer a compelling mix of favourable tax regimes, sophisticated estate planning solutions, and a robust legal framework. However, a number of specific attention points must also be considered.
Main Belgian income tax features for HNWIs
As a general rule, individuals are subject to Belgian income taxation on their worldwide income if they qualify as a Belgian resident for tax purposes. To mitigate double taxation, Belgium has entered into a vast number of tax treaties with other countries.
An attractive aspect of Belgian tax law for individuals is that capital gains on shares are in principle tax exempt, both for important participations as for financial investments. Capital gains on Belgian real estate are also tax exempt if it is held for a sufficiently long period.
Dividend and interest income is generally subject to a flat tax rate of 30%, without credit for foreign withholding taxes. Nevertheless, under certain conditions financial investments through particular insurance products (subject to a 2% premium tax at subscription) or through capitalisation funds can be done without Belgian dividend and interest taxation.
Belgium also does not impose a wealth tax for private individuals. However, there is an annual tax of 0.15% on the value of securities accounts if their value exceeds EUR1,000,000.
Belgian entrepreneurial families, who are increasingly setting up family offices and/or family investment vehicles, commonly use a private holding company. The Belgian corporate tax regime is quite attractive for holding and investment activities, providing for a full participation exemption on dividends received and an exemption for capital gains on shares if subject-to-tax and participation conditions are met. A Belgian holding company can also distribute dividends to its shareholders at a tax reduced tax cost of 15% if certain conditions are met. From a discretion perspective it can be noted that some types of corporations do not have an obligation to publish annual accounts.
For foreign entrepreneurs emigrating to Belgium it can be worthwhile transferring their shares in non-Belgian businesses to a Belgian holding company. Under certain circumstances they can still have a ‘step up’ opportunity to create fiscal capital in the Belgian holding company and also eliminate a possible double taxation of their foreign dividends. Foreign entrepreneurs coming to work and reside in Belgium can benefit from quite flexible permit rules as well.
Typical Belgian inheritance planning solutions
Whereas personal income taxation is mainly a competence of the federal state, gift and inheritance tax are a competence of the three regions (Flanders, Wallonia, and Brussels) and depend on the region where the donor resides or the deceased has resided.
In the event of passing away, individuals will be subject to Belgian inheritance tax on their worldwide estate. Even though inheritance tax in the direct line or between spouses can be as high as 27% (Flanders) or even 30% (Brussels or Walloon Region), there are possible means of estate planning to minimise such liability.
Gift tax between spouses and in the direct line of movable assets (eg shares, artworks, etc.) is limited at a flat rate of 3-3.3%. Furthermore, there are possibilities to avoid any Belgian gift tax at all for donations of family businesses and for donations of cash and investments held on a securities account (subject to conditions). Gifts of Belgian real estate are obliged to be registered in Belgium and therefore automatically subject to gift tax at progressive rates.
Once gift tax has been paid, the donation will not be subject to inheritance tax. In light of the lower tax rates when compared to inheritance tax, gifts of both movable and immovable assets are tools commonly used in estate planning in Belgium. For movable assets Belgian families often incorporate tax transparent control structures such as a partnership (‘maatschap’) or a trust office foundation (‘stichting administratiekantoor’’). Parents can donate partnership shares or trust office foundation certificates to their children while maintaining a certain degree of control over the underlying assets via a director’s mandate and the modalities stipulated in the by-laws and gift deed.
Belgium also has its own private foundation legislation which prescribes lower tax rates than that under the general inheritance law. The transfer of assets to a Belgian private foundation through a last will is subject to 8.5% of inheritance tax in Flanders and 7% in the Walloon Region. Trusts are, however, not advisable in Belgium due to amongst others the possible application of the Cayman Tax (see below).
Recent developments and future outlook
For many years Belgium has offered some interesting tax features for HNWIs emigrating to Belgium, notably from neighbouring countries like France or the Netherlands, such as the absence of capital gains taxation, no wealth taxation and the relatively favourable gift tax regime. However, while this is still generally true, some legislative initiatives and tax authority practices are making Belgium slightly less attractive or at least a bit more complex than it once was.
In recent years, the Belgian federal and regional tax authorities have increasingly scrutinised potential tax optimisation situations by invoking general and specific anti-abuse rules. The expanding scope of these anti-abuse rules has led to more uncertainty. It is, however, still possible for taxpayers to obtain legal certainty by obtaining an advance ruling from the Belgian tax authorities.
Another remarkable development is the tightening of the Belgian Cayman Tax, a fiscal measure enacted about a decade ago to combat tax avoidance via foreign low-taxed legal structures. Pursuant to the Cayman tax, income attributed to certain foreign legal structures (such as trusts, foundations or corporations) is deemed to be received directly by the Belgium-based natural person who is considered as the ‘founder’ of the structure.
At the end of last year, the legislator once more amended this increasingly complex legislation. The notion of ‘founder’ has become very broad and can include for instance the holders of any direct or indirect economic rights of a foreign structure and the Belgian heirs of foreign settlers that initially incorporated the structure. Furthermore, as of 2024 an exit tax has been introduced at a rate of 30% on the legal structure’s reserves upon emigration of a ‘founder’ from Belgium. For foreigners wishing to move to Belgium, especially from common law jurisdictions where it is common practice for trusts to be used in the context of legitimate estate planning, the disproportionately adverse consequences of the Cayman Tax can be an impediment and require in any case a proper pre-immigration analysis and reorganisation.
Looking ahead, following the Belgian federal and regional elections held on 9 June 2024, the ongoing coalition talks for the formation of the federal and regional governments are expected to shape Belgian tax policies for the next few years. For instance, the newly formed government of the Walloon region has announced its intention to cut the inheritance tax rates in half. New budgetary measures can in any case be expected as the European Commission is demanding Belgium to bring down its current deficit. Staying informed about possible legislative changes will be important for effective tax planning and wealth management.