Cross-Border Inheritance Tax Rules in Belgium

Inheritance tax means all taxes levied upon the death of an individual. Some countries charge inheritance tax to the heirs as they consider the taxable event to be the enrichment of the heir. Other countries apply an estate tax which is charged to the estate. In such case the executor is responsible for filing an estate tax return and pays the tax out of the estate’s funds.

In some jurisdictions, inheritance tax is due if the deceased is resident or domiciled there. Other jurisdictions apply inheritance tax when the heirs are residents, regardless of the deceased’s place of residence. Moreover, many countries levy inheritance tax on immovable property located on their territory, while only certain countries tax movable property situated on their territory.

Inheritance tax is levied when the deceased was a Belgian tax resident taking into account the deceased’s worldwide assets, including his movable and immovable assets, regardless of where they are located. Moreover, Belgium also applies inheritance tax on immovable property situated in Belgium regardless of the residence of the deceased. These two criteria determine the scope of the Belgian inheritance tax.

The tax residency of the heir is thus not relevant under Belgian tax law. An heir living in Belgium is not subject to Belgian inheritance tax if the deceased was living outside of Belgium and did not own any immovable property situated in Belgium. 

When the deceased, the heir and the assets to be inherited are all located in different countries, all the jurisdictions involved may claim a right to apply inheritance tax. In such situations there is a risk that the application of the different domestic rules applicable in each jurisdiction lead to multiple taxation. What follows is an example of how all this can lead to inheritance tax due in several countries on the same estate. A Belgian citizen living in Spain inherits a participation in a UK company from his uncle who was a resident in Belgium. Belgium applies inheritance tax to the investment in the UK company because the deceased was a resident in Belgium. Spain might also impose inheritance tax on the heir since the heir is a resident of Spain and as the asset is located in the UK, there may even be UK estate tax due.

Tax relief basically means that the relevant jurisdiction grants relief for inheritance tax paid in another country. This can be done in various ways: by crediting the foreign tax against tax due in that jurisdiction, by exempting the inheritance (or parts of it) from taxation as it was already taxed abroad, or by refraining from applying inheritance tax.

In this article, we examine how and under which conditions double taxation may be avoided if the deceased is a Belgian tax resident and has got heirs living abroad or assets located outside of Belgium.

In an ideal world, jurisdictions conclude inheritance tax treaties in which they agree on the way to avoid double taxation. Unfortunately, Belgium has only concluded two inheritance tax treaties: one with France and one with Sweden.

In the absence of an inheritance tax treaty with the foreign jurisdiction where the heir is living or where an asset is located, there may, however still exist domestic provisions that allow double taxation to be avoided. As Belgium is a federal state, the inheritance tax rules are (partially) regionalised and therefore may differ depending on the region where the deceased had his tax residency.

When the estate of the deceased includes real estate located abroad, a tax credit can be obtained up to the amount of inheritance tax paid in the country where the real estate is located.

To benefit from such tax credit, the heirs must make an express request and provide a duly dated proof of payment, a copy of the inheritance declaration certified by the competent foreign authority and the calculation of the foreign inheritance tax.

This means that if a deceased owned an apartment in New York, then the US estate tax can be credited against the Belgian inheritance tax due. If there is no inheritance tax due in the jurisdiction where the real estate is situated, for example because of the application of a spousal exemption, then the spouse can claim no tax credit and the foreign real estate remains subject to the Belgian inheritance tax.

Until recently, Belgian tax law only provided for the application of a tax credit with regard to immovable property. However, the Belgian Constitutional Court deemed this difference in treatment between immovable and movable property discriminatory, requiring each region to amend its legislation on this point.

The Flemish and Brussels Metropolitan Region have meanwhile already adapted their legislation now allowing a tax credit for the inheritance tax levied by the jurisdiction where the movable assets are situated. The Flemish Region has gone even further by providing that it is now possible to obtain a credit for inheritance taxes paid in any jurisdiction, and thus no longer only for inheritance taxes levied in the foreign country where the movable or immovable property is located. The Walloon region has not yet adapted its legislation, but the judgment of the Belgian Constitutional Court can of course be invoked if the deceased held movable assets abroad.

Thanks to these recent developments, a tax credit can now also be obtained in case the deceased held participations in foreign investments; eg, shares in certain US companies.

The tax reforms that have extended the scope of application of the tax credit in case the deceased was a Belgian tax resident holding assets abroad are definitely good news, but proper planning is still recommended as double taxation can still occur.