The Belgian Parliament has adopted a Program Law containing a wide array of fiscal measures. The most salient of these measures are (i) the introduction of a transparency tax regime for physical and legal persons subject to legal persons tax and that qualify as founders or third-party beneficiaries of so-called legal constructions and (ii) the adoption of a new contribution for credit institutions and insurance companies.
1. Program Law of 10 August 2015
1.1 Introduction of a transparency tax regime
The Belgian government has put a lot of focus in the last few years on combatting tax evasion – in particular, when Belgian residents place their assets in so-called legal constructions. The founders and beneficiaries of such constructions have already been under the obligation to report their status in their tax returns since assessment year 2015.
The Program Law introduces a look-through tax regime under which the income of these constructions may be taxed at the level of their founder (unless the founder can prove that this income was paid to third-party beneficiaries established in an EEA country or in a country that exchanges income tax information with Belgium via treaty). This regime applies to all types of income realized by these legal constructions since 1 January 2015.
The legal constructions are divided into trusts and other fiduciary arrangements (Category A) and foreign companies and entities with legal personality that are not subject to income tax under the law of their tax residence or that are subject to a significantly more favorable income tax regime than in Belgium (Category B). The latter is the case when the tax paid by the foreign company in its tax jurisdiction amounts to less than 15 percent of its tax base, as computed in accordance with Belgian tax rules. This 15 percent test will have to be performed annually.
The Belgian government has produced a limitative list of legal constructions of Category A established in the EEA by the Royal Decree of 23 August 2015 containing three entities: Liechtenstein's Anstalt andStiftung and Luxembourg's Société de gestion de patrimoine familial. A list of Category B legal constructions established outside the EEA (i.e., entities considered not to pass the aforementioned 15 percent test) was also published in a second Royal Decree of 23 August 2015. The latter list sets out 55 entities, such as the Swiss foundation, the Hong Kong private limited company and the Delaware (US) limited liability company. This list is not limitative, which means that entities not on the list may still fall under the transparency regime. It must be noted that the taxpayer may still produce proof that a listed Category B entity effectively passes the 15 percent test, c.q. that it does not qualify as a legal construction.
The Program Law foresees a set of exclusions for, e.g., the following entities:
- entities that exercise a real economic activity with adequate substance and that are established in the EEA or in a state that exchanges income tax information with Belgium by means of a treaty
- entities that are listed on a stock exchange in compliance with EU Directive 2001/34/CE on the admission of securities to official stock exchange listings and on information to be published on those securities, or in compliance with local regulation that is analogous to the said Directive
- pension funds.
1.2 Limitation of fiscal deductions for credit institutions and insurance companies
Credit institutions and insurance companies have higher equity bases than other companies because of prudential regulation (EU Regulation n° 575/2013 and Directive 2013/36/EU for credit institutions; EU Directive 2009/138/EC for insurance companies). The Program Law contains a new regulation aimed at harmonizing the tax treatment of regular companies with the tax treatment of credit institutions and insurance companies. Such harmonization should be achieved by limiting the use of certain tax attributes by credit institutions and insurance companies. We should add that this harmonization is expected to generate € 100 million in taxes.
Credit institutions and insurance companies
The limitation of fiscal deductions applies to:
- Credit institutions that are recognized as such in accordance with the law of 25 April 2014 on the legal status and supervision of credit institutions and that exercise their activity in Belgium
- Insurance companies that are recognized as such in accordance with the law of 9 July 1975 on the supervision of insurance companies and other insurance companies that exercise their activities in Belgium.
Credit institutions and insurance companies that are established in a the EEA, and that are competent to exercise their activities in Belgium in accordance with the aforementioned laws, are also subject to this limitation of fiscal deductions.
This new measure provides for a limitation for the aforementioned companies of the use of:
- the dividend-received deduction (i.e., the application of the participation exemption regime under the form of a 95 percent deduction of received dividends)
- carried forward tax losses and
- the notional interest deduction (i.e., a deduction of a notional interest computed on a company's equity).
The application of the said limitation requires a computation in three phases and is based on the entities' debt towards clients (for credit institutions) and technical provisions (for insurance companies). The amount of these tax deductions that cannot be used due to this limitation may be carried forward to the next tax year to the extent that they may be carried forward under the general rules.
2. Government agreement of 23 July 2015 - other tax measures to be expected
The Belgian government agreed on 23 July 2015 on other measures to be adopted, such as the creation of a new real estate investment vehicle aimed at attracting institutional investors and the introduction of a so-called speculation tax for short-term capital gains on shares. Concrete details about these measures are not yet known.
2.1 New real estate investment vehicle
The current framework of Belgian real estate investment trusts (sicafis immobilières / vastgoedbevaks) requires a public issuance of shares and is therefore not attractive for institutional and professional investors. The government has marked its intention to introduce a new real estate investment vehicle that would not require the public emission of shares and should therefore be more attractive for institutional and professional investors.
It is expected that such “private REITs” would be subject to a similar tax treatment as the existing REITs, i.e., a taxable base limited to non-deductible items and received abnormal or benevolent advantages, exit tax on latent capital gains triggered upon the conversion of existing real estate companies into private REITs and dividends distributed by private REITs should not benefit from the participation exemption.
2.2 A speculation tax
The government may introduce a speculation tax on capital gains realized on the sale of shares occurring within six months of their purchase. It is expected that capital losses on such shares will be deductible and that this speculation tax should apply to both individuals and companies.
2.3 Withholding tax increase
The general withholding tax of 25 percent applicable to interest, dividends and royalties would be increased to 27 percent. It is expected that income subject to reduced withholding tax rates should not be affected.