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Trusts, foundations and charities
Are trusts legally recognised in your jurisdiction? If so, what types are available and most commonly used?
Although Belgium does not have its own trust law, foreign trusts are recognised. Trusts will be governed by the law of choice of the settlor. When no choice of law is made or if that choice is invalid, the trust will be governed by the law of the state where the trustee has or had their habitual residence at the time that it was created.
What rules and procedures govern the establishment and maintenance of trusts?
How are trusts taxed in your jurisdiction?
Tax inspectors sometimes struggle with the tax treatment of trusts, especially in the field of inheritance taxes. Although some take the position that any distribution by a trust upon or even after the death of the settlor should be taxed with inheritance tax, the opposite can be argued for certain types of trusts.
Trusts and low-taxed foreign legal entities (including foundations) are, among other things, considered as ‘legal constructions’ for income tax purposes. Belgian resident founders (which is a broadly defined concept) of such a legal construction must report its existence in their annual income tax return.
In addition to this reporting obligation, a look-through approach (commonly referred to as the ‘Cayman tax’) has been introduced in 2015 for these legal constructions: their founders are taxed on any income that has not been paid out or distributed by these legal constructions as if they had directly received that income. Any subsequent payment or distribution by a qualifying legal construction is taxed as a dividend (in principle at a rate of 30%) in the hands of the receiver, unless it can be proven that this payment or distribution makes the capital of the legal construction fall below the capital that was contributed by its founder(s) or that the payment or distribution was taxed before under the look through approach.
Foundations and charities
Are foundations and charities legally recognised in your jurisdiction? If so, what forms can they take?
Unlike trust law, Belgium does have its own legislation regarding foundations. A foreign foundation will be recognised in Belgium and will be governed by the law of the state in which its main establishment is located.
Charities can be organised in the form of a foundation or a not-for-profit association. They must not provide any ‘material benefit’ to their founders or directors, nor to any other person except for the latter if this is precisely (part of) the foundation’s purpose.
What rules and procedures govern the establishment and maintenance of foundations and charities?
Private foundations and international not-for-profit associations must be established through a notarial deed. Belgian not-for-profit associations can be established through a notarial deed or a private agreement. None of these legal entities requires a certain minimum capital.
Current law requires private foundations to have at least three directors. However, this minimum will be abolished as from 1 May 2019 and it will be possible for a private foundation to have only one director.
Belgian not-for-profit associations must have at least three directors, unless there are only two members of the association in which case it can be established and function with only two directors.
How are foundations and charities taxed?
Private foundations and not-for-profit associations are normally subject to legal entities tax on certain categories of their income, such as real estate income and certain capital gains on Belgian real estate, and investment income such as dividends and interests.
Besides this tax, they are also subject to an annual wealth tax of 0.17% on the value of their assets, although some assets are excluded from the tax base.