Here’s our overview of recent Belgian tax developments, including the main new Belgian tax measures adopted by the laws of 18 and 26 December 2015.
A ‘speculation tax’ of 33 per cent is introduced on capital gains realised by Belgian resident and non-resident individuals within six months from the date of acquisition of listed shares held other than for professional purposes.
This tax applies to the disposal (including short sales) of listed shares, profit certificates, warrants, call and put options and other derivatives over listed shares.
Capital gains realised on titles held in undertakings for collective investments in transferable securities (UCITS) and in Belgian regulated real estate companies are not subject to this capital gains tax. Also, capital gains realised on listed shares, options or warrants acquired under regulated stock option plans or granted by an employer and that may have been taxed as professional income fall outside the scope of the speculation tax. This is also the case for capital gains that are realised beyond the shareholder’s control, ie at the occasion of so-called ‘mandatory corporations’ (eg squeeze-outs, mergers, splits or spin-offs).
The method applicable to compute the six-month holding period is the ‘last in first out’ (LIFO) method, the computation being made on a share per share basis with the same ISIN code.
The taxable basis is equal to the difference between (i) the price received reduced by the tax on stock exchange transactions (if any) and (ii) the price paid for the acquisition increased by the tax on stock exchange transactions (if any). Capital losses are in principle not deductible. The only situation where capital losses are taken into account is where there is a realisation – in a single transaction – of a number of listed shares or other qualifying instruments with the same ISIN number but acquired via successive acquisitions (at different acquisition prices). In this case, the capital gains realised on a certain number of the shares or other qualifying instruments will be set off by the capital losses relating to other shares or qualifying instruments realised in the same transaction and only the net amount (which cannot be less than zero) will be taxable.
The speculation tax takes the form of a withholding tax levied at source by the intervening intermediary located in Belgium that fully discharges a resident or non-resident individual from its liability for the speculation tax. In case the withholding tax of 33 per cent is not applied, the capital gain needs to be reported in the personal income tax return and is subject to personal income tax at a specific rate of 33 per cent, not increased by local surcharges.
The speculation tax enters into effect for capital gains realised on listed shares or other qualifying instruments acquired as of 1 January 2016.
Increase in withholding tax rate
The Belgian general withholding tax rate applicable to dividends and interest attributed as of 1 January 2016 increases from 25 per cent to 27 per cent. Interest on ordinary saving accounts and on certain government bonds (so-called 'Leterme bonds') as well as royalties continue to benefit from reduced withholding tax rates.
Belgium has a large network of double tax treaties that reduce withholding tax rates to, among others, 20 per cent, 10 per cent, 5 per cent for residents of the treaty countries, depending on conditions that, among others, relate to the size of the shareholding and certain identification formalities.
Also, for Belgian companies, as this withholding tax constitutes an advance to corporate income tax, which is fully creditable against the corporate income tax due and refundable, this increase should have a limited impact on companies subject to Belgian corporate income tax.
New dividend withholding tax of 1.69 per cent for foreign shareholders
Non-Belgian shareholders with a participation in a Belgian company with an acquisition value of at least €2.5m (but not reaching the 10 per cent participation threshold under the Parent–Subsidiary Directive) are now entitled to the Belgian participation exemption regime.
In C-384/11 (Tate & Lyle Investments), the European Court of Justice (ECJ) ruled that the alternative €2.5m participation threshold in the Belgian participation exemption regime (that only applied to Belgian-resident companies) constituted a measure favouring resident companies since it was an alternative to the general participation threshold of 10 per cent that applies to resident as well as foreign companies. The withholding tax levied on dividend payments made to foreign companies also generally constitutes a final levy for those companies without a permanent establishment in Belgium.
In response to this decision, a withholding tax of 1,6995 per cent (5 per cent of the dividend will be subject to 33.99 per cent Belgian income tax) will be withheld on dividends paid by a Belgian company to a parent company that holds a participation with an acquisition value of at least €2.5m and that is established in the EEA or in a country with which Belgium has entered into a double tax treaty, provided this treaty or any other treaty allows for the exchange of information necessary to execute the national laws. This regime is also subject to the condition that the participation is held for at least one year without interruption and that the parent company cannot obtain a credit or reimbursement for Belgian withholding tax.
This measure applies to dividends attributed or paid as of 28 December 2015 (ie the publication date of the law in the Belgian State Gazette). This measure is mainly relevant for substantial participations in listed companies that do not amount to 10 per cent of the Belgian company’s share capital.
Potential repeal of fairness tax – to follow up in 2016
The ECJ will – most likely in the course of 2016 – make a decision on the compatibility of the so-called ‘fairness tax’ with EU law.
The fairness tax was introduced in 2013. It is an additional tax that aims to submit to a 5,15 per cent levy any dividend distribution of profits that have not been effectively submitted to corporate income tax by reason of the application of the specific Belgian ‘notional interest deduction’ or the deduction of a loss carry-forward.
In our view, this fairness tax is contrary to the requirements of the Parent–Subsidiary Directive. Since the levy (i) is only due in case of a dividend distribution, (ii) is calculated on the basis of the amount of the distribution, and (iii) is a separate levy that cannot be affected, reduced etc by any of the regular corporate income tax rules so that it can be seen to constitute a levy that is to be supported by the shareholder, it appears to us that in application of the ECJ Athinaiki case (C-294/99) the fairness tax is a levy tantamount to a dividend levy that is not allowed if an EU-based parent company owns 10 per cent or more of the shares of the Belgian company.
If the ECJ decides the fairness tax breaches EU law, the Belgian state will need to repeal it and reimburse fairness tax paid so far by companies, plus 7 per cent interest. Fairness tax payers can proactively file administrative complaints but can also await the outcome of the ECJ decision. An ECJ decision is generally recognised as a ‘new fact’ enabling a tax payer to file a so-called automatic relief.