Tax residence and fiscal domicile in Belgium

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Tax residence and fiscal domicile

A company is a resident of Belgium if it has its statutory seat, main establishment or place of effective management in Belgium. Consequently, both formal (i.e., statutory seat) and informal (i.e., place of management and control) criteria must be taken into consideration in order to determine whether or not a company is a resident of Belgium for Belgian tax purposes.

The statutory seat of a company (registered office) can be defined as the official address of the company as included in the articles of association and as mentioned in the registration at the Companies' Register.

According to the official administrative commentary, the term 'main establishment' is quite similar to the notion of 'place of effective management and control'. Both notions refer to the place where the company is generally managed, that is, where the principal directors meet, where the shareholders' meetings are held, where the ultimate management of the company takes place and where the impulse in the company is given.

It is important to note that, according to the official administrative commentary, the statutory seat is as such not sufficient to determine whether a company is a resident of Belgium for Belgian tax purposes if the statutory seat is, on the level of the company, not the same as the place of effective management. In such case, the location of the main establishment, or of the place of management and control, will determine the tax residence. Indeed, the official administrative commentary mentions that the Belgian Income Tax Law contains, in fact, the presumption that a company having its statutory seat in Belgium also has its seat of management in Belgium, but that this presumption is refutable.

As a consequence of the above, one can conclude that the main criterion, in order to determine whether or not a company is a resident of Belgium for Belgian income tax purposes, is the place of effective management and control of the company.

Taking into account the above, a foreign company should avoid having its place of effective management in Belgium if it does not want to become subject to Belgian corporate income tax. The place of effective management is a factual discussion. No clear administrative guidelines or conclusive case law exist in this respect.

A foreign entity that envisages making an inward investment in Belgium may opt not to incorporate a subsidiary, but rather to establish a branch or PE in Belgium.

The taxable income of a branch (taxed at 29.58 per cent) is generally determined in a similar way to the taxable income of resident companies. However, expenses are only deductible if they are attributable to the Belgian taxable income. The participation exemption applies to dividends received by a PE of a non-resident company, under the same conditions as for resident companies.

The theory of the force of attraction is not applicable in Belgium. Only the profits that are realised through the activity of the Belgian branch are taxable in Belgium.

Under certain circumstances, it is possible to obtain beneficial (transfer pricing) rulings regarding the determination of the branch's taxable income. Known examples are rulings granted to branches that carry out activities as a service or distribution centre.

It is important to note that no withholding taxes are levied on the remittance of branch profits to the head office. Furthermore, no branch profit tax applies.

Most of the Belgian tax treaties are generally in line with the Organisation for Economic Co-operation and Development (OECD) Model Convention and, therefore, offer the international recognised protection at the level of tie-breaker rules, exemption of PE profits, etc.