BELGIUM: An Introduction to Private Wealth Law

Private Wealth Law in Belgium

Belgium is a country with a vast middleclass population. Its economic strength is notably based upon a high number of successful family held enterprises and its highly skilled professional workforce.

Belgium is a federal state made up of communities and regions. In the area of taxation, the federal state is still mainly competent for the income tax aspects whereas the regions have acquired competence regarding inheritance and gift taxes.

Unlike other States, Belgium has not got any specific (temporary) tax regime that applies to individuals moving to Belgium. However, our tax legislation still offers a favourable treatment of some types of income and estate and succession planning can be organised in such a way that the inheritance tax burden can be significantly reduced. Moreover, Belgium does not have a general wealth tax.

After the June 2024 elections, new coalition governments will be formed. These coalition governments may envisage further and more important tax reforms. At the Walloon region level, it was announced that the inheritance tax rates would be cut in half.

Residency

Belgian tax residents are individuals who have established their residence (being their permanent home where they live with their family members) or individuals that have their seat of their wealth (being the place from which individuals manage their economic affairs) in Belgium.

Taxation of Income

Belgian residents are taxed on their worldwide income with the possibility of claiming exemptions based on income tax treaties.

Rental income from immovable property is only taxed on the basis of the perceived income if the tenant is a company or someone who uses the property to exercise a professional activity. In other circumstances, the rental income is calculated on the basis of the cadastral value which is much lower than the actual rental value.

Dividend income and interest income are generally taxed at a flat rate of 30%. Capital gains on most moveable assets do not qualify as taxable income if they are realised within the framework of the normal management of the taxpayer’s private estate.

Professional income is taxed at progressive income tax rates ranging from 25% to 50% (more than EUR48.320,00). Many entrepreneurs therefore choose to exercise their professional activity through a (management) company that is subject to a corporate income tax rate of 25%. Even though the subsequent distribution of the profit by the company is taxed as dividend income, it is possible to reduce the withholding tax rate to 10% or 15% (if the relevant conditions are met).

Inheritance Tax and Gift Tax

Inheritance tax is levied when the deceased was a Belgian tax resident taking into account the deceased’s worldwide assets.

Progressive inheritance tax rates ranging between 3% to 30% apply for inheritances in direct line and between partners (spouses and (legal) cohabitants). There is no general inheritance tax exemption that applies to the benefit of the surviving partner. The surviving partner only benefits from an exemption that is applicable to the family dwelling.

The gift tax rates are considerably lower than the inheritance tax rates, with gift tax rates in direct line going from 3% to 3.3%, depending on the region in which the donor lives. For that reason, many Belgian tax residents set up a succession planning that involves making gifts.

From a Belgian tax perspective, gift tax is a registration tax. The registration procedure – triggering gift taxes – is compulsory for gift deeds passed before notaries if the donor is a Belgian resident on the date that the gift occurs. If the donor lives abroad and the beneficiary in Belgium, the gift is not subject to gift taxes.

If the gift can be formalised without requiring a notarial deed, then no gift tax is due (like a gift by bank transfer). However, if the donor dies in the three years following such a non-registered gift and lived in the Flemish or Brussels Metropolitan region at the time of death, inheritance taxes will be due, taking into account the value of the gifted assets. The three year period has been extended to five years for donors who have their tax residency in the Walloon region at the time of their death.

All three regions have introduced a specific favourable regime in case of inheritance or gift of family-owned businesses and companies. Provided that certain conditions are met, reduced tax rates (3%) or even exemptions apply.

Look-trough Taxation

Pursuant to look-through taxation provisions (also called “Cayman tax” provisions), natural persons who must be considered as the founders of a legal construction are obliged to pay tax on the income obtained by it. The income of a legal construction, which retains its original qualification, thus becomes taxable in the hands of the Belgian resident founder as if they had received it directly, even if the income is not actually distributed.

The targeted legal constructions include, among others, foreign trusts and low-taxed or non-taxed foreign legal entities. The latter legal entities come within the scope of the look-through taxation if they are situated in a jurisdiction where they are either not liable to income tax or are liable to an effective income tax that is lower than 15% of the entity’s taxable income that is determined according to the rules applicable as if the entity were subject to Belgian income taxation. The 15% rate is lowered to 1% if the entity is located in the European Economic Area.

Collective investment vehicles only come into scope of the Cayman tax provisions if they are held for more than 50% by one investor, or by several investors related investors (family members). The ownership test is to be assessed at the level of each compartment.

The look-trough provisions are not applicable if the founder can prove that the legal construction is an active legal construction that exercises an economic activity.

The Cayman tax has recently been tightened so that now any income of an indirectly held legal construction is subject to look-through taxation. Another amendment that was adopted last year concerns the application of a so-called “exit tax” upon the migration abroad of the founder of a legal construction. Upon the relocation, any non-distributed income of the legal construction is deemed distributed to the founder by way of a dividend income.

As the Cayman tax provisions can have far-reaching consequences, pre-immigration planning is required for those wish to move to Belgium.

No Wealth Tax

There is no general wealth tax in Belgium.

Belgium has however adopted a wealth tax that targets securities accounts. This tax takes the form of an annual tax of 0.15% on securities accounts that exceed EUR 1 million in average value.

A stock exchange tax is due on specific stock exchange transactions of stocks and bonds as well as on redemptions of capitalisation shares of collective investment vehicles executed by Belgian residents through Belgian and non-Belgian financial intermediaries. The rates depend on the type of transaction and vary from 0.12% to 1.32%

Tax Treaties

Belgium has entered numerous income tax treaties.

Only two inheritance tax treaties has been concluded with France and Sweden.

Belgium did not conclude any gift tax treaties.