1.1 In Belgium, what pre-entry estate and gift tax planning can be undertaken?
Wills, prenuptial agreements and marital contracts should be carefully reviewed, before or shortly after migration, by a Belgian expert. However, it is relatively easy to make/adapt wills and marital contracts after establishment in Belgium.
From an inheritance tax perspective, one should pay special attention to fictitious legacies in the Belgian Inheritance Tax Code (e.g., life insurance policies, certain trust settlements, lifetime gifts within three years of the death of the donor, etc.). However, any necessary changes in this perspective can be made after establishment in Belgium.
1.2 In Belgium, what pre-entry income tax planning can be undertaken?
Provided that the gains are not taxable in the foreign jurisdiction, the following steps can be undertaken:
- Create a tax-free step up by contributing assets or funds to a holding company before the establishment in Belgium.
- Realise latent capital gains.
- Check the relevant DTT’s to limit cases in which double taxation will arise (e.g., withholding taxes on interest and dividend income in the source state). Remitting cash to Belgium or holding assets through a Belgian private company can prevent double taxation.
1.3 In Belgium, can pre-entry planning be undertaken for any other taxes?
Check the customs exemption for personal goods upon immigration (see question 3.4).
2.1 To what extent is domicile relevant in determining liability to taxation in Belgium?
Domicile as such is not relevant to determine tax liability in Belgium.
2.2 If domicile is relevant, how is it defined for taxation purposes?
This is not applicable in Belgium.
2.3 To what extent is residence relevant in determining liability to taxation in Belgium?
Residence triggers unlimited tax liability (including for income and inheritance tax).
2.4 If residence is relevant, how is it defined for taxation purposes?
A taxpayer is resident in Belgium if either his residence or centre of economic interests is in Belgium. Residence and centre of economic interests have different meanings and function as alternative criteria. A deceased taxpayer is considered resident if Belgium was his effective residence at the time of his death.
Residence refers to the factual place of residence and the centre of a person’s social and professional interests. It requires a certain degree of permanence or continuity. The law, however, does not set out the minimum duration. Residence is a complex concept and, in most cases, a factual matter that must be determined by weighing up different factors. For example, the centre of a person’s family life is more important than the place where that person factually resides or where he works.
2.5 To what extent is nationality relevant in determining liability to taxation in Belgium?
Nationality can be a relevant factor to determine a person’s residence, but it is in no way decisive.
2.6 If nationality is relevant, how is it defined for taxation purposes?
Nationality has no separate definition for taxation purposes. (With regard to the requirements for obtaining Belgian nationality, see question 7.3).
3.1 What gift or estate taxes apply that are relevant to persons becoming established in Belgium?
Inheritance tax (IHT) is due on the worldwide property of a deceased person who is a Belgian resident at the time of his death (see question 2.4).
Gift tax is a registration tax. It is levied on lifetime gifts of immovable property situated in Belgium. Gift tax is only due in relation to lifetime gifts of movable property (movables) if the transfer document (for example, notary deed) is registered in Belgium.
The following gifts are exempt from gift tax, given their lack of registration:
- Transfer of movables by hand (handgift/don manuel).
- Bank transfer (bankgift/don bancaire).
- Transfer by foreign notary deed.
However, the donor must survive these exempt gifts for more than three years, if not inheritance tax will be due on the amount of these gifts (art. 7 IHTC). Also gift tax must be paid if an exempt gift is registered voluntarily. Different IHT and gift tax rules apply to the Belgian regions (Flanders, Brussels and Wallonia).
Rates of IHT and gift tax generally increase with the value of the transferred asset and according to the relationship between the parties.
IHT rates applicable to transfers to those in the direct bloodline and between spouses vary as follows:
- From 3% (on amounts received up to EUR50,000) to 27% (on amounts received over EUR250,000) in Flanders.
- From 3% (on amounts received up to EUR50,000) to 30% (on amounts received over EUR500,000) in Brussels.
- From 3% (on amounts received up to EUR12,500) to 30% (on amounts received over EUR500,000) in Wallonia.
Subject to certain conditions, which differ in the three regions, legal cohabitants benefit from the rates applicable to spouses. Rates can be much higher for other beneficiaries (as high as 65% in Flanders and 80% in Brussels and Wallonia).
Gift tax applies on lifetime gifts of immovable property situated in Belgium. Gift tax rates applicable to transfers of immovable property to those in the direct bloodline and between spouses vary as follows:
- From 3% (on amounts received up to EUR50,000) to 30% (on amounts received over EUR500,000) in Flanders and Brussels.
- From 3% (on amounts received up to EUR12,500) to 30% (on amounts received over EUR500,000) in Wallonia.
Registered gifts of movables benefit from the flat rates of 3%, 5% or 7% under certain conditions. Gift tax rates in the Walloon region have increased by 10% (3.3%, 5.5% or 7.7%) from 2012 onwards.
In Flanders, the portion of the estate transferred to a direct ascendant (that is, those from whom a person is descended, for example a parent or grandparent), descendant or spouse is split up in an immovable and movable portion, and taxed separately. This usually results in a significantly lower tax burden on death than in Brussels and Wallonia.
The following regional exemptions and beneficial rates exist:
- Flanders. Family dwellings are IHT exempt, if the beneficiary is the surviving spouse (or cohabitant under certain conditions).
- Brussels and Wallonia. Family dwellings benefit from reduced IHT rates.
- Wallonia. Family businesses are exempt from IHT, subject to strict conditions.
- Brussels and Flanders. In Brussels family businesses benefit from a flat IHT rate of 3%. In Flanders family businesses benefit from reduced flat IHT rates of 3% (in direct line and between spouses) and 7% (in all other cases) from 2012 onwards.
In addition, the following exemptions and beneficial rules can apply:
- Gifts of family businesses can benefit from a flat gift tax rate of 0% (Wallonia and Flanders) or 3% (Brussels), subject to strict conditions.
- IHT exemptions for special types of land (for example, forested land).
- Beneficial rates for legacies and gifts to public institutions and not-for-profit organisations or foundations.
3.2 How and to what extent are persons who become established in Belgium liable to income tax?
Residents in Belgium are taxed on their worldwide income. There are four categories of income:
Professional income. This is subject to progressive tax rates and tax is generally levied in the form of a withholding tax. The amount levied can be set off against the taxpayer’s final assessment and any excess is refundable. Self-employed taxpayers can pay quarterly advance tax payments to avoid a tax increase.
Investment income (for example, dividends, interest income, royalties). The default withholding tax rate for interest income is 21% (before 2012: 15%). The default withholding tax rate for dividends is 25%. For private persons, this withholding tax used to be the final tax. Liquidation proceeds remain subject to the 10% withholding tax rate. Share buybacks become subject to withholding tax at the rate of 21% (before: 10%). Savings from regulated saving deposits continue to be subject to a 15% withholding tax rate for the portion in excess of the tax-exempt bracket (interest up to €1,830 per taxpayer – amount for tax year 2013).
From 2012 onwards a separate 4% surcharge is applicable to taxpayers with investment income (interest and dividends) exceeding net €20,020 (for tax year 2013). The 4% surcharge is not due on interest and dividends subject to withholding tax at the rate of 25%. Two collection systems are put in place to collect the 4% surcharge:
- In the situation where the taxpayer allows the debtor of the withholding tax or the paying agency to inform the authorities of the amount of investment income perceived, the 4% surcharge is not withheld at source but is due further to the establishment of the personal tax liability based on the personal income tax return;
- In the situation where the taxpayer does not allow the debtor of the withholding tax to inform the authorities of the amount of the investment income perceived, the 4% surcharge will need to be withheld at source and any excessive withholding at source (e.g., because the threshold of €20,020 is not reached) can be claimed back via the income tax return. The taxpayer can also opt to suffer the 4% surcharge (even if not due) in exchange for not disclosing his investment income).
The authorities responsible for collection of the information regarding a taxpayer’s investment income are a “central contact point” within the Federal Finance Department. This “central contact point” will automatically transmit all information to the tax inspection offices if the taxpayer’s investment income exceeds €20,020 per year. If not, they will only do so upon request of the tax offices and insofar as this is necessary for levying the surcharge. This new system introduces a general reporting obligation of investment income in the personal income tax return (from tax year 2013 onwards). If the taxpayer opts to suffer the 4% surcharge (even if not due) the income is not disclosed to the central contact point and there will be no reporting obligation in the personal income tax return. Note that information regarding interest and dividends taxed at 25% will be automatically transmitted to the “central point” (no choice). The taxes on income reported in the personal income tax return are generally increased with local taxes. Following the decision of the EU Court of Justice in the Dijkman case (Gerhard Dijkman and Maria Dijkman-Lavaleije v Belgische Staat, C-233/09), these local taxes do not apply if the dividend and interest income has its source in an EEA member state.
Real property income. This is subject to progressive tax rates.
Miscellaneous income (for example some capital gains). This is subject to a variety of tax rates, starting from 16.5%.
Each form of income is aggregated to determine a person’s gross global taxable income in a given tax year. After deducting certain expenses, the net global taxable income is subject to progressive tax rates, ranging from 25% to 50%.
Not all gains on property are taxed. Under current legislation there is a long standing tax exemption for profits or gains resulting from the “normal administration of a private fortune” consisting of real property, portfolio securities and movable property. In practice, whether gains result from the normal administration of a private fortune can be controversial. The following are taxed:
- Gains derived from speculation are taxed at a rate of 33%. Speculation refers to, for example, the purchase of assets with the intention of making a quick profit (involving an element of risk). Gains derived from purchase and sale transactions on stock exchanges are, in principle, not seen as speculative.
- Gains on land, if the taxpayer acquired the property rights for consideration and the transfer occurs less than eight years after the acquisition (special rules apply to gifted property). The gain is taxed separately at a flat rate of 16.5% or 33%.
- Gains on constructed real property (buildings), if the taxpayer acquired the property rights for consideration and the transfer occurs less than five years after the acquisition (special rules apply to gifted property). The gain is taxed separately at a flat rate of 16.5%. (Gains on a taxpayer’s private dwelling are tax exempt.)
- Gains on specific investment products (that is, types of capitalisation investment fund) qualify as interest income and are taxed at the rate of 21%. This is income realised on the sale or redemption of shares in undertakings for collective investment in transferable securities (UCITS) that have invested more than 40% of their assets in debt claims.
- Gains on the transfer of a substantial shareholding (25% or greater) of a Belgian company to a company resident outside the EEA are taxed at 16.5%.
- Professional gains are taxed as professional income.
3.3 What other direct taxes (if any) apply to persons who become established in Belgium?
Municipalities may impose a surcharge on the individual income tax, generally from 0% to 10%. The maximum income tax rate can therefore amount to 55% if a 10% surcharge is levied (for income tax, see question 3.2).
Under the current legislation, no wealth tax exists in Belgium.
3.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in Belgium?
Transfers of immovable property are subject to registration tax (sales tax), unless the property is new. (Buildings are considered new for value added tax (VAT) purposes until 31 December of the second year following the year of the building’s first use.) The normal rates are:
- 12.5% of the market value in Brussels and Wallonia; and
- 10% of the market value in Flanders.
Every property in Belgium is listed in the land registry (Kadaster/Cadastre) and an annual rental income is assigned to it (cadastral income). Reduced registration tax rates may apply to immovable property with a low cadastral income. A sale of a new property is subject to VAT at 21%. From 2011 onwards, land sold together with the new property by the same seller is subject to VAT (and exempt from registration tax).
The standard VAT rate amounts to 21%. A reduced VAT rate of 6% exists for: live animals; vegetable products; food and non-alcoholic drinks, water supply, medicines and medical appliances; and books and certain periodicals, original works of art, collectors’ pieces and antiques (on certain conditions) etc.
Teaching establishments, hospitals, certain cultural institutions, certain holding companies, etc., are exempt.
In some cases, no import duties and possibly no other taxes are to be paid upon importation. For private citizens, this system applies to certain personal goods (in the case of removals, marriage, death, etc.).
3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in Belgium?
Article 344§2 of the Income Tax Code (ITC) provides that the transfer of particular assets into certain offshore arrangements is not opposable towards the tax authorities.
In addition, from June 2012 onwards a new General Anti Abuse Rule (GAAR) applies in matters of income tax, inheritance tax and gift tax. Classic techniques to reduce tax liability will now have to be evaluated under this new rule. The authorities must demonstrate tax abuse. Tax abuse requires the presence of both an objective and a subjective element: the objective element implies the choice of a legal form allowing a tax payer to violate the objectives of a tax law; the subjective element is the choice for this legal form based on the essential aim of achieving a tax benefit.
The taxpayer can avoid the GAAR application if he/she demonstrates that the choice for his/her act(s) is justified by motives other than tax avoidance. The explanatory memorandum clarifies that this test implies proof that the taxpayer’s choice is “essentially” motivated by non-tax reasons i.e., the authorities cannot only challenge transactions with exclusively tax based motives.
4.1 What liabilities are there to direct taxes on the remittance of assets or funds into Belgium?
A resident in Belgium is taxed on his worldwide income. The remittance of such income or funds does not trigger direct taxes in Belgium.
4.2 What taxes are there on the importation of assets into Belgium, including excise taxes?
Upon importation of assets, other than upon immigration, it is possible that customs duty, excise duty, and/or VAT are due. There is no relevant exemption of import duties with regard to privately owned assets. Provided certain conditions are met, the transfer into the EU of inherited assets (gratuitous transfer mortis causa) can be exempted. For importation from EU countries, no customs duty is payable. If you plan to enter the EU with cash and securities from non-EU countries with a total value of €10,000 or more, one must submit a declaration to Customs.
Upon registration of a car, one must also consider circulation tax.
4.3 Are there any particular tax issues in relation to the purchase of residential properties?
For Registration Tax on the sale of immovable property and VAT on the sale of new property see question 3.4.
A separate tax is levied on real estate (onroerende voorheffing/précompte immobilier). This is a local tax that is calculated on the cadastral income of the property (see question 3.4: sales tax). The rate varies, depending on the region.
5.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in Belgium?
If the foreign national has his habitual residence in Belgium at the time of his death, the Belgian courts have jurisdiction over the succession and Belgian conflict of laws rules (Private International Law (PIL)) apply.
Under Belgian PIL rules:
- Movable assets worldwide are governed by the law of the nation where the deceased had his habitual residence at the time of death (lex successionis).
- Immovable assets are governed by the law of the asset’s location (lex rei sitae).
From 17 August 2015 onwards, the European Regulation on Succession will determine the applicable law. The principle is that the law of the last residence of the deceased will govern his succession. All relevant factual elements (such as the duration and consistency of his presence in that particular country) are taken into account. This principle can be avoided through choice of law, but this choice is limited to the law of the country of nationality. This ensures that there remains a connection between the deceased and the chosen law. In short, the testator has two options: either he lets the general principle of the regulation determine the law that will govern his estate; or he chooses the law of the country of his nationality.
A foreign will is recognised as valid in Belgium if the foreign testator has made a will in accordance with either:
- His national law (at the time of making the will or at the moment of death).
- The law of the country of his habitual residence.
The formal validity of the will is regulated by the law applicable under the HCCH Convention on the Conflicts of Laws relating to the Form of Testamentary Dispositions 1961 (Hague Testamentary Dispositions Convention).
5.2 Are there particular rules that apply to real estate held in Belgium or elsewhere?
Under current PIL, immovables are always governed by the succession law of the asset’s location. From 17 August 2015 onwards, the European Regulation on Succession will determine the applicable law. The new principle is that the law of the last residence of the deceased will also govern the succession of real estate held outside Belgium.
Property law aspects and the encumbering of Belgian real estate are subject to Belgian law.
6.1 Are trusts recognised in Belgium?
Belgium has no trust legislation. The legal and tax consequences of a foreign trust are complex and uncertain. Case law is scarce. Since 2004, foreign trusts are recognisable in Belgium (Articles 122 to 125, International Private Law Code, IPLC). The settlor can elect the governing law for the trust (for example, his national law), provided the elected law contains trust provisions. If the settlor has not specified the governing law, the law of the country in which the trustee was habitually resident when the trust was constituted, applies.
6.2 If trusts are recognised in Belgium, how are they taxed in Belgium?
In 2004, the tax administration issued two decisions in which the inheritance and gift tax consequences of an irrevocable discretionary trust were addressed. Without going into the details, the administration applied the fictitious legacy of Section 8 of the Inheritance Tax Code. The inheritance taxes are postponed until the actual distribution. The Belgian Ruling Commission has recently ruled on the Belgian tax treatment of foreign trusts in two separate cases (Ruling N° 900.329 of 22 December 2009 and Ruling N° 700.112 of 8 December 2009). These rulings further clarify the tax administration’s perspective on trusts. Ruling N° 900.329 of 22 December 2009 and Ruling N° 2011.148 of 24 May 2011 confirm that distributions out of a genuine irrevocable discretionary trust are tax-free in Belgium from an income tax perspective. Other rulings (N° 900.189 of 7 July 2009 and N° 2011.435 of 13 December 2011) relate to the tax treatment of a Belgian private foundation that acts as a trustee of a foreign trust.
6.3 If trusts are recognised, how are trusts affected by succession and forced heirship rules in Belgium?
A Belgian court decided in 1994 that a trust settlement is valid only insofar it does not violate forced heirs’ rights. A Belgian judge can recognise forced heirship claims against trust assets (Article 124(3), new International Private Law Code (IPLC)), even if the law applicable to the trust provides otherwise. If Belgian inheritance rules apply, protected heirs (that is, descendants, ascendants or the surviving spouse) can claim a reduction of the funds being transferred to the trust, as this transfer is regarded as a gift. However, the execution of this judgment will be regulated by the law of the nation of either the trust foundation or location of trust assets. The law of the trust jurisdiction may provide for the non-enforceability of a foreign court award.
6.4 Are foundations recognised in Belgium?
The Act of 2 May 2002 introduced the private foundation in Belgium. The Belgian foundation is an estate, to which the law grants legal personality, allocated irrevocably by one or several founders to the achievement of a particular non-profit goal. The foundation cannot provide any economic benefit to its founders and directors nor to any other person, unless this is required by the realisation of its non-profit goal. The private foundation can be considered as an equivalent structure to a trust. This structure only became available in 2003, and therefore its viability as an estate planning tool is not clear.
6.5 If foundations are recognised, how are they taxed in Belgium?
Private foundations are generally subject to an annual tax of 0.17% on the value of their assets.
Transfer of assets to a private foundation can be either:
- Tax free. This applies to transfers of movable property if the donor survives for three years after making a gift. The transfer can be either: by hand (hangift/don manuel); or by foreign notary deed.
- At a flat gift tax rate of 7%, if the gift is voluntarily registered.
Private foundations are subject to legal entities’ income tax (rechtspersonenbelasting/impôt des personnes morales), as opposed to corporation tax. Legal entities income tax has a more limited tax base than corporation tax.
The Belgian Ruling Commission recently ruled on the tax treatment of distributions out of a Belgian private foundation (Ruling N° 2011.275 of 29 November 2011). This ruling concerns income tax law and inheritance tax. In this particular case the ruling commission decided that distributions to the beneficiaries are not subject to inheritance tax, neither income tax.
6.6 If foundations are recognised, how are foundations affected by succession and forced heirship rules in Belgium?
If Belgian inheritance rules apply, protected heirs can claim a reduction of the funds being transferred to a Belgian or foreign foundation, as this transfer is regarded as a gift.
7.1 What restrictions or qualifications does Belgium impose for entry into the country?
Citizens of the countries of the European Union, of the EEA and of Switzerland are automatically, under the principle of free-movement of persons, allowed to stay in Belgium for a period of three years on proof of sufficient means of subsistence (or of the ability to obtain those means through work) and a health insurance. After an uninterrupted stay of three years, an undetermined residence permit can be obtained.
For citizens of other countries, access to the Belgian territory is subject to obtaining a visa.
7.2 Does Belgium have any investor and other special categories for entry?
One can apply for a visa in order to engage in a professional activity (paid or not):
- Self-employed: If you are not a national from a country in the EEA, Switzerland, Romania or Bulgaria and you wish to settle in Belgium you must be in possession of a ‘professional card’ (beroepskaart/carte professionnelle) i.e., be authorised to exercise a professional activity as a self-employed worker.
- As an employee: This is subject to the applicant’s employer obtaining a work permit.
- As an investor: The visa issued is valid for up to eight months and is intended to enable the applicant(s) to prepare and launch their investment. Depending on how the business develops, before this residence permit expires they will need to apply for a change to their residency status to either ‘self-employed person’ (executive) or ‘employee’ (manager). A ‘Major Investor’ certificate is required. In addition the following details are required to create the file: information about the applicant; details of the company; and details of the investment file.
Other special procedures exist for researchers, journalists and managers.
You may settle in Belgium as a foreign national without being gainfully employed on the condition that you have sufficient means of subsistence. When applying for a visa, you need to present the following documents in person at the embassy or consulate responsible for your place of residence:
- Proof of sufficient means of subsistence that will allow you to live in Belgium without the need to engage in any sort of gainful employment and proof that your income and funds can be transferred to Belgium.
- Serious character references from trustworthy persons residing in Belgium.
- Proof that you have ties with Belgium.
Additional documents may be requested.
7.3 What are the requirements in Belgium in order to qualify for nationality?
Under current legislation Belgian nationality can be requested by naturalisation after three years of residence in Belgium or obtained by nationality declaration after seven years. However a proposal is pending in Parliament to strengthen the conditions under which an individual can obtain Belgian citizenship.
7.4 Are there any taxation implications in obtaining nationality in Belgium?
No, there are not.
8.1 What is the test for a corporation to be taxable in Belgium?
A corporation is resident in Belgium if its principal establishment, registered office, or place of management is in Belgium, in other words if it has its “tax residency” in Belgium.
Resident corporations are subject to corporate income tax on their worldwide profits. However, profits derived from a foreign (non-Belgian) branch are, in principle, exempt if the branch is established in a country that has concluded a double tax treaty with Belgium.
8.2 How are branches of foreign corporations taxed in Belgium?
A Belgian branch of a foreign corporation is subject to non-resident corporate income tax on the profits attributable to the Belgian branch. The branch will, in principle, not be able to invoke the double tax treaties concluded by Belgium, but will, in principle, be able to invoke those concluded by the country where its headquarters are located.
The taxable income of a branch is determined in almost the same way as for a subsidiary. After Belgian taxation, the profits of the branch are repatriated without any further tax burden (contrary to a Belgian subsidiary which profits can be repatriated as dividends that are, in principle, subject to withholding tax).
9.1 Has Belgium entered into income tax and capital gains tax treaties and, if so, what is their impact?
Yes, Belgium has an extensive network of income tax and capital gains tax treaties. Belgium has concluded some 90 double tax treaties that are currently in force, among others with Hong Kong, SAR, Luxemburg, the USA, China, India and several African countries.
9.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?
They generally follow the OECD model.
9.3 Has Belgium entered into estate and gift tax treaties and, if so, what is their impact?
Yes, but only with two countries: France (1959); and Sweden (1956).
9.4 Do the estate or gift tax treaties generally follow the OECD or another model?
No, they do not follow the OECD model or any other model. Both conventions only deal with inheritance tax, not with gift taxes.