Belgium

*Updated August 2020*

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• Legal system
• Inheritance and succession
• Estate planning
• Taxation
• Residence and domicile
• Other relevant information

Legal system

Civil law.

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Inheritance and succession

Succession

When an individual dies without leaving a will, Belgian intestacy rules apply. These stipulate that the estate must be divided between the spouse and blood relatives.

A forced heirship regime limits a person’s freedom to dispose of his assets by will. Children and the surviving spouse are entitled to a reserved portion of the estate of a deceased individual by law. Forced heirs can waive their rights to a reserved portion only in very limited cases (e.g. a spouse can waive their reserved portion when there are children from a previous relationship).

As of 1 September 2018, ascendants are no longer entitled to a reserved portion of the estate. In case of need, however, they can claim support from their children for living expenses under certain conditions.

A will can, therefore, dispose only of the free portion of the estate, but the rules of forced heirship will first apply.

As of 1 September 2018, the free portion of the estate has been increased to half of the estate, regardless of the number of children.

Also as of 1 September 2018, family members will have the right to make agreements regarding (their share of) the estate.

These agreements regarding the estate have to be executed before a notary republic.

Family law and defined inheritance rules

Under Belgian civil law, spouses are entitled to make a prenuptial agreement or marital contract at their discretion. In the absence of a prenuptial agreement or marital contract, a default community of property regime applies.

In the case of the death of a spouse, the community property is dissolved and divided between the surviving spouse and the estate of the deceased spouse.

Gifts made between spouses during their marriage, other than by marital contract, are always revocable by the donor.

Probate process

Any heir has the option to accept (with or without the benefit of inventory) or to reject the inheritance. The acceptance of an estate with inventory or the rejecting thereof is to be done by declaration before a notary public. In the case that minor heirs are involved, prior approval of the court is required. No other special formalities are provided for with regard to the transmission or administration of a deceased’s estate. The testator may appoint estate executors in his will.

As soon as the heirs have expressed their will to inherit or to reject the inheritance, the estate is distributed to the heirs by virtue of law, which is subsequently certified by a notary, issuing an inheritance certificate.

Mental capacity

In order to dispose of their assets via a will, testators must be of sound mind and body. A minor under 16 years of age may not make a will. Until the age of 18, minors can only dispose of a restricted share of their (future) estate.

A person who loses capacity may be placed under a special protection regime by a competent judge. Consequently, the judge shall appoint an administrator to administer the assets of that person.

Recently, Belgian law has introduced the possibility for a person (before losing capacity) to grant a notarial power of attorney to someone to administer his assets in case of incapacity, in order to avoid such civil proceedings.

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Estate planning

Use of trusts in estate planning

Belgium does not have the concept of a trust, but a foreign trust can be recognised under Belgian international private law. A trust settlement is, however, valid only insofar as it does not violate forced heirs’ rights. Protected heirs can indeed invoke the forced heirship rules.

Use of foundations in estate planning

The Belgian private foundation is a separate non-commercial purpose-linked estate that is managed by at least three directors to the benefit of certain beneficiaries (listed in the articles of incorporation). Certain individuals may opt to make a gift to the private foundation (tax free or at a flat gift tax rate) or name the private foundation as legatee in their will, so-called 'dual legacy' (flat inheritance tax rate). This estate-planning technique may, for example, be used for individuals having no children and who want to make sure that their estate will be used for certain philanthropic purposes. With regard to the Flemish region, the future of the tax friendly regime (dual legacy) is uncertain.

The Belgian private foundation may also be used for the purpose of certification of shares (a Dutch foundation or Stichting Administratiekantoor is also often used for this purpose). The result of the certification of shares will be a split between the economic ownership and the legal property of the shares. For certain individuals it is important to make this split so that they can indicate who will or should be in control of the shares (legal property) after their death, whereas the economic ownership can be transferred (by gift or bequest) to all the legal heirs. If the foundation meets certain requirements (obligation to redistribute the proceeds on the shares), it will be considered as a tax-transparent entity for Belgian income tax purposes.

Types of entities

Under the new companies and associations code, a Belgian civil company (maatschap/société de droit commun) has become a general partnership. It remains, in principle, a see-through entity for Belgian tax purposes. It is regularly used to transfer portfolio investments, as the use of the general partnership allows the donor to keep control over the transferred assets when they decide to donate the shares in the general partnership to their children.

Belgium has several legal entities with legal personality through which (foreign) investors can invest in Belgium. The corporations or entities most often used in practice are public or private limited liability companies. No restrictions apply to nationality or residence of the directors, though in order to comply with so-called substance requirements (an increasingly important consideration in international tax practice), it is recommended to have at least one local director.

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Taxation

Income tax system

Belgian residents pay income taxes on their total income. Belgium has, however, a wide treaty network. Belgium’s income tax treaties generally provide for (certain) exemption with progression for foreign income from immovable property, a business or a profession. Under circumstances, a (partial) exemption or credit can be obtained for income derived from other states.

Personal income tax rates

For tax year 2020, the general income tax rates (applicable to taxable income from labour and real estate, after personal deductions) are as follows:

Taxable income EUR	Tax rate
Up to EUR13,250	25%
EUR13,250 – EUR23,390	40%
EUR23,390 – EUR40,480	45%
Over EUR40,480	50%

Dividend income interest income and royalties are in principle subject to a withholding tax of 30 per cent. Several exceptions may, however, apply.

Upon liquidation of a Belgian or foreign company, the Belgian resident shareholder is taxed on the liquidation gains at a rate of 30 per cent. Before 1 October 2014, a tax rate of 10 per cent applied. However, some transitional measures have been taken. Please also note that as of tax year 2015, small and medium-sized companies (SMEs) have the option to establish a liquidation reserve. At the moment of the formation of the liquidation reserve the SME needs to pay 10 per cent corporate income tax. Afterwards, those reserves can be distributed without any additional tax cost at the moment of liquidation of the company. The 10 per cent tax paid on the liquidation reserve will be deemed to be the final tax. Consequently, individuals are not obliged to report the liquidation revenue in their annual tax return.

Corporate income tax rates

Belgian resident companies or Belgian branches of foreign companies are currently taxable at the ordinary rate of 29.58 per cent (this rate includes a 2 per cent crisis contribution). A reduced rate of 20.4 per cent applies for SMEs on the first bracket of EUR100,000 of taxable profits. The amount of taxable profits exceeding EUR100,000 will be subject to the standard corporate tax rate.

The standard rate will further decrease to 25 per cent (without any crisis contribution) in 2020 (20 per cent for SMEs).

Further, multiple tax incentives exist, which in practice means that the effective tax burden can be much lower. The notional interest deduction entitles Belgian companies and Belgian branches of foreign companies to deduct from their taxable base a fictional interest based on the qualifying equity amount. For tax year 2020, the applicable rate of the notional interest deduction has been decreased from 0.746 per cent for large companies and 1.246 per cent for SMEs to 0.726 per cent and 1.226 per cent respectively. The notional interest deduction is calculated on the average incremental net equity over the last five years. The innovation deduction allows an 85 per cent corporate income tax deduction of the net income resulting from innovation investments.

Carry-forward of losses is unlimited in time. However, in the case of a change of control, the tax loss carry forwards, as well as other tax attributes, may be lost, unless the change of control is supported by justifiable financial and economic needs. The recently introduced tax measures also include a rule whereby a limitation to use certain tax deductions (tax losses carried forward, dividend received deduction carried forward, innovation deduction carried forward, (old) notional interest deduction carried forward, and the new incremental notional interest deduction) applies: as a general rule, these tax deductions can be fiscally deducted from the taxable profits that do not exceed EUR1 million. Profits in excess of EUR1million can be fiscally compensated only for a maximum of 70 per cent by these tax deductions.  The amount of deductions that cannot be used as a result of the limitation can be carried forward to subsequent tax years. As a result of the new rule, 30 per cent of the taxable profits in excess of EUR1 million will constitute a minimum taxable base subject to corporate tax.

The 5:1 thin cap rule remains applicable to at arm's length interest payments for interest paid to beneficial owners located in tax havens (regardless of the date) and intra-group interest paid pursuant to a loan agreement concluded prior to 17 June 2016. ATAD provided for a new interest limitation rule as of tax year 2020. Pursuant to this interest limitation rule, the tax-deductibility of ‘exceeding borrowing costs’ is limited to the higher of EUR3 million or 30 per cent of the tax-adjusted EBITDA.

Tax consolidation enables the transfer of (a part of the) taxable profits between associated companies and branches with the aim to offset the profits of a group company against tax losses of another group company. The profitable company transferring (part of) its profits will be entitled to claim a tax deduction due to the group contribution. The main requirement is a direct holding relationship (90 per cent) for at least five consecutive years. To benefit from the group contribution system, a group agreement concluded between the associated companies is required on an annual basis.

A 'hybrid mismatch' is an arrangement between associated companies resulting in either a double deduction of expenses for both a Belgian company and a foreign company, or a deduction for one of these taxpayers and a non-inclusion in taxable income for the beneficiary.

In the context of the mandatory implementation of ATAD, a CFC rule has been introduced as of tax year 2020. The aim of the new CFC legislation is to attribute and to tax the undistributed profits (arising from artificial constructions set up with the sole aim of obtaining a tax advantage) of a foreign low taxed CFC, at the level of the controlling company in Belgium.  

Tax measures due to COVID-19

To mitigate the consequences of the Covid-19 outbreak, several supportive tax measures have been introduced to avoid a series of bankruptcies and to help companies to rebuild their liquidity and solvency.

Companies and self-employed individuals will be entitled to offset the estimated loss of income year 2020 due to the COVID-19 outbreak from the taxable revenue for income year 2019. The carry back is limited to the losses for income year 2020, a maximum amount of EUR20 million and the taxable profit of 2019. Also, whoever overestimates their 'COVID losses' by more than 10 per cent will be penalised through a special additional tax.

The second tax measure is still in an early stage of the legislative process, the so-called 'reconstruction reserve'. Companies would have the possibility for income year 2021, 2022 and 2023 to allocate part of their profit to an exempt 'reserve fund for equity reconstruction'. This exemption would be granted up to a maximum amount equal to the Belgian accounting loss of 2020, capped at EUR20 million. The reconstruction reserve would become partially or fully taxable when the company would distribute dividends, make capital reductions, execute share buy backs or significantly reduce their personnel cost.

In addition, filing deadlines are postponed, tax payments are deferred, temporary reductions of value-added tax rates in horeca and catering sector, additional allowances due to temporary unemployment are granted and many other supportive measures.

Capital gains tax

i) Personal income tax

ii) Corporate income tax

Capital gains on shares are fully exempt from corporate income tax if the following conditions are jointly met:

• The participation successfully passes the subject-to-tax condition;
• The parent company has a minimum participation of at least 10 per cent in the share capital of the subsidiary or the shares have an acquisition value of at least EUR2.5 million.
• A minimum holding period of one year is respected.

Currently three different tax regimes apply on capital gains on shares:

• Full exemption if the subject-to-tax condition, the minimum participation condition and the one-year holding condition are jointly fulfilled;
• Taxation at 25.5 per cent if only the subject-to-tax condition and the minimum participation condition are fulfilled, but not the one-year holding condition; the rate of 25.5 per cent does not apply if and to the extent that the capital gains are eligible for taxation at the reduced rate of 20.4 per cent for SMEs;
• Taxation at 29.58 per cent if the subject-to-tax and/or the minimum participation condition are not fulfilled; 20.4 per cent rate may apply as well.

Please note that capital gains that are taxable may benefit from spread taxation if certain conditions are met.

Non-residents taxable on

Income from a Belgian source going to people who have neither settled in Belgium nor made it their centre of financial interest is subject to non-residents’ tax.

Non-resident individuals can be subject to Belgian personal income tax in respect of, for example, the following types of income: Belgian real estate and business income.

Non-resident corporate entities are subject to Belgian corporate income tax with respect to Belgian real estate income and income derived from a Belgian permanent establishment.

Withholding tax rate (non-treaty)

Dividend, interest and royalty withholding tax generally amounts to 30 per cent. Several exceptions, however, may apply.

Withholding tax rate (treaty)

Reduced withholding tax rates on dividends, interest and royalties apply under the relevant treaties.

Inheritance tax

The taxable event is the death of a Belgian resident, not the Belgian residence of the heirs or legatees. The tax residence of the deceased determines the applicable legislation (Flemish, Brussels or Walloon region).

The tax rate is determined per heir or legatee, taking into account the portion of the estate each of them receives and their degree of kinship with the deceased. Rates vary according to the region and the degree of kinship, and are progressive. In Flanders, the maximum rate is 27 per cent in direct line and between spouses and cohabitants and a maximum of 55 per cent between other persons. In Brussels and Wallonia, the maximum rate in direct line is 30 per cent and 80 per cent between non-related persons.

In principle, all debts are deductible, as well as the costs of the funeral, if the deceased was a Belgian resident. For non-residents, where only real estate located in Belgium is taxable, deduction of real estate debts is possible to some extent. There is a full exemption for family-owned operational businesses in Wallonia and a reduced rate of 3 per cent (or 7 per cent) in Brussels and Flanders when certain conditions are met.

Other taxes

i) Gift tax

Gifts are taxable only if the donor is a Belgian resident. Moreover, Belgian gift tax has a rule that payment of the tax on movable goods depends upon the decision of the donor. If the donor makes a gift of movable assets (cash, portfolio, shares) before a Belgian notary, gift tax will be due according to the applicable regional legislation (mostly at 3 per cent or 7 per cent – though 3.3 per cent or 5.5 per cent in Wallonia). The gifts of shares or assets of (qualified) Belgian family-owned operational businesses are exempt from gift tax, provided they meet the legal criteria, both before and after the gift. In order to benefit from this tax exemption, these gifts have to be executed before a notary public.

If a deed is made before a foreign notary or when no notary deed is drawn up (this is not always legally possible), then no Belgian gift tax is due. However, a draft Bill of 17 June 2020 intends to obligate the registration of gifts of movable assets before a foreign notary as of December 2020.

There is a clear interaction between inheritance taxes and gift taxes. If the donor dies in the three (in the Flemish region soon four) years following the gift, inheritance taxes will be due unless Belgian gift taxes have been paid.

Gifts of Belgian real estate have to be registered (before a Belgian notary) and are subject to higher gift taxes. Gifts of foreign real estate are free of Belgian gift tax.

ii) Wealth tax

There is no wealth tax in Belgium.

Tax treaties

Belgium has an extensive treaty network. These tax treaties can be found on the website www.fisconetplus.be (in Dutch and French, with some English available).

Tax information exchange agreements

Most tax treaties provide for an exchange of information clause. Besides the tax treaties, Belgium has also concluded tax information exchange agreements with countries including Andorra, the Bahamas, Gibraltar and Liechtenstein.

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Residence and domicile

Special rules on becoming resident

Belgian tax residents are those persons who have established their residence (permanent home where individuals actually live with their family members) or the seat of their wealth (place where individuals manage their economic affairs) in Belgium. According to an irrefutable presumption, the tax residence of married persons is located at the place where the spouse and children reside.

A legal entity is a Belgian tax resident if it has its legal seat, main establishment or effective management in Belgium. For corporate law purposes, Belgium applies the statutory seat theory from 1 May 2019 onwards. The changeover from the real seat theory to the statutory seat theory is a result of the reform of the Belgian company and association law.

Tie-breaker rules of relevant tax treaties have priority over Belgian law provisions.

Special rules on ceasing residence

Individuals and legal entities are no longer Belgian residents if they do not fulfil the conditions mentioned above. No exit tax applies with respect to individuals.

Taxation of holdings by non-residents on death and of gifts

• Gifts: gifts are only taxable if the donor is a Belgian resident.
• Death: if the deceased is non-resident then only real estate located in Belgium is subject to inheritance taxes.

Reporting/auditing requirements

Belgian taxpayers are requested to report in their annual tax return the existence of foreign bank accounts, foreign insurance contracts and certain legal constructions set up by private persons (trusts and tax-exempt foreign companies).

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Other relevant information

Asset protection laws

No. The owner of an asset has the exclusive right to freely dispose of that asset. Expropriation may only take place in the public interest and on prior assurance of full compensation.

Foreign currency restrictions

No.

Foreign ownership restrictions

No.

AML/due diligence and other requirements and regulatory procedures for advisors

The preventive system obliges certain institutions and persons (e.g. banks, notaries, lawyers) to inform an independent administrative authority of any presumption or fact providing indications of money laundering of which they may become aware in the execution of their professional activities. Money is considered having an illicit origin when it is derived from serious tax fraud, whether or not it is organised.

Key resources for further information

WEBSITES

• Department of Justice, Belgian Official Gazette: www.staatsblad.be
• Tax access portal to Belgian law online (the Belgian Official Journal): www.staatsblad.be
• Access portal to tax legislation, tax treaties, jurisprudence, parliamentary questions and advance rulings: www.fisconetplus.be

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STEP branches in Belgium

The STEP branch serving members in Belgium is STEP Benelux.

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