Obligations of Belgian tax residents to report foreign income and assets and the consequences of non compliance.
Already since tax year 1997, Belgian tax resident individuals have to declare the existence of bank accounts they hold with banks abroad. This declaration is to be made in the annual income tax declaration. This means that taxpayers have to “tick the box” to confirm that they hold a bank account abroad and that they have to mention the country where the bank account is held. The tax administration can (subsequently) ask the taxpayer to provide her with all tax relevant information in relation to the declared bank account(s), allowing her to determine the amount of taxable income received on that bank account.
Declaration of foreign assets and income in Belgium
In practice, this legal obligation is not always known to Belgian resident individuals. Moreover, individuals who (recently) immigrated to Belgium in the past years are hardly ever aware of the compliance measure, while in particular these persons often hold bank accounts in different countries following the international nature of their business and the location of their family and possible holiday houses. Nonetheless, these “international” individuals too have to comply with the Belgian reporting duties as soon as they settle as a Belgian tax resident.
The reporting duty applies regardless of the amounts held on the bank account and regardless of the fact whether the account generates income. Thus, also a small account (for instance an account held for the maintenance of the Chalet in Verbier) has to be reported. Self-evidently, the income received on the foreign bank account (i.e. usually dividend and interest income) also has to be declared in the income tax declaration.
Recently, the Belgian legislator moreover created two new legal obligations. Since tax year 2013, the taxpayer has to declare the existence of foreign life-insurance contracts abroad and starting from tax year 2014, the taxpayer will have to declare the existence of so called “private wealth structures” (trusts, foundations, off-shore companies,…) of which he is the founder or beneficiary.
Often the question arises, which legal consequences the taxpayer faces when he does not comply with his reporting duty (duties) and how non-reporting of foreign bank accounts can be remedied as soon as the taxpayer becomes aware of the necessity thereof.
In general, non-complying with the reporting duty itself can only lead to an administrative fine of at most EUR 1.250,00. The tax administration may however perceive the non-declaration as a sign of tax evasion. In case foreign movable income has not been declared, the tax administration could claim tax increases up to 200%. When the tax administration retains tax evasion on behalf of the tax payer, the statute of limitations is moreover extended to 7 years. This means that non-declared income received in 2007 can still be taxed by the tax administration in 2014.
When the tax administration considers there is tax evasion on behalf of the taxpayer, she can also transfer the case to the public prosecutor. He could claim a criminal sanction following a violation of the income tax code with fraudulent intent. Moreover, he could claim a money-laundering offence on behalf of the taxpayer. Recent case law of the Belgian Constitutional Court (judgment April 3, 2014) however prohibits the culmination of administrative fines and criminal sanctions in tax cases. Nonetheless, it remains to be seen how the tax administration and the public prosecutor will apply this case law in practice.
Off-course, each individual should have the opportunity to remedy potential tax violations or mistakes for the past. In Belgium, this remedy existed under the form of a separate voluntary disclosure procedure which entered into force with a law of December, 27, 2005 and existed until the end of 2013. A voluntary disclosure demand had to be filed with a separate Voluntary Disclosure Unit. In this procedure, non-declared income was finally subjected to the normal tax rate (as it should have applied when the income was immediately declared in the annual tax declaration), in some cases increased with an additional tax-fine varying between 5% and 20%, depending on the nature of the income that was declared. Upon payment of the voluntary disclosure imposition, the taxpayer received an attestation granting him tax and criminal immunity.
Since by the end of 2013 the existing voluntary disclosure procedure has been abolished, no special procedure currently exists for the regularization of undeclared assets. This obviously does not mean that the taxpayer should continue non-declaring the existence of his bank account or (movable) income he receives on this account.
First of all, the taxpayer could simply start with declaring the existence of his foreign bank account(s) as from his next tax declaration over tax year 2014. As from declaration, it will no longer be possible to state that the taxpayer wants to hide or conceal these assets to the tax administration. Thus, at least for the future, the taxpayer can no longer be deemed to act in a tax fraudulent way. For the past, it remains to be seen whether the tax administration decides to further investigate the taxpayer. This can never be excluded, but practice shows that declaring the existence of a foreign bank account does not automatically lead to investigative measures.
Besides this approach, the taxpayer can opt to spontaneously contact his local tax administration in order to rectify tax breaches committed in the past. As opposed to the regime under the higher mentioned abolished voluntary disclosure regime, no clear legal basis exists for such approach. The tax administration did confirm this possibility in a tax circular of April, 1, 2010 and continues to allow it in practice. This approach nonetheless entails negotiations with the tax inspector regarding the number of tax years to be rectified, the applicable tax increase, interests for late payment,…and the result may vary depending on the location.
In any event, it is advised that taxpayers who hold undeclared assets on a foreign bank account, seek legal advice in this respect timely. International exchange of banking information is increasing rapidly and Belgium more and more approaches the prosecution of undeclared assets from a criminal point of view. Settling possible tax evasion committed in the past, is moreover necessary in case of further wealth planning of these assets and to preclude that heirs or beneficiaries are confronted with a tax or criminal investigation in the future.