Belgium as tax residence
Given its excellent location and its favorable tax system, high net worth individuals find Belgium to be the perfect operating base. High net worth individuals will find Belgium so attractive, because of the absence of net wealth tax and capital gains tax, as well as the low flat rates on personal investment income. Furthermore, the low gift tax on movable assets offers great opportunities for estate planning.
Why is the Belgian tax system so attractive?
The Belgian tax system is highly attractive for high net worth individuals:
- Income tax liability is linked to residency;
- Personal investment income is taxed at low flat rates;
- Conditionally, there is no tax on capital gains; and
- Belgium does not levy a net wealth tax!
The flexible gift tax system for movable assets provides for excellent estate planning opportunities, in combination with foundations or trusts.
General introduction to Belgium
Belgium is strategically located at the heart of Europe, between The Netherlands, Germany, France and The United Kingdom. Its High Speed Rail network links Brussels to Amsterdam, Frankfurt, Paris and London (Brussels-Paris in 1h25; Brussels–London in 2h).
Belgium is multi-lingual in every sector, and has a rich culture and excellent cuisine. It may be a small country, but it has a rich variety in its communities, an excellent, high quality housing stock and a secure and agreeable life-style.
Belgium also has a highly attractive tax regime for wealthy individuals. Belgium is one of the few remaining European countries that does not levy a net wealth tax:
- Capital gains on shares (also applicable to a controlled company 1) can be free of tax;
- Capital gains on real estate are generally not taxable, nor is rental revenue from private real estate;
- Dividend and interest income is generally taxed at a flat rate of 25%.
The Belgian tax system provides excellent estate-planning opportunities. Gift tax rates for donations of movable assets are extremely low (basically 3% or 3,3%). Donations of movable assets can even be made without paying any gift tax at all!
Three Belgian regions
Belgium is divided into three regions. The region of Flanders in the North has Dutch as its official language. In the region of Wallonia, in the Southern part of the country, the official language is French. The third region, in the center, is the region of the Capital, Brussels, officially bi-lingual (Dutch-French), in fact multi-lingual by virtue of its strategic location.
The regions were granted autonomous power to introduce their own tax rates as far as gift taxes and inheritance taxes are concerned.
How to become a Belgian tax resident?
In the Belgian tax system, Belgian residents are subject to tax on their worldwide income. An individual is considered a resident of Belgium if his/her principle residence or his/her centre of personal and economic interests is in Belgium. An individual is presumed to be a resident of Belgium when he/ she is registered in the civil register.
The assumption of residence based on the registration is, however a rebuttable assumption. Married persons are deemed to be residents of Belgium if their household is located in Belgium. The assumption of residence based on establishment of household is an irrefutable assumption.
How is personal investment income taxed in Belgium?
- Interest and dividend income is generally taxed at a flat rate of 25%.
- Interest and dividend revenue received on a foreign bank account, must be declared in a Belgian resident’s annual income tax return.
No Belgian wealth tax
One of the main reasons why the Belgian tax system is so appealing to high worth individuals, is that personal wealth is not taxed. There is no obligation to declare one’s wealth. In the annual income tax return, only taxable income needs to be declared.
However, tax payers need to report whether (or not) accounts are held in their names at banks outside Belgium. The names of the countries in which the foreign banks are located must also be reported in the annual tax return.
Additionally, tax payers must report whether (or not) insurance contracts have been subscribed with insurance companies outside Belgium. The names of the countries in which the insurance companies are located need to be reported.
Finally, tax payers are obliged to report the existence of any trust of which they, their spouses, or underage children, are either settlors or (to their knowledge) beneficiaries, regardless of the manner or time at which the advantage is conferred. The reporting obligation also extends to potential beneficiaries.
No Belgian capital gain tax
Capital gains on shares sold by Belgian individual residents, as part of the normal management of their private assets, remain free from personal income tax in Belgium, e.g. capital gains from the sale of shares (including substantial shareholdings in controlled companies) to a third party.
Belgian inheritance tax
Belgian inheritance tax is levied on the worldwide net property of a deceased Belgian resident. The latter’s nationality is of no relevance. The fiscal residency and the nationality of the heirs have no bearing either. It is the place of residence of the deceased which triggers liability to inheritance tax.
- If a Belgian resident inherits from a non-Belgian resident, no inheritance tax is due in Belgium.
- Foreign inheritance taxes paid on real estate located abroad owned by a deceased Belgian resident can be deducted from Belgian tax payable if certain formalities are met.
- Heirs and legatees, resident or non-resident, are taxable persons for the purpose of inheritance tax.
The taxable estate includes all gifts made within a period of 3 years prior to death and on which no Belgian gift tax has been paid. The risk of having to pay inheritance tax on a gift for which no gift tax has been paid can be covered by subscribing an insurance policy.
The amount payable depends on the inheritor’s relationship to the deceased, the deceased’s region of fiscal residence (Flanders, Wallonia or Brussels) and the market value of the part of the estate inherited.
In Wallonia and Brussels the applicable rates vary from 3% up to 30% (above 500,000 EURO) for parents and (grand)children. In Flanders the maximum rate is 27% (above 250,000 EURO) for parents and (grand)children. The rates for spouses and partners are identical.
No/low Belgian inheritance tax for shares in E.U.-companies
The three regions have adopted specific regimes under which shares in companies, whose registered offices are in an E.U.-member state, can be inherited at an extremely low flat rate of 3% (Flanders, Brussels) or even at 0% (Wallonia), if certain conditions are met.
Low Belgian gift tax
In the Belgian tax system, gift tax is triggered by the registration of a written document (such as a notary public’s deed) giving effect to a gift made by a Belgian resident.
Real estate located in Belgium cannot be donated without payment of Belgian gift tax. For the transfer of property to be valid vis-à-vis third parties, the deed of transfer needs to be recorded with the Land Registry (i.e. the official and public list of owners of real estate). At the Land Registry, only registered deeds, certified by a Belgian notary public, are accepted for notification.
A Belgian notary public is legally obliged to register all his deeds at the relevant tax office. The registration of the deed triggers the levy of gift tax, which is one of the taxes in the Belgian code of registration taxes.The amount of the gift tax payable on donation of real estate depends on the relationship of the beneficiary to the donor, on the donor’s region of fiscal residence (Flanders, Wallonia or Brussels) and on the market value of the gifted property.
In all three regions (Flanders, Wallonia and Brussels) the applicable rates on the donation of real estate vary from 3% up to 30% (above 500,000 EURO) for parents and (grand)children. The rates for spouses and partners are identical.
- Movable assets can be formally donated without payment of Belgian gift tax by a deed of transfer before a foreign notary public. There is no legal obligation to register the foreign deed in Belgium. Voluntary gift taxes are only due if the foreign deed is registered in Belgium.
- Certain movable assets can be informally donated, “from hand to hand”, without payment of Belgian gift tax . Substantiating documents can be drawn up, but gift taxes would only be voluntarily due if those documents were to be registered in Belgium.
- Gift taxes are due when movable assets are donated in a formal way before a Belgian notary public
Each region has adopted flat rates for gifts of movable assets, regardless of the value of the object of the gift.
Flanders and Brussels have established a flat rate of 3% for gifts between parents and (grand)children. In Wallonia, a flat rate of 3,3% is applicable for gifts between parents and (grand)children. In all three regions, the rates for gifts between spouses and partners are identical.
Residents opt for gifts of their movable assets with payment of the 3% (Flanders and Brussels) or the 3,3% (Wallonia) gift tax in order to avoid the risk of payment of Belgian inheritance tax. For inheritance purposes the taxable estate includes all gifts made by a Belgian resident within a period of 3 years prior to death without the payment of Belgian gift tax.
The fact that movable assets can be donated without payment of gift tax or with payment of the 3% (Flanders and Brussels) or the 3,3% (Wallonia) gift tax provides for excellent estate planning opportunities. Often donations are combined with the setting up of a foundation or trust.
No/low gift tax in Belgium for shares in E.U.-companies
The three regions have adopted specific regimes under which shares in companies, which have their registered offices in an E.U.-member state, can be donated at an extremely low flat rate of 3% (Brussels) or even 0% (Flanders, Wallonia), if certain conditions are met.
No Belgian exit tax
No special taxes are levied upon the emigration of a resident. Once an individual is no longer a Belgian resident, he/she is no longer liable to tax in Belgium. There is no tax liability based on deemed residency.
- Belgian tax law does not currently include CFC (controlled foreign company) rules[↩]