It is no secret that the Belgian taxes on income, derived from professional activities, are amongst the highest to be found anywhere in the world.
As these high taxes are considered to be ‘unjust’, the Belgian government has during past years been taken various measures, to somewhat decrease the taxes on income from professional activities (though not for all tax payers, but only for selected target groups), but more importantly to substantially increase the taxes on so-called ‘passive income’ (income, derived from investments, such as interest, dividends and capital gains).
Contrary to some other countries, Belgium continues to select a path of high taxation, combined with high complexity.
Recently, even more similar tax increases were announced. Tax payers in addition need to be aware of important new administrative obligations, which will have to be met. In a desperate search for fiscal justice, the road of fiscal complexity has swiftly been entered once more by the Belgian government.
In this article, we will discuss a number of new or increased taxes and the related formalities.
Much discussion has in past years been going on around the introduction of capital gains taxes or wealth taxes. As both types of taxes also have important drawbacks, the government has decided not to introduce these taxes, but instead to start imposing taxes on the investment vehicles or accounts, held by tax payers to invest in bonds, shares or similar assets.
From 2018 onwards, a totally new tax will be imposed on the total value of the assets, kept on securities accounts. The tax will be applicable to individuals, who hold such investments for a total value exceeding EUR 500,000.00. The new tax will apply to securities accounts, used to invest in shares, bonds and mutual funds.
The amount of EUR 500.000 is defined per individual tax payer. For married persons or legal cohabitants, one has to look at the specific investments, held per partner.
A tax rate of 0,15% will be applied on the total value of the securities portfolio. Example: a tax of 0,15% on an invested amount of 500.000,00 EUR equals 750,00 EUR.
The tax is applied on the aggregate value of all security accounts. If accounts are kept with several financial institutions, the total value of all investments is subject to tax. In addition, the tax is not only due on investments, kept in Belgium, but also on foreign investments. For the tax, unlisted securities would not be taken into account due to the difficulties, arising with the valuation of such assets.
In the first instance, the tax will have to be calculated and withheld by the financial institution and is applied on the average invested amount, calculated per calendar year. It remains unclear how this will work when accounts are kept with different financial institutions and also how one will deal with securities accounts kept outside Belgium.
The new tax is therefore likely to result in an annual income tax return of unprecedented complexity for the tax payers, especially in case multiple securities accounts are kept and/or when investments are held abroad. We can expect substantial difficulties of interpretation of investment portfolio documents, issued by foreign financial institutions in view of the calculation of the correct taxable basis.
Although the initial tax rate of 0,15% may not yet seem excessive, tax professionals already start to warn for swift tax increases in the future, once the system is up and running. Considering the vast other tax increases on passive income, which we have seen during recent years, it is not difficult to forecast the path, which the Belgian government is likely to follow in upcoming years.
For many years, a tax exists on stock market transactions (both on purchases and on sales). In the past, the tax only applied to transactions in Belgium or through intermediaries, located in Belgium.
From 2017 onwards, the tax was already extended to also cover transactions outside Belgium or with foreign intermediaries. For tax payers, who regularly carry out such transactions, the administrative burden is significant, as transactions are considered on a monthly basis. This may result in the obligation to file multiple special tax returns per calendar year. In addition, married tax payers, who keep joint assets, have to file the tax returns per partner.
During 2017 we could already observe that the compliance cost (for example to use an accountant or tax specialist to prepare and file the documents) most often by far exceeds the amount of tax at stake. The tax payer therefore incurs substantial compliance expenses, while the government only harvests limited additional revenues.
We observe that from 2018 onwards, the tax on stock market transactions will sharply further increase:
Notwithstanding all these new taxes and tax increases, the government still claims that investing in shares will be ‘encouraged’. To this purpose, for a first dividend amount of EUR 627, there will be an exemption from dividend withholding taxes. At the current withholding tax rate of 30%, this results in a meagre tax benefit of EUR 188.10.
Only so-called small investors will therefore actually feel any benefit, while for more wealthy tax payers, this tax benefit is truly insignificant.
To make things worse, the dividend exemption can only be collected through the annual income tax return of the tax payer. At source, the full 30% withholding tax remains in place and only after the filing of the tax return, the exempt amount can be recovered (in general after 12 up to 20 months after the end of each income year).
Again tax payers are faced with new compliance obligations and complexities when filing their annual income tax return (and new codes will appear in the Belgian annual tax form).
Certain investment vehicles were in the past fully exempt from withholding taxes. In this way certain income, derived from bonds or debt investments remained untaxed. This has been the case for income from collective investment funds, investing less than 25% (in the past this was 40%) in bonds or debt claims. When the investment threshold is exceeded, certain revenues from such funds are also subject to the 30% withholding tax.
The 25% threshold will be abolished and all capitalization funds will now become subject to the withholding taxes, though the taxable basis remains limited to portion of income directly or indirectly arising from bonds or debt claims.
Unfortunately also funds, which are only investing in shares are not simply exempt under the new rules. The fund manager will have to calculate a “Taxable Income per Share” (TIS) to be able to prove that the taxable base of the fund is zero. In this case, fund managers are hit by the related additional administrative burden.
Note on temporary or long time employment in Belgium
Dealing with typical expatriate clients, we have also considered the impact the impact of the new taxes and formalities on them.
More than ever before, the fiscal residency position of a tax payer and of his close family members becomes paramount as the above mentioned taxes only apply to Belgian resident tax payers, while non-resident tax payers remain exempt.
Determining Belgian tax residency, especially for individuals, who come to work in Belgium for a limited period of time, is not always an easy matter and depends from multiple facts and circumstances. Further, a residency change (for example from a non-resident tax status to a Belgian resident tax status) may result in significant issues, especially for expatriates with a significant private net wealth status.
While some countries (for example Portugal) introduced measures to attract new wealthy citizens, we seem to be doing the opposite.
Individuals, who are working and staying in Belgium for an extended period of time (usually more than 24 months), are likely to be treated as Belgian resident tax payers and they will suffer the new taxes and the related compliance burden.
Short term assignees (for example only working in Belgium during a limited period of time) or tax payers (married or legally co-habitant), who clearly keep their family home outside Belgium, will on the contrary remain exempt.
We can easily see new tax disputes to arise, this time related to the duration of a work period in Belgium or again to the marital status of an individual. Discrimination may again arise, as is shown by this simple example:
It will be interesting to see how this matter is going to evolve in the future.