Tax payers, who are living in Belgium and who are investing in other European countries, may be subject to withholding taxes in the foreign location. This is, for example the case for dividends, earned in France.
Many people believe that the foreign tax is the only income tax to be paid, but actually these tax payers also have to report the foreign source income (net amount, after deduction nof the foreign tax) in the Belgian income tax return. As a consequence, also Belgian taxes will be due at the rate of 25% (from 2013 onwards).
In the past, this situation was not so common as many tax payers for some reason were negligent when filing the Belgian income tax return. This situation has now clearly changed as the information exchange between countries is quickly increasing and penalties for improper tax filing are also rapidly growing. This induces tax payers to be more dilligent when taking care of their tax filing obligations.
Repeatedly tax payers have initiated court proceedings based on European law in order to avoid this situation of international double taxation to arise. Already 3 times court cases were started, but each time (last decision of 19 September 2012) the European Court decided against the tax payers.
These decisions are hard to understand as there clearly is a higher taxation on this income as compared to the situation where the individual invests in Belgian shares or in shares from countries, where no dividend withholding taxes are due. The only way to avoid this high tax burden seems to change the composition of the investment portfolio in such way that no assets are held, which are subject to taxes at source.
One can further note that following the recent sharp increases of the Belgian tax rate on dividends (first from 15% to 21% and since 2013 even up to 25%), foreign dividend income now ranks amongst the most higly taxed types of income. The dividend indeed has first been subject to corporate taxation (on the underlying profits), is a second time taxed at source and a third time becomes subject to Belgian taxation. The taxation climate indeed seems to be getting tougher every day.