The new tax treaty between Belgium and the US was signed on 27 November 2006 and came into force in 2008. This treaty appears to be quite complicated and deviates from the standard OECD treaty model in many ways. Due to the complexity of the treaty, the Belgian tax authorities have issued a circular (draft version of 23 March 2012) in order to clarify the many specific elements of the treaty.

One of the interesting and innovative clauses in the treaty relates to income, derived from properties (land and houses), which are located in Belgium and which are owned by US residents. The treaty follows the OECD basic principle, which states that income from land and houses is taxable in the country where the property is located.

This means that US residents, who own real estate in Belgium, are subject to Belgian taxes on such properties. The Belgian tax is levied in two parts. During the year a withholding tax is to be paid and after the end of the year, certain income must be included in the individual tax return, which then could give rise to an additional levy of tax. The treaty, however, has a special clause (section 5 of article 6), which allows the tax payer to opt for a deduction of expenses, related to the property, in order to determine the net income, which is then taxable in Belgium.

Such clause is very unusual in tax treaties and even in Belgian internal tax legislation, there is no such deduction from taxable real estate income for Belgian residents. In order to apply the deduction, the tax payer will have to add a (custom made) document to his tax return in which the deductible expenses are calculated and the net amount of taxable income is determined. In this document, the request is also to be made for the application of the treaty deduction.

In the treaty it is further specified that a request for deduction of expenses is binding for the tax payer for the year for which the tax return is filed, but in addition that this approach is also to be followed in subsequent years. If a tax payer wants to discontinue the deduction, the approval by the Belgian tax authorities is required. How such approval would actually be granted (which is unique to the Belgium-US treaty) is not specified further.

Another complication results from the fact that non resident tax payers are not always required to file a Belgian tax return. There is no tax filing obligation in case a property is not rented out or if it is rented out and the taxable income (after deductions) does not exceed 2.500 Eur per year. In case there is no filing obligation, it would in principle not be possible to claim any deductions (in the tax return) and the amount of withholding taxes, which has been levied on the property, would remain due under the normal rules.

In their tax circular, the tax authorities further limit the deduction of expenses to those cases where a tax payer not  only has real estate in Belgium, but also has other Belgian taxable revenue (for example remuneration). In such case, the real estate income is to be added in the tax return and the deductions can be claimed. As the tax circular has no legally binding value, certain situations may be unclear and open for discussion with the authorities.