Resident individuals are subject to Belgian personal income tax (PIT) on their worldwide income, while non-residents are generally only subject to (non-resident) PIT on their Belgian-sourced income. In both cases, Belgian taxation is subject to the provisions of the applicable double tax treaties.
Individuals are considered as Belgian residents for PIT purposes if their "domicile" or "seat of wealth" is established in Belgium.
"Domicile" refers to the place where one is mainly and permanently established. Factual circumstances will determine where individuals have the centre of their personal, economic and professional interests. No black and white test, such as day-counting, is available. Listing in the National Register of Individuals creates a (rebuttable) legal presumption regarding residency, and a married person is irrefutably presumed to reside with his or her family. "Seat of wealth" refers to the place from which individuals administer their wealth, regardless of its location.
An individual’s taxable income is determined by four categories, each of which has specific rules for the calculation of the net income:
The net amount of real estate and professional income is generally taxed at progressive rates ranging from 25% up to 50%. Tax-free thresholds apply, and several deductions and exemptions may also apply (eg, for the deemed rental income of the family home, child support payments and charitable gifts). The tax amount is increased with a municipal tax (ranging from 0% to 9%).
With regard to real estate income, it is important to note that the taxable base is generally much lower than the actual rental value, unless the property is rented out for professional use. Moreover, capital gains on Belgian immovable property are not taxable as real estate income but can, in some cases, be taxable as other income at flat rates.
Investment income (dividends including liquidation proceeds, interests and royalties) is generally subject to a flat tax rate of 30%, withheld at source by the Belgian paying agent, in which case the income must not be reported in the annual PIT return. If no withholding tax is levied (eg, foreign paying agent), the income must be declared in the annual PIT return, and a tax equal to the withholding tax will be levied.
Several exceptions to the 30% tax rate may apply.
Dividends from qualifying small or medium-sized companies can, for example, benefit under certain conditions from a reduced tax rate of 20% or even 15%. Upon payment of a 10% tax, small or medium-sized companies can also annually allocate their profits to a so-called "liquidation reserve". Provided certain conditions are met (such as a waiting period of five years), this liquidation reserve can be distributed tax-free upon liquidation or with an additional 5% tax as a dividend.
For certain investment insurance products, a tax-exempt yield can be realised in both type 21 (capital and yield guaranteed) and type 23 products (no guarantee as to capital or yield). Individual life insurance contracts taken out with non-Belgian insurance companies must be notified in the PIT return. A premium tax of 2% is due.
Unless taxable as other income, capital gains realised on movable assets do not generally constitute taxable investment income. However, capital gains on shares or units of capitalising collective investment funds may be taxed as interest at 30% if more than 10% of the assets are invested in debt securities. The same regime applies to share redemptions or liquidations by such investment companies.
Other income is taxed separately at flat tax rates. The most important types of other income are:
In 2013, Belgium introduced reporting rules with respect to so-called "legal arrangements", including – but not limited to – trusts and private foundations.
In 2015, these reporting rules were complemented with specific tax rules aimed at taxing Belgian residents involved in such legal arrangements (as "founders" or as "third-party beneficiaries"), sometimes even on income they do not actually receive. This tax is commonly referred to as the Cayman tax.
Trusts and low-taxed foreign legal entities (including foundations and – according to the tax authorities – family-owned investment companies) are considered as legal arrangements. Often cited examples are the Luxembourg Société de Gestion de Patrimoine Familial (SPF) and the Liechtenstein Stiftung or Anstalt.
Under the Cayman tax, the income of legal arrangements is attributed to the Belgian resident who qualifies as their "founder" (the look-through approach). The founder concept is a broad concept defined by law. The qualification of founder can pass on to heirs.
Under the look-through approach, the income of legal arrangements is taxed in the hands of their founder as if they had directly received the income (unless this income was distributed to someone else before the end of the relevant year).
The look-through approach does not apply if the income is distributed by the legal arrangement to the founder in the year of receipt of the income. In that case the income will be taxed in the hands of the founder as a dividend. The nature of the underlying income is then converted into a dividend as a result of "passing through" the legal arrangement. Specific rules apply when the income is not distributed to the founder in the year of receipt, but in a later year, and when capital distributions are made.
Distributions to Belgian residents not qualifying as a founder will, in principle, be characterised as a taxable dividend (although certain exceptions may apply).
The Cayman tax rules are complex (eg, for multi-layer structures) and draconian. To complicate matters further, these rules are prone to constant changes, often with a retroactive effect. The scope of the Cayman tax was significantly broadened at the end of 2018, with a retroactive entry into force as from 1 January 2018.
As part of their pre-entry planning, foreign individuals considering migrating to Belgium should check thoroughly whether they could be struck by the Cayman tax.
General Anti-abuse Rule
A general anti-abuse rule (GAAR) aims to counter tax abuse by allowing the tax authorities to ignore a (series of) legal act(s) and levy taxes accordingly. Tax abuse requires that the purpose of a tax provision is frustrated, and that it was the taxpayer’s intent to do so only for tax reasons. If a presumption of tax abuse exists, the taxpayer can rebut this presumption by evidencing sufficient legitimate non-tax motives.
Inheritance tax is a regional tax, so the rules differ in the Flemish, Brussels and Walloon regions.
Upon the decease of a Belgian resident, inheritance tax is due by the heirs on the net value of his or her worldwide assets.
Whether a person is resident in Belgium for inheritance tax purposes is determined according to (factual) criteria similar to those applicable for Belgian income tax purposes; the nationality or citizenship of the deceased and the residence and nationality or citizenship of the heirs are irrelevant for inheritance tax purposes.
Whether the deceased is a Flemish, Brussels or Walloon resident for inheritance tax purposes will be determined by analysing in which region the deceased lived the longest in the five years prior to his or her death.
Subject to conditions and within certain limits, foreign inheritance tax on immovable property can be offset against Belgian inheritance tax. Belgium has only concluded bilateral inheritance tax agreements with Sweden and France. Since Sweden has abolished inheritance tax, only the agreement with France may have an impact on cross-border inheritance taxation issues between France and Belgium.
For non-residents, inheritance tax is only due on their Belgian real estate. For EEA residents, inheritance tax is due on the net value; for non-EEA residents, inheritance tax is due on the gross value of the Belgian real estate.
The heirs must file a tax return, generally within four months of the decease, and pay the tax bill, generally within two months after receipt.
As inheritance tax is regional, the tax rates, tax computation and exemptions vary for the three regions. Except when flat rates apply, rates are double progressive and depend upon the kinship between the deceased and the heir, and upon the value of the assets. Direct line heirs and spouses (and under certain conditions cohabitant partners) are taxed at rates of up to 27% (Flemish region) or 30% (Brussels capital region or Walloon region). The highest rates (for non-related beneficiaries) go up to 55% (Flemish region) or 80% (Brussels capital region or Walloon region).
Family homes (when bequeathed to the surviving spouse or cohabitant partner) and family businesses can benefit from favourable tax rates in all three regions, although the conditions differ from region to region.
Reduced flat tax rates apply to public bodies and charitable institutions (including private and public foundations), among others: 8.5% (Flemish region), 7% or 25% (Brussels capital region) and 7% (Walloon region).
Inheritance tax legislation provides for so-called "fictitious legacies" increasing the taxable base, as well as an anti-abuse provision to counter illegitimate tax avoidance.
Belgian gift tax is only due upon "registration" of a document or deed in Belgium. Such registration is compulsory for Belgian notarial deeds in general, and for transfers of Belgian real estate in particular.
Movable assets (cash, stock, bonds, classic cars, art, etc) can be gifted without intervention by a Belgian notary, and thus avoid registration. Under certain conditions, such gifts can also avoid the levying of gift tax, but will generally require that the donor survives the gift for at least three years in order to also avoid the levying of inheritance tax. The government of the Flanders region announced an increase of this three-year period to four years as from 1 January 2021.
Gift tax is a regional tax, so the rates are different in the Flanders, Walloon and Brussels regions. All regions have different rates for gifts of immovable property and of movable assets. The latter can generally benefit from low flat rates (ranging from 3% to 7%). Notwithstanding important regional reductions over the last couple of years, immovable gifts are still more expensive, as tax rates are progressive and can go up to 27% (Flanders region, Brussels region and Walloon region) for spouses and (grand)children, and up to 40% (Flanders region, Brussels regions and Walloon region) for non-related beneficiaries.
Family businesses can benefit from a gift tax exemption in all three regions. Flat rates and/or exemptions are also available for charitable gifts (eg, to private or public foundations).
There is no general wealth tax in Belgium.
The Belgian Tax on Securities Accounts (TSA), which entered into force as from 1 January 2018, was an annual tax on securities accounts at a rate of 0.15% on the total value of the in-scope securities held in a securities account (targeted securities included a.o. quoted and non-quoted shares, bonds and investment funds). The TSA applied if the average annual value of the in-scope securities per account exceeded EUR500,000 (per account holder, irrespective of the number of financial institutions involved).
For Belgian residents, TSA applied to securities accounts with Belgian or foreign financial institutions. For non-resident individuals, TSA only applied to securities accounts maintained with Belgian financial institutions. Anti-avoidance rules were put in place. However, on 17 October 2019 the Belgian Constitutional Court ruled that the TSA is unconstitutional. Consequently, the TSA was annulled with effect as of 1 October 2019. It should be stressed, however, that this ruling carries no retroactive effect and that the tax due for the past (ie, for the taxable periods ending on or before 30 September 2019) should therefore, in principle, still be reported and paid.
The scope of the Belgian stock exchange tax (known as TOB) was extended on 1 January 2017 and now also covers transactions executed by Belgian residents (individuals and entities) through non-Belgian financial intermediaries. The TOB currently amounts to 0.12% (on bonds, capped at EUR1,300 per transaction), 0.35% (on stocks, capped at EUR1,600 per transactions) and 1.32% (on redemptions of capitalisation shares of collective investments vehicles, capped at EUR4,000 per transaction).
Belgian real estate is subject to an annual tax, which is calculated on its deemed rental income ("cadastral income").
Non-profit associations (eg, private foundations) are subject to an annual tax of 0.17% on their gross assets
Changes regarding gift and inheritance tax mainly concern the Flemish region. This also relates to the fact that the Flemish tax administration frequently takes controversial positions that affect "classic" estate planning strategies and create uncertainty.
All regions already (partially) have aligned of still have to align their gift and inheritance tax legislation with the (federal) succession and matrimonial property law rules that have entered into force on 1 September 2018. Strangely enough, the Flemish region already neutralised the tax benefits of marital agreements with participation clauses, while this type of clause is promoted by the federal legislator in the new matrimonial property legislation.
In 2019, the government of the Flemish region announced its intention to adapt the Flemish Tax Code (i) by extending the period of three years a donor must survive to avoid inheritance taxes on a unregistered donation to up to four years as of 1 January 2021 and (ii) by abolishing a commonly used technique combining charity and inheritance tax optimisation in a so-called "duo-bequest".
Due to COVID-19, only temporary measures have been taken (eg, the extension of the inheritance tax return term). No structural adaptations are to be expected regarding Estate and Transfer Tax Law.
Besides the introduction of the tax on securities accounts and the changes to the Cayman tax (see 1.1 Tax Regimes) other important developments concern increased reporting obligations.
DAC6 (Directive on Administrative Co-operation) was approved on 25 May 2018 and focuses on the reporting of aggressive tax planning. It charges qualified intermediaries (eg, lawyers, accountants, tax consultants, trustees, banks, etc) and ultimately even the taxpayer to report certain "cross-border arrangements" to the local tax authorities. Initially, the new legislation was to enter into force on 1 July 2020 and the first reporting was to take place before the end of August 2020, with a retroactive scope which included reportable arrangements implemented since 25 June 2018. However, due to COVID-19 the aforementioned reporting deadline was extended.
In accordance with this extension, the current reporting deadlines are as follows:
Reported information will be stored in a secure database and will be exchanged between member states.
On 18 September 2017, Belgium implemented the anti-money laundering directive (the 5th AMLD) of 20 May 2015, which provided for the creation of a central register of ultimate beneficial owners of corporate and other legal entities (UBO register). In the meantime, Directive 2018/843 of 30 May 2018 (the 5th AMLD) has already been published in the Official Journal of the European Union, and shows that the EU considers the UBO register to be an important tool in the fight against money laundering.
The role of and the access to this UBO register is strengthened in the 5th AML Directive, which the Belgian legislator was supposed to transpose into Belgian domestic law by 10 January 2020. The draft legislation transposing this Directive was ultimately submitted before the Belgian Parliament on 8 June 2020 and adopted on 16 July 2020. Wealthy individuals across Europe view this UBO register as an important infringement of their privacy and as a possibly threat to their safety.
Since its conception in 2015, the aforementioned Cayman tax has already been amended on a number of occasions, sometimes with (limited) retroactive effect. This was done to close perceived loopholes (eg, originally the treatment of trusts was more beneficial than that of foundations) signalled in the legal doctrine and the press at large. This trend threatens legal certainty and is largely due what some experts consider to be to the extremely poor quality of recent Belgian tax legislation.
A major reform of succession law has taken place, with the new rules entering into force on 1 September 2018.
The legislator aimed at aligning succession law rules with the current social reality of an increasing number of cohabitant (non-married) partners and blended families. Although the legislator intended to respond to the desire for more liberty to dispose of one’s estate, discussions revealed the resolute adherence to forced heirship rules.
Finally, the new succession law rules aim at minimising estate disputes, including by allowing family pacts.
In the slipstream of the new Belgian succession law and with effect as from the same date, matrimonial property law has also undergone an important facelift.
For many years, Belgium has welcomed numerous wealthy individuals. Dutch and French citizens especially enjoyed the vicinity of their home countries and additionally the Belgian tax climate, with no capital gains taxation, low tax rates in investment income, no wealth tax and opportunities to transfer movable assets without gift or inheritance tax definitely being Belgium’s trump cards.
However, due to many legislative initiatives over the last few years, the overall tax burden for wealthy individuals has increased substantially and Belgium appears to be no longer as attractive as it once was. As a result, and as the mobility of people (especially young people) has increased, more people are leaving Belgium and migrating to countries such as the UK, Switzerland, and the USA.
Belgium has strict forced heirship rules, limiting the freedom to dispose by gifts or wills. These rules only apply if Belgian succession law applies (in accordance with the European Succession Regulation) – ie, when the deceased had his or her established residence in Belgium and did not choose their nationality’s law.
Forced heirship rules protect the deceased’s children and surviving spouse by entitling them to a "reserved portion" of the so-called "fictitious hereditary mass". This mass is composed of the assets of the deceased upon death as well as all lifetime gifts made by the deceased, irrespective of when or to whom these gifts were made.
Under the new succession law rules, applicable from 1 September 2018, gifts are valuated at the time of the gift (except when usufruct is retained, in which case valuation occurs at the time when the donee becomes the full owner of the gifted assets, being generally at the time of decease of the donor), and this value increases every year (indexed in accordance with the consumption index). Debts upon death are deducted from the fictitious hereditary mass.
The portion reserved for descendants amounts to half of the fictitious hereditary mass, irrespective of the number of children. In the presence of a surviving spouse, the entitlement of the children can be limited to the bare ownership.
The surviving spouse can claim the usufruct on the family home (including the household effects) or usufruct on half of the fictitious hereditary mass. In the presence of heirs entitled to a reserved portion, the surviving spouse’s reserved portion will burden the disposable portion.
Forced heirship rules are mandatory. In principle, it is not possible to waive such rights during the life of the testator, except for a future spouse if one of the spouses has children from a previous relationship. Such waiver must be done in a marital agreement and cannot deprive the surviving spouse of the use of the family dwelling (including the household effects) for a period of six months from the day the other spouse has deceased. As from 1 September 2018, it is also possible for heirs entitled to a reserved portion to explicitly waive their forced heirship right on the gifted assets by way of a punctual inheritance pact.
Both prenuptial and postnuptial marital agreements are quite common in Belgian law. Such agreements need to be executed before a civil-law notary and are binding for both spouses and the court. Spouses cannot make arrangements regarding alimony payments in the marital agreement.
In the absence of a marital agreement, spouses are married under the default regime of community of gains, whereby all assets acquired during the marriage are considered community property, except for those acquired by a spouse gratuitously through gift or inheritance.
Upon dissolution of the marriage, the community property, in principle, will be divided equally between the spouses. Spouses can choose to adjust the community property and exclude certain assets, or to use the "universal" community property system in which property acquired before the marriage is included as well as property acquired gratuitously during the marriage. Spouses can also agree to a separation of property regime.
As from 1 September 2018, the new matrimonial property law has introduced a legal framework for a separation of property regime with a participation clause for gains accrued during the marriage (comparable to the German "Zugewinngemeinschaft"): each spouse owns his or her assets, regardless of whether they were acquired before or during the marriage. When liquidating the regime (upon death, divorce or a change of the matrimonial regime), gains accrued during the marriage are equalised (via payment or claim).
Each of the spouses can dispose of his or her own assets, except for the family dwelling, which may never be sold or mortgaged by one of the spouses without the consent of the other spouse. Common property must be administered in the interest of the family. As a rule, both spouses can administer separately the common property. For important matters (eg, mortgage loan or gifts), both spouses must act jointly. In the absence of the consent of both spouses, the legal act can be declared invalid, although third parties’ rights are protected if they acted in good faith.
The new matrimonial property law rules allow courts to apply a fairness correction when spouses married under a separation of assets regime get divorced and unforeseeable circumstances lead to a clear injustice (to be appreciated by the court) for one of the spouses. Application of the correction would result in a payment by the "rich(er)" spouse of a maximum of one-third of the gains accrued during the marriage. The correction can only be applied when explicitly provided for in the marital agreement. Civil-law notaries must inform future spouses of the possibility to insert the fairness correction mechanism in the marital agreement.
In principle, a gratuitous transfer of assets (during life or at death) does not trigger a step up (nor capital gains taxation) for income tax purposes. The basis of the beneficiaries of the transfer in the property will be the same as the transferor’s (historical acquisition cost).
The transfer of assets to the next generation is generally realised through lifetime gifts. Such gifts are generally heavily modelled to the parents’ wishes and can be organised in a tax-free manner or at least at reduced tax rates (see Section 1 Tax).
For movable assets (eg, investment portfolios or collections of artworks or classic cars), use is often made of a Belgian family partnership. This company without legal personality is transparent for income tax purposes, and minimal legal provisions and formalities allow a customised and discrete set up. Parents can retain control over the assets and their income via the bylaws of the company, in combination with the conditions and modalities stipulated in the gift deed.
Recent changes to the Belgian Code on Economic Law, however, qualifies all family partnerships as an "enterprise", making the registration in the UBO register obligatory, and subjecting them to Belgian accounting rules. However, if the revenue of the family partnership does not exceed EUR500,000, a simplified accounting obligation may apply.
Prior to lifetime gifts of family businesses, these businesses are often sheltered in a Dutch (or Belgian) private foundation used as a "Stichting Administratiekantoor" (see 4 Family Business Planning).
Belgian law does not provide for specific rules regarding the succession of digital assets, but several legal scholars are starting to pay particular attention to the "digital legacy" and the obstacles – often practical – resulting from the absence of specific law rules.
Following the Bitcoin hype at the end of 2017, the Belgian tax authorities have expressed a particular interest in gains on cryptocurrencies. If speculative and realised outside the normal management of private wealth, such gains can be taxed as other income at 33% and, in some cases, even as professional income (at progressive rates of up to 50%).
In the future, tax authorities will most likely sharpen their interest in (the taxation of) transactions and ownership of digital assets.
In a purely Belgian context, trusts are not (or no longer) used for tax and estate planning purposes. Tax authorities have always been suspicious towards trusts and were convinced that trusts were used to hide assets.
A Belgian private foundation can be used to pursue altruistic objectives (such as charitable giving or private art collections). Merely passing wealth to the next generation is likely not acceptable, although supporting family members across generations (eg, in their education) and making distributions to that purpose might be. Positive rulings have been given by the Belgian tax authorities in this respect.
Foreign private foundations are recognised in Belgium but can fall into the scope of the so-called Cayman tax (see 1.1 Tax Regimes).
One must also consider that forced heirship rules may apply on transfers to private foundations.
The Belgian legal jurisdiction recognises trusts. With the codification of the existing case law in the Belgian Code on Private International Law in 2004, the Belgian legislator intended trusts to be recognised and take legal effect within the Belgian legal jurisdiction with more legal certainty and in a more predictable way.
The use of trusts is generally not recommended from a tax perspective, particularly in view of the so-called Cayman tax (individual income tax – see 1.1 Tax Regimes) and the tax authorities’ position that distributions upon or after the decease of a Belgian tax resident settlor may be subject to inheritance tax (at the tax rate applicable in accordance with the kinship between settlor and beneficiary).
For succession law purposes, one should bear in mind that Belgian forced heirship rules may apply on transfers (without consideration) to trusts.
See 1.1 Tax Regimes, regarding the so-called Cayman tax.
Suitable asset protection measures should be evaluated on a case-by-case basis.
In some cases, a marriage contract of separation of assets – whether or not in combination with (at all time revocable) lifetime gifts from one spouse to another – can be useful for creditors' protection purposes. The use of limited liability companies can also ringfence the shareholder’s other assets and, to a certain extent, life insurance contracts can also offer some asset protection.
Specific provisions against fraudulent conveyance may obstruct asset protection strategies.
As mentioned in 1 Tax, under certain conditions family businesses can benefit from favourable gift tax rates. As a result, the most popular planning strategy for family businesses is a lifetime gift of the shares.
In most cases, parents attach several conditions and modalities to such gifts. For example, they retain the usufruct, which entitles them to the dividends and the voting rights of the shares. Specific clauses can also reduce the rights of the children to transfer the gifted assets (eg, to their spouse), or can provide for a fideï-commissum de residuo, resulting in a gift of the remainder of the assets when a child-beneficiary deceases (eg, to his siblings or to his children). Such clauses usually seek tax advantages as well as protection against dissipation of the family wealth.
Prior and complementary to the gift, the family business is often "wrapped" via a controlling vehicle such as a Dutch (or Belgian) "Stichting Administratiekantoor" (STAK). The shares of the family business are first contributed to the STAK in exchange for depositary receipts ("certificates"), after which these depositary receipts are gifted. From a tax point of view, the certificates are assimilated to the shares and the STAK is tax transparent (if certain conditions are met).
The STAK enables the implementation of family governance and a well-planned transition to the next generation. In some cases, the STAK rules are embedded in a family constitution or charter. A STAK can be a more sophisticated alternative to a shareholders' agreement.
If a transfer of shares is subject to gift or inheritance tax, the taxable base equals the fair market value. This value can be influenced by a lack of marketability and/or control when a partial interest (minority stake) is transferred (eg, due to specific provisions in shareholder agreements or by-laws). As no guidelines exist with regard to applicable discounts and the tax authorities could thus seek to challenge such discounts, it is recommendable to have an objective valuation report.
Estate disputes are often related to forced heirship rules and (the valuation of) unequal or undisclosed lifetime gifts and/or assets.
As mentioned in 2 Succession, new succession law rules entered into force on 1 September 2018. One of the legislator’s major objectives was to minimise the number of conflicts after decease.
The new rules enable families to sign off punctual inheritance agreements or overall inheritance agreements ("family pact"), aiming at a fair and balanced treatment of all heirs.
The new rules also provide (in principle) for a valuation of gifts at the time of the gift (not upon the date of decease of the donor), taking into account, however, the annual indexation as mentioned in 2.3 Forced Heirship Laws; they also allow for a settlement "in value" (and not "in kind") of lifetime gifts that require compensation (eg, to the extent they violate forced heirship rights).
Furthermore, mediation and arbitration processes are more often promoted to avoid lengthy (and costly) court procedures.
See 5.1 Trends Driving Disputes.
As Belgium civil law has a numerus clausus of rights in rem, fiduciary contracts are not allowed. As a result, fiduciary powers cannot be organised under Belgium law.
See 6.1 Prevalence of Corporate Fiduciaries.
See 6.1 Prevalence of Corporate Fiduciaries.
See 6.1 Prevalence of Corporate Fiduciaries.
Entry into Belgium and long-term stay in Belgium are easier for citizens of the European Union (EU) and the European Free Trade Association (EFTA) states (Iceland, Liechtenstein, Norway and Switzerland) than for citizens of other countries. No visa or working permits are required for EU and EFTA citizens, but proof of sufficient financial means and health insurance is required upon registration in the population register.
After five years of uninterrupted stay in Belgium, EU and EFTA citizens can automatically reside permanently in Belgium. Other citizens need visa and working permits. After five years, they are also eligible for permanent residence, but subject to stricter conditions and a case-by-case review.
Belgian nationality can be acquired on legal grounds (eg, by birth) or voluntarily, generally by applying for a "nationality declaration". Applicants must be at least 18 years old and have their legal residence in Belgium for at least for five years and must, in principle, evidence knowledge of one of the national languages (Dutch, French or German) and social integration and economic participation (or an active participation in the community if the applicant legally resides in Belgium for at least ten years).
The COVID-19 pandemic is not expected to have a significant impact on this matter.
Exceptionally, Belgian nationality can be acquired by "naturalisation", granted by Parliament in case of "extraordinary merit" in the fields of science or sports, or in the socio-cultural area.
As such, Belgian law does not provide for specific special planning mechanisms for minors or adults with disabilities.
Belgian family law provides for protective measures when minors or adults with mental incapacities are involved in certain transactions (eg, a purchase of real estate or a sale of assets). These measures generally provide for a judge’s approval of these transactions, or for the (temporary or permanent) appointment of an administrator.
In 2002, the Belgian legislator explicitly referred to planning for mentally incapacitated persons when introducing the private foundation in Belgian law. A private foundation can be set up to financially support incapacitated family members – eg, by funding their medical or housing expenses. However, such planning requires particular attention, especially with regard to the destination of the remainder of the funds of the private foundation in case of the decease of the incapacitated family member.
In principle, legal guardians are appointed by the court, but parents may appoint a preferred legal guardian (eg, in their last will). The court will generally validate such appointment.
Guardians have reporting obligations to the court, and require the court’s approval for specific transactions, such as the purchase of real estate, the sale of assets, entering into loan agreements, and accepting or refusing gifts.
The cost of longevity challenges the Belgian legal social security system, which is still generally seen as being very comprehensive and efficient. The Belgian legal system covers healthcare, old age and invalidity pensions and long-term care insurance, among others. On an individual basis, it can be complemented with individual "extra-legal" arrangements, such as pension savings or medical insurance and retirement plans. Under certain conditions, such arrangements can benefit from tax reductions for individual income tax purposes.
An important recent trend is the use of a lasting power of attorney (often part of a so-called "living will"), whereby one can mandate one or more trusted representatives for situations where a lack of mental capacity would inhibit the making of decisions on personal matters (eg, health) and/or financial and property affairs. Court supervision can be avoided by giving a lasting power of attorney and providing for extrajudicial protection arrangements while still capable.
Children born out of wedlock and fully adopted children inherit from their parents in the same way as children born within a marriage. In case of a simple adoption, the adopted children can also inherit from their original family.
LGBT rights in Belgium are some of the most progressive in the world. Belgium was the second country to legalise same-sex marriage in 2003, while same-sex adoption was legalised in 2006 and does not differ from opposite-sex adoption.
Gifts to approved charitable institutions can benefit from a tax deduction for individual income tax purposes. Gifts must be made in cash or, under very strict conditions, with artworks. Only 45% of the amount is tax deductible, and the deduction is limited per taxable person to 10% of the progressively taxed net income (ie, predominantly real estate and professional income) or EUR397,850 (for the income year of 2020).
As mentioned in 1 Tax, charitable institutions (including private foundations) can benefit from reduced flat gift and inheritance tax rates, under certain conditions.
Private foundations are regularly used as a private charitable planning tool. A private foundation allows the founder to affect (part of) his or her wealth to a specific charitable purpose, and to organise the governance of the foundation according to his or her wishes.
As in many jurisdictions, Belgium has witnessed some interesting trends and developments in the domain of private clients and their estate and tax planning or wealth structuring, such as the trend of flexibility and the countertrend of fictitious inheritance, family compass and shareholdership, family office, and transparency in income tax law.
Trend of Flexibility
One of the key trends is flexibility, as COVID-19 has raised awareness regarding the importance of robust family planning. However, not everyone feels comfortable about making a definitive and irrevocable succession plan. Private clients want their estate planning to work as a two-step rocket.
The first part of the rocket can be launched immediately. This can include matrimonial or relationship agreements, governance structures, some limited donations to children in full ownership, etc. The second part impacts the entire estate and must be flexible, often serving as a fall-back plan. For such flexibility, an array of terms and (resolute) conditions and other revocable tools are crucial.
Revocable donations between spouses are flexible, as they allow the donor to revoke the donation at any time, even after divorce from or the decease of the spouse-beneficiary. Moreover, the donation remains subject to revocability should the spouse-beneficiary donate the assets to the children. If the initial donor revokes their (first) donation, then the subsequent donation is dissolved as well. When embedded in thoughtful family planning, the validity of such two-step donations cannot be questioned. This is true for civil law, but becomes (unduly) questionable from a tax perspective (see the next section, Countertrend of Tax Law Overruling Civil Law).
From a tax point of view, donations of movable assets are not subject to gift tax if the gift is not registered in Belgium. At present, there is only an obligation to register gifts included in a Belgian notarial deed, although future expected legislation provides for an obligation to register all notarial deeds of gifts of movable assets, Belgian or foreign (this presumably comes into force on 1 December 2020). This will result in taxation of 3% (direct line and partner) or 7% for donations of movables in the Flemish and Brussels regions. The gift tax rates of movables in the Walloon region are 3.3% or 5.5%, depending on the kinship with the donor.
Even though unregistered gifts of movable assets (eg, by bank transfer) are not (and even after the announced new legislation will still not be) subject to gift tax in Belgium, there is a risk. Should the donor die within three years (seven years for certain assets in the Flemish region), the donated assets are still subject to inheritance tax, as the donations are deemed to be part of the taxable succession. One does not, therefore, pay gift tax, but there is a risk of paying inheritance tax, with top rates of 27% (in direct line and between partners) in Flanders and 30% in Brussels and Wallonia. Gifts of Belgian real estate are always taxable, and therefore less interesting in revocable planning between spouses. Gift taxes of Belgian real estate are progressive, and the top rates are substantial (27% in all regions). However post-mortem transfer of the matrimonial residence between spouses is tax exempt in all regions.
In terms of flexible estate planning, a living will is a must-have for every private client. Introduced in 2014, it has been a great success. It allows an individual to prepare the irrevocable and definite part of the estate plan, but it only becomes executable if the individual is no longer able to take the decision to execute. The appointed proxy holder is given competence to execute the choices made in the present, eg donations, at a future stage. The advantage of a living will is that, in principle, a court is not involved in the protection of the incapacitated person and the execution of the living will.
It should be emphasised that a flexible estate plan does not exclude definite solutions, such as a solid governance structure. Although definite, intelligent governance schemes do provide for a variety of scenarios and hypotheses and are therefore flexible. Obviously, governance schemes also need to be adjusted from time to time, like any other estate planning tool.
Finally, the most flexible of all, obviously, is a last will. It is definitive in the case of an unforeseen death, yet remains flexible as it may easily be adjusted at any moment. In Belgium, last wills can be made before a civil law notary, or under the format of an international will, but may also be handwritten, dated and duly signed as a private will. In any event, a well-drafted last will remains the cherry on the cake of a good succession plan.
Countertrend of Tax Law Overruling Civil Law: the Fictitious Inheritance
Another, less happy, trend is the hostile takeover of civil law by tax law. Until 2012, civil law and tax law were two clearly defined areas. Estate planning techniques were only taxable in terms of transfer tax, gift tax or inheritance tax if there was a specific legal ground for taxation. However, on 1 June 2012, the rules of anti-abuse were introduced in the private area and the boundaries between civil and tax law became blurred.
Vlabel, the Flemish tax administration responsible since 2015 for the collection of transfer tax, gift tax and inheritance tax, has started on a journey applying anti-abuse rules to broaden the scope of certain taxable events. Recent examples are governance structures within the framework of donations. As we have explained, gifts do not have to be registered in Belgium (this is mandatory only for Belgian, and soon also foreign, notarial deeds) and only registered gifts are subject to gift tax. Gifts that are not registered, however, are at risk of inheritance tax (at much higher rates), if the donor dies within three (or seven years for certain assets in the Flemish region) after the gift. During this three or seven-year period, the gift is regarded as a "fictitious inheritance". Another example are donations on the suspensive condition of the decease of the donor. Irrespective of when they are given, such donations are subject to inheritance tax.
The fiscal concept of a fictitious inheritance should be interpreted narrowly. However, the Flemish tax authorities have recently taken the position in several cases that flexible donations with certain terms and conditions or governance structures are subject to the anti-abuse rules, and may be included in the concept of a fictitious inheritance. Hence, the 0% – and sometimes 3% – taxation would dramatically transform into a 27% inheritance tax nightmare.
At the present time, this is not yet the general position of the Flemish tax authority but it has been linked to individual cases. The thread through the different cases is the level of flexibility and control the donor keeps after the donation, based on the terms and conditions of the gift and the donor's position within the governance structure. Too much control, according to Vlabel, can result in fiscal requalification. This is a contra legem approach creating legal uncertainty and disrespecting the fundamental principles of civil law.
Negotiating a Family Compass in Support of Sustainable Shareholdership
Traditional estate planning, inspired by dominant family leadership, results in a top-down approach. In some cases, the next generation had to blindly accept what had been decided by the pater familias. This has never been our way of working and in the last few years we have seen a clear trend stimulated by the next generation in large, wealthy families to start a process of open communication creating a more bottom-up form of estate planning. Anticipating this trend some 15 years ago, we stated that family business is increasingly about family, emotions, identity and communication, and we started to anticipate family quarrels by preparing families for open and non-violent communication. Hence our model of "three phases of family planning": (1) preparing the family, (2) negotiating the family deal, and (3) executing the deal (explained in detail in our e-book Family Grammar).
In the first phase, often starting with a "Family Discovery Lab", the family members explore the underlying interests, ambitions and worries that each of them has. Here they prepare for transparent communication, with empathy. Active listening is a key skill for any family engaging in a growth process of respecting and understanding one another.
The second phase puts the "prepared" family to work: through several sessions they explore common family values, how these concretely translate into behavioural principles in the private sphere as well as in a business context and investment frame. Furthermore, they discuss and negotiate specific roles for each of them in different contexts. Finally, a frame of governance rules is drafted. These values, principles, roles and governance rules offer a solid base for a "compass" to guide the family through unstable and changing times, and keep them on track. We prefer the "agility" of a compass over the static and often suffocating rules of a family charter.
Finally, in the third phase (which may obviously run in parallel or even earlier and then be adapted and fine-tuned), the family goals are implemented in a flexible and optimised legal and fiscal structuring and estate plan.
Our key goal is to have all children and grandchildren involved as responsible shareholders, respecting each other’s talents and skills, together contributing to the growth of the business/estate and family harmony.
Another trend is the rise of family offices. There is no definition of a family office, as every family – and hence, every family office – is unique. One could say, however, that this is a vehicle or platform that supports the family in the day-to-day administration and management of the family’s affairs and investments and long-term strategy. There are five good reasons why a family should consider setting up a family office.
The most important reason is that it is personal. A family office is tailor-made and – in contrast to other service providers – only works for one client, the family. More importantly, it entails that the family office has a unique and sole focus: serving the family.
It also serves privacy, which is crucial and of great value for wealthy families. A family office allows a family to have all the personal information, such as family compasses, family charters, deeds of donations, matrimonial or relationship agreements, shareholder agreements, deeds of incorporation, etc, in one secure place and accessible by only a limited number of people. The family office can therefore serve as the guardian and gatekeeper of the family's privacy.
Prosperity is a third reason. Families obviously want to create growth and revenues with the family wealth. As family wealth is spread over several family members of different generations with different needs, one should also keep an eye on the income stream for family members. There will always be a need to balance wealth on the one hand, and the financial needs of family members on the other hand. It is hard for individual family members to keep that balance. A broader perspective of the family – its needs, business continuity and diversity of investments – is required to make that analysis. The family office is the best solution for this.
In the old days, the family office was "the parents" who, as founders of the family business, were also taking care of and managing the other assets. After all, they had laid the foundations of the family wealth. These early-stage family offices tend to grow in an unplanned way and are usually a disaster for the family and their wealth in the case of sudden death. They are also not in line with a core value of wealthy families: perpetuity. Wealthy families usually have a much longer perspective than just one generation. Their wealth often has a trans-generational aspect, serving a specific purpose that transcends the family and the individual family members. This is a major challenge over time, especially as the family gets bigger over generations.
The family office can help the family to define a clear mutual purpose and therefore support them in building a legacy across different generations. In terms of perpetuity, family offices may contribute to the personal estate planning of family members, avoiding the unpleasant consequences of sudden death or the incorrect implementation of succession plans by family members.
The family office can also play a crucial role in the governance of family wealth. All too often, family wealth is not managed properly because of a lack of good governance. It is vital to have "the right men and women" in charge in case of the decease of a key member of the family or family office.
Finally, a family office may help establish more professionalism. Family wealth is becoming more and more complex, especially in international settings. Family wealth usually grows beyond the ability and capacity of the family to manage it, which is why professionalism and a holistic approach are key. There is clearly a trend for the personal investments of the family to be managed as a business on its own, next to, eg, the core business of the family. Sometimes investments and private equity are the sole activity of the family. These matters should be run professionally, like a business, with a dedicated team of experts. In doing so, the family office tailors its wealth management to fit the needs of the family and the specific needs of the individuals within the family. Professionalism also contributes to better compliance and asset reporting. Consistent and uniform reporting is much more realistic when supervised by a family office with dedicated professionals, instead of every family member individually.
Along with the professional approach to the management of wealth, there is also a psychological argument in favour of external advice or management of the family wealth. When only family members are in charge of managing the family wealth, this may result in conflicts of interest and undue mixing of family and business matters, and it may result in a family member being distracted in their management. For that reason alone, external advice or involvement is always to be considered in running a family office.
Transparency in Income Tax Law
Transparency is not only becoming a stronger trend in family relations. The already long-standing trend of transparency in income tax law continues to intensify, keeping the search by HNWIs for balance between privacy and transparency very much alive. Increasing international regulations set the tone, having an important impact on the Belgian national scene as well.
The public UBO-register requirements, set in motion by the 4th EU AML Directive, are reaching their final implementation status in the different EU (and EEA) countries. In Belgium, there is a general willingness to comply, although sometimes hindered by interpretation issues not resolved by an – already quite elaborate – FAQ or even very practical IT questions relating to UBO application. However, valid requests for restricting access to information in the register for persons subject to certain risks (fraud, abduction, violence, etc) are at odds with a very narrow interpretation of these conditions.
The international exchange of information between countries following their CRS obligations seems to be running smoothly. Questions from the Belgian tax authorities regarding information received in this regard are becoming quite common, sometimes significantly increasing the administrative burden for private individuals. As the exchanged information is uploaded transparently by the tax authorities on their platform in the individual's private digital file, we do see opportunities for the taxpayer to engage in open communication with the tax inspector if need be.
DAC6 has started a new era in reporting obligations, ensuring transparency and introducing mandatory disclosure rules for intermediaries (tax advisers and other service providers). Although they are not the main target of said obligations, certain aspects of DAC6 also have important ramifications for those advising HNW individuals and families.
For the Belgian Cayman tax legislation, the EU was not in the driver’s seat, although one could argue that the look-through tax regime is in fact a type of CFC regulation for private individuals. The rules have changed continuously from the start in 2015 and remain subject to interpretation difficulties in various ways. Initially, the legislation was set up to discourage the use of certain "tax advantageous" foreign legal structures. Amidst the modifications, the rules (might) now also affect foreign structures that were never initially intended to be in its scope or that do not have any tax advantages whatsoever.
As advisers for HNW individuals and families, we see that an increasingly important part of our role revolves around complying with and navigating through these transparency reporting regulations and their tax consequences.
Briefly concluding, one could say that the major trends in Belgium do offer both opportunities and challenges for private clients.
The opportunities of more flexibility in estate planning are countered by a challenging tax administration, creating a great deal of legal uncertainty.
The opportunities of growth and harmony in a family are challenged, both from within and from the outside. Internally still today we see older generations who hang on to their top-down model (we have called this the “Baron Syndrome”) and simply cannot let go.
Externally, the ever-growing control of the authorities and the increasingly complex reporting regulations do create huge obstacles.
To these challenges, the best answer is a more professional attitude, not only in the form of professional behaviour within the family through sound family dynamics and communication, but also for the whole estate through the structured approach of a family office.