On July 26, 2017, the Belgian government came to an agreement, the so-called summer agreement, regarding several fiscal measures.
On July 26, 2017, the Belgian government came to an agreement, the so-called summer agreement, regarding several fiscal measures. Corporate tax reform, which we will not discuss further in this report, as well as measures regarding personal taxation, were published. There are two measures in particular that we outline in more detail in this report, both of which could have a significant impact for the high-net-worth individual. The measures have to do with the implementation of an annual levy on securities accounts, as well as with the taxation of future capital reductions.
To start with, we recognize that the Belgian government has issued hardly any guidelines for the new measures. Considering that, as of now, there are no draft laws available yet, there could still be (limited) modifications to the measures outlined below.
Belgium is one of the few countries that, to date, does not have any capital tax. A definitive end to this situation appears to be on the horizon. The summer agreement anticipates the implementation of an annual tax on securities accounts.
The agreement provides the basis on which high-net-worth individuals, beginning in 2018, need to pay an annual subscription tax of 0.15% on their securities accounts, unless the average outstanding balance of these accounts comes to more than €500,000.
As regards the Belgian government, as well as Belgian and foreign securities accounts (shares, bonds, and funds), securities held by pension funds and life insurances (from whichever source) are not to be included in the total sum.
The levy of 0.15% is to be applied on the total worth of the securities accounts and not only on the balance exceeding the threshold amount of €500,000. The threshold of €500,000 also applies to each individual taxable person. This effectively means that the threshold for a married couple comes to €1,000,000. The allocation of securities accounts likely adheres to matrimonial property law.
An example will illustrate what consequences this tax has.
Suppose a Belgian couple has two shared securities accounts: a Belgian and a foreign one. On December 31, 2018, the accounts appear to have an outstanding amount of:
|Belgian securities account
|Foreign securities account
According to the new measure, since this amount exceeds the threshold of €1,000,000 per married couple (€500,000 per taxable person), the married couple is subject to a tax at the rate of 0.15% for the entire amount of €1,150,000. This effectively means that €1,725 of additional tax must be paid.
It is only after this summer that the actual language of the law and any accompanying formalities to this new tax will be announced.
In the second measure, the Belgian government announced that the repayment of fiscal capital by a company will be partially subject to Belgian withholding tax.
Under the current regime, a company can choose to allocate a capital reduction to its fiscal capital. This fiscal capital can be repaid, tax-free, to the shareholder.
The government, however, has announced that, beginning in 2018, capital reductions will be proportionally allocated to the existing corporate taxed reserves (that are not already incorporated in the capital). Upon payout of the taxed reserves from a company to an individual, the Belgian withholding tax is applied at a rate of 30% under the current rate.
Suppose that a company with a fiscal capital of €1,000, as well as €1,000 of taxed reserves, decided to proceed with a capital reduction of €500, on the individual shareholder's behalf.
According to the new measure, this capital reduction can no longer be allocated to the tax-free fiscal capital that could be paid out to the shareholder. The capital reduction is to be allocated pro rata to the company's existing taxed reserves.
This effectively means that €250 is distributed to fiscal capital and €250 is distributed to taxed reserves. The pay-out of €250 from taxed reserves is subject to the Belgian withholding tax in the amount of €75 (current rate of 30%).
It is still unclear how this new measure will play out in an international context.
If you (before the formal implementation of the measure in 2018) are considering a capital reduction, we recommend that you contact a fiscal advisor in order to estimate the specific consequences for your situation.