New double tax treaty between Belgium and France

In practice this foreign tax credit can be claimed via the personal income tax return. Based on the same reasoning, this tax credit is in theory also available for French interest. In 2021, the Belgian tax authorities have issued a circular letter in this respect.^[4]

However, the lump-sum amount of foreign tax on movable income that can be credited against Belgian personal income tax has now been removed from the new Double Tax Treaty, which will result in a markedly increased tax burden.

This increased tax burden will seemingly be mitigated by a decrease of the maximum withholding tax rate for dividends, from 15% to 12,8%, as provided by the treaty (new article 10). Though, currently, dividends that are distributed by a French company to non-resident individuals (e.g. Belgian residents) are generally already subject to a final withholding tax of 12,8%. Similarly, the new treaty provides a withholding tax exemption for interest, though in general no French withholding tax is levied on interest paid to non-resident individuals. The mitigating aspects will thus mainly remain without effect.

Other changes of note include, for example, the fact that the treaty will also apply with respect to (taxes on) capital. This may e.g. be relevant for French residents that hold a securities account with a Belgian financial intermediary (e.g. a bank) that is in principle subject to the Belgian annual tax on securities account. Further, the new treaty includes clarification on the treatment of income obtained via an entity that is treated as tax transparent (cfr. the Belgian Cayman tax regime), a new provision on taxation of gains on immovable property including the highly debated taxation of capital gains on participations in companies which hold a substantial amount of immovable property and a change to the 183-days rule with regard to employee remuneration (this is a non-exhaustive list).

The new treaty will enter into force after the exchange of ratification instruments by Belgium and France.  For Belgium ratification can only be concluded after parliamentary approval in the federal and regional parliament(s). the ratification is generally expected to be concluded during 2022 at the earliest.  The treaty would then apply in Belgium as from 1st of January 2023 for withholding taxes – assessment year 2024 for income taxes.  This would mean, for example that in principle it would still be possible for Belgian resident investors to claim a foreign tax credit for French dividends in the personal income tax return for dividends that will be received in 2022.