Belgium as a destination
In recent years, many stories regarding the relocation of wealthy individuals to Belgium have made the headlines. Not only fellow Europeans like the Dutch and the French have found their way to the our small country at the heart of Europe but also non European citizens like American, Asian and Middle-Eastern nationals are on the move.
Many of these new residents share the opinion that holding multiple passports allows them to become a true global citizen, to travel without restrictions while enjoying the perks and benefits at offer in the country of destination. The reasons for a relocation are always personal and vary from securing a second passport to ensure your family’s future or personal safety to facilitating your ease of travel throughout the globe. Also financial considerations have lead to relocations such as asset protection, asset diversification or tax and wealth planning.
Recently Belgium was ranked second in the Nomad-Passport-Index which gives an overview of the most desirable global passports! This nomination is due to Belgium’s status as the home of the European Union, the fact that the Belgian passport allows visa-free travel to 174 countries globally and that dual citizenship is accepted. Apart from the advantages offered by Belgian citizenship, Belgium is also a relatively easy and affordable destination for Expats.
But not only Belgium, also other EU countries like Spain, Italy, Sweden and Ireland made the top five of most desirable passports worldwide.
We have highlighted some of Belgium’s key features below.
1. BELGIAN RESIDENCY PERMIT
Citizens of the European Union Iceland, Liechtenstein, Norway and Switzerland can travel freely to Belgium on the basis of their national ID card or passport. They do not require a visa to travel to Belgium nor a work permit to engage in economic activities. In this regard, the immigration process is fairly straightforward and only requires registration at your local Belgian town hall.
As a third-country national (non-EU/EEA/Swiss citizens), the process is a little more complicated as you will need a visa to enter Belgium for periods exceeding 90 days.
The most straightforward way to obtain such a long-stay visa in Belgium is through economic activities. As such, highly skilled foreign employees can easily obtain a work permit which will act as the basis of their residency. To qualify for the work permit, the applicant must hold at least a bachelor degree and have an annual gross salary of approximately 41.000 euro.
In practice, it is noticeable that many private clients obtain residency through the setup of a company. According to the Belgian legislation, any foreign national who engages in self-employed activities in Belgium, either through a company or as a natural person, is obliged to request a professional card. The professional card then opens a right to residency in Belgium. To qualify for a professional card, the applicant must convince the authorities of the importance and benefit of his project to Belgium (more specifically the benefit to the specific region in which the company is established: Flanders, Brussels or Walloon region). The economic interest of a project will be reviewed in light of the project’s ability to meet an existing economic need, job creation, innovation, the promotion of export activities, the impact on the existing industries, investments, etc. If the project serves a specific social, cultural, artistic or sportive need, this will also be taken into consideration. It is important to note that the investment of funds is as such not required for the acquisition of the professional card but is often perceived as beneficial to the process. Self-employment is the key component of this scheme and actual business activities are required. The mere set-up of a non-active corporation for the purpose of the professional card application will not be accepted.
In very specific circumstances, the Belgian authorities also issue long-stay visas on the basis of sufficient income.
The residence permit that is issued, is usually valid for one year but renewed annually. In our experience, most foreign nationals are in it for the long-run and aim to acquire a Belgian passport and citizenship. This is where the good news comes in; after five years of legal stay in Belgium you may qualify for Belgian nationality. In most scenario’s, you are even exempt from a language test.
So far, we have informed you of the available ways to settle in Belgium, but what to expect as a Belgian resident?
2. BELGIAN HEALTH CARE
If you're living and working in Belgium, you will typically be covered by the Belgian healthcare system if you carry out the proper registrations. The Belgian healthcare system is one of the best in Europe and very good hospitals are always within a short distance reach.
3. HOUSING IN BELGIUM
Compared to other European countries, houses in Belgium tend to be less expensive. Moreover, given the fact that Brussels is the capital of Europe, it’s known for his international surrounding and the diversity amongst its inhabitants.
Brussels ranks #21 on Mercer’s 2016 Quality of Life Index, ahead of London at #39 and New York at #44. However, Brussel only ranks #86 on the Cost of Living Index, compared to London at #17 and New York at #11. More bang for the buck!
Transfer taxes on the purchase of a property amount to 10% (Flanders or Walloon Region) or 12,5% (Brussels Region). The purchase of new or recently constructed building are subject to VAT (21%) instead.
4. SOCIAL SECURITY
Once you are registered in Belgium as a self-employed individual, you are subject to the Belgian social security legislation. In this regard, you will be asked to pay social security contributions. Through the payment of these contributions, you and your dependent family members in Belgium are entitled to the reimbursements of costs for health services provided in Belgium, at the expense of the Belgian health insurance. Other benefits such as incapacity to work benefits, maternity benefits, etc. will also apply. The amount of the quarterly contributions depends on the revenue that you generate.
5. BELGIAN TAXATION OF INDIVIDUALS
Once you are considered as a Belgian resident for tax purposes, you will be subject to Belgian income taxation on your worldwide income. Whether you are a Belgian tax resident or not is a factual assessment during which the authorities will check whether the centre of your interests is situated in Belgium. Given the financial impact of your potential tax residency, we would always advise you to review your tax situation in light of your anticipated relocation.
Income from worldwide professional activities, real estate and standard periodical pensions are subject to progressive income tax rates that go from 25% to a maximum rate 50%. These rates are increased by a municipal coefficient. On average, this coefficient is around 7%, which gives a top rate of 53,5%. However, certain municipalities do not levy any coefficient.
Under Belgium’s extensive treaty network, foreign income is often exempt in Belgium when taxable abroad. Even in rare situations where no treaty is in force, a 50% tax reduction can be obtained for certain types of income.
Capital gains tax
An attractive aspect of Belgian tax law is that capital gains on shares are exempt, unless:
- the shares are linked to a professional activity;
- a substantial shareholding (i.e. participation of 25% or more) of a Belgian company is transferred to a non-EEA company; or
- the capital gains are realised outside the normal management of an individual’s private wealth or in a speculative manner.
Hence, in most cases and depending on the facts at hand, capital gains on shares remain tax free if realised outside a professional activity.
Gains realised upon the sale of undeveloped land are subject to taxation at the rate of 33% if realised within five years of acquisition and at the rate of 16.5% if realised between five and eight years from the date of acquisition. There also is a capital gains tax of 16.5 % for gains made on the sale of developed Belgian real property in case the real property has been acquired against consideration and is transferred within five years following the acquisition. The family dwelling is always exempted from capital gains tax. The municipal coefficient also applies here.
Dividends and interest
Dividends and interest are subject to a tax of maximum 30%, usually withheld by the Belgian financial intermediary so no reporting is required.
Belgium does not offer a credit for foreign withholding taxes. However, Belgium has concluded double tax treaties with most countries countries, including the United States. Under this treaty, the US withholding tax on the dividends and interest is reduced to 15% (for private individuals). The total tax is therefore 40,5%. With concise tax planning, this rate can be further reduced.
Pursuant to the recently introduced Cayman tax, income attributed to a some foreign legal structures (such as trusts, foundations or even companies) is deemed to be received directly by the Belgium based natural person who is the owner, holder or beneficiary of the foreign legal structure. A heir of the settlor that actually earned income from the foreign legal structure can also be subject to the Cayman tax.
The result of the Cayman tax is that all income earned by the foreign legal structure will keep its nature (e.g. interest, dividend, capital gain, rent, other) for Belgian tax purposes and will be taxed accordingly in the hands of the Belgian natural person or in the hands of the Belgian non-for-profit organization at the above rates.
Belgian administrative practice has developed a special tax treatment for foreign executives who come to Belgium for longer periods. Even though fulfilling the requirements to be considered tax residents, the foreign executives are nonetheless treated as non-residents, subject to certain requirements. This means they are effectively only taxed on their Belgian sourced income, similar to a non-domiciled regime.
Belgium has no wealth or exit tax for private individuals.
- CORPORATE TAX
When setting up your business in Belgium in light of the professional card application, one must be aware of the Belgian taxation system for companies.
All commercial companies in Belgium are subject to corporation tax. The nominal corporate tax rate is 33.99%. There is an exception for small and medium-sized enterprises with a limited taxable profit as the tax rate drops to 24.98% when certain criteria are met.
The Belgian system allows certain legal mechanisms which make it possible to lower the nominal rate.
Notional Interest Deduction
One of the most well-known Belgian measures is the 'notional interest deduction'. This is a tax deduction for capital which alleviates the differences in tax treatment between finance raised through borrowed capital and finance raised through equity capital.
The system allows companies to deduct from their tax base a notional interest charge (not stated in the accounts) corresponding to a specific percentage of their 'adjusted' equity capital.
Dividend Withholding Taxes - individual investors
Dividend distributions by Belgian small and medium-sized enterprises can benefit from reduced tax rates. If the company was only funded by cash contributions, a 15% rate is possible. The company also has an annual choice to reserve its profits at a 10% tax cost, after which distributions can take place at reduced rates depending on a waiting period.
Dividend Withholding Taxes - corporate investors
Another popular measure for investors is the withholding tax exemption on some dividends. Corporate investors (from treaty countries) who use Belgium as their holding location for investments in Europe are allowed to repatriate European profits without paying dividend withholding tax and without a limitation on profits, subject to a 10% minimum participation and a one year holding period. Some well-known treaty countries in this regard are Hong Kong and the United States.
- ESTATE PLANNING
Regardless whether estate planning is one of the push factors for your move to Belgium, it is an aspect of your relocation that always needs attention. Even when it comes to your estate, your residence in Belgium might lead to the payment of Belgian inheritance tax.
Although inheritance tax in direct line or between spouses (and sometimes cohabitants) goes up to 27% (Flanders Region) or 30% (Brussels or Walloon Region), there are several estate planning possibilities.
Trust and private foundations are recognised in Belgium. Belgium even has its own private foundation law. Trusts are generally not advisable in Belgium given the position of the tax administration that distributions from a trust are subject to income tax. This is principally only applicable if the settlor was a Belgian resident.
Private foundations on the other hand are quite common for estate planning purposes. Transfers in a last will are subject to 8,5% inheritance tax in the Flemish Region, or 7% (Walloon Region) or 25% (Brussels Region). The residency of the deceased determines the applicable rate.
Gifts of moveable assets (shares, stocks, art,...) are not subject to Belgian gift tax, unless the gift is registered in Belgium. If a gift has not been subject to Belgian gift tax and the donor dies within 3 years after the gift (7 years for family businesses in the Flemish Region), the gift is subject to inheritance tax. This is applicable in all Regions. Gift tax on moveable assets depends on the Region where the donor is resident. The gift tax on gifts to children and between spouses (under certain conditions also cohabitants) is 3% (Flanders and Brussels Region) or 3,3% (Walloon Region). Once the gift tax has been paid, a gift never be subject to inheritance tax. This allows in extremis estate planning.
Gifts of real estate are obliged to be registered in Belgium and therefore automatically subject to gift tax. The rates depends on the Region where the donor is resident. Since July 2015 (Flanders Region) and January 2016 (Brussels and Walloon Region) the rates have been substantially reduced. Moreover, one can use the reduced rates every three year per beneficiary, which allows to transfer real estate at low cost.
As a result, gifts of both moveable and immoveable assets are quite common in Belgium. But gifts are principally irrevocable. But one can add terms and condition to the gifts to maintain control over the property, retain a certain income, partner-skipping, etc. Gifts between spouses are revocable and the revocation is principally not subject to gift or transfer tax. The revocation can even be claimed after the death the spouse-beneficiary.
European succession regulation
The European succession regulation came into force on August 17th, 2015. It has an universal application and it allows one to make a choice of law of his national law, even if it it is a law of a non-EU-country.
- CREATING CERTAINTY THROUGH RULING PRACTICES
Prior to investing in Belgium, you might prefer to have upfront legal certainty on your tax status. In this regard, the Belgian tax legislators provide a generally applicable advance ruling practice. The ruling is an advance decision regarding one’s tax status and is legally binding for up to five years.
Whether you just want to venture abroad to enjoy your retirement in the sun or you are interested in securing a European passport for your family, Cazimir can advise on a wide range of immigration related matters in multiple jurisdictions such as student visas, entrepreneur visa, retirement visa, permanent residency options, investment schemes, the acquisition of citizenship etc. We will identify the most suitable immigration route for you and guide you through every aspect of your relocation. In addition, we will assist with the structuring of your assets.