Taxation of individuals

As a general rule, an individual is subject to Belgian income taxation on his worldwide income if he qualifies as a Belgian resident for tax purposes. Whether someone is a Belgian tax resident is a factual assessment during which the authorities check whether the centre of the individual’s personal and/or economic interests is situated in Belgium.

For foreign nationals it is important to note that the registration in the Belgian public registry triggers a presumption of tax residence. The burden of proof is borne by a foreign national to show that he/she is not a tax resident in Belgium.

We set out below a brief overview of the standard types of taxation and the basic rates applicable in Belgium. In our experience, many legal risks could be avoided or minimised by way of careful tax planning.

1. General income
Belgium levies income tax on your worldwide income. As such, income from worldwide professional activities, real estate and standard periodical pensions are subject to progressive income tax rates ranging from 25% to a maximum of 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.

Notwithstanding the above, under Belgium’s extensive tax treaty network, foreign income is often exempt in Belgium when taxable abroad. Even in a rare situation where no treaty is in force, a 50% tax reduction can be obtained for certain types of income.

2. Capital gains tax
An attractive aspect of Belgian tax law is that capital gains on shares are exempt, unless:

1. the shares are linked to a professional activity;
2. a substantial shareholding (i.e. participation of 25% or more) of a Belgian company is transferred to a non-EEA company; or
3. the capital gains are realised outside the normal management of an individual’s private wealth or in a speculative manner.

As a consequence, in most cases capital gains on shares remain tax free if realised outside a professional activity.

Capital gains resulting from 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.

Moreover, there is a capital gains tax of 16.5% for gains made on the sale of developed Belgian real estate if the real estate has been acquired against consideration and is transferred within five years following the acquisition. The family dwelling is, however, always exempt from capital gains tax. The municipal coefficient also applies here.

3. Dividends and interest
Dividends and interests are subject to a tax rate of a maximum of 30%, usually withheld by the Belgian financial intermediary so no reporting is required.

Belgium does not offer a credit for foreign withholding taxes. That said, Belgium has concluded double tax treaties with most countries, including the United States. Under this treaty, the US withholding tax on dividends and interest for private individuals is reduced to 15%, resulting in a total effective tax rate of 40.5%. Nevertheless, such rate can be further reduced with diligent tax planning.

4. Cayman tax
Pursuant to the recently introduced Cayman tax, income attributed to certain 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 may also be subject to the Cayman tax.

Consequently, all income earned by the foreign legal structure including interest, dividends, capital gains, rent, etc. will be taxed in accordance with the applicable Belgian tax rates as discussed above, regardless of whether the recipient takes the form of Belgian natural person, or a Belgian non-profit organization.

5. Foreign executives
The Belgian tax administration has devised a special tax treatment for foreign executives who come to Belgium for longer periods. Notwithstanding that a foreign executive may fall within the definition of "tax resident", he/she may nonetheless be treated as a non-resident, subject to satisfying certain requirements. In effect, the foreign executive will only be taxed on his/her Belgian sourced income, similar to a non-domiciled regime.

6. Wealth tax
Belgium has no wealth or exit tax for private individuals.