You are on page 1of 6

I.

BELGIAN TAX TREATMENT OF PRIVATE FOUNDATIONS

Belgium has recently been rediscovered by some wealthy European individuals as an ideal residence state, giving
rise during the last few years to an unprecedented mass influx of high net worth individuals (HNWI) in the
country, especially from France.
Ironically, part of Belgiums appeal to tax avoiders is its reputation for high taxes. Belgium is in fact a leading
contender on the OECD palmares of jurisdictions with the highest tax burden. Thus it is not generally perceived
as a tax haven. However, upon closer inspection, many features of the Belgian tax system render it particularly
attractive to HNWI.
One of these features is the Belgian private foundation.
The private foundation is a relatively new type of Belgian entity introduced in the Belgian legal system by the Act
of 2 May 2002.
In essence, this term refers to a special purpose property unit with a separate legal personality used with the aim
of pursuing a specific benevolent purpose.
Although simply transferring wealth to the next generation will not be considered a benevolent purpose,
maintaining the familys estate through the generations and making distributions towards that objective, will.
In short, for the private foundation framework to apply the following criteria have to be fulfilled:

the foundation must have received from his founder(s) a voluntary gift in favour of a non-profitable goal.
There is no minimum value for these initial assets.
the founder is not necessarily a natural person: another association, or even a company, can be a valid
founder.
the aim from the founders or board members, and even third parties, cannot be to make material profit
from the foundation. However, there can be a material interest for third parties, if this is required for
achieving the non-profitable purpose of the foundation. For instance, a foundation established for helping
a disabled child might give some support to this child, a foundation set up for the education of young
musicians, the promotion and support of a community, the promotion and advancement of scientific
research, maintenance of a castle,
an act by the public notary will be required to establish and set up the foundation
in case of liquidation of the foundation, the remaining balance has to be used for a non-profitable goal.
Nevertheless, the founder or his/her legal successors may take back the gift or the value of the gift used to
establish the foundation (if specified in the status).

Tax treatment
Refistration fees
As far as moveable property is concerned, transfer or assets to a private foundation can be either:
- tax free. When the transfer of moveable property is structured as an inter vivos gift no gift tax nor inheritance
tax will be due. Albeit the tax being payable when the deed is registered in Belgium, the tax can legally be
avoided when the transfer without registration is made as a handgift, bankgift, indirect gifts or by deed of a
foreign notary. This applies if the donors gift survives for at least three years after the making of the gift; the
gift will not result back to the estate of the donor unless the donor dies before the expiration of this period.

at a flat gift tax rate. As the gift tax is a regional tax the rate will vary from 7% to 7,7% depending on the
region.

Compensatory tax for inheritance tax


Based on the value of their assets, private foundations are also subject to an annual taxe compensatoire des
droits de succession (compensatory tax for inheritance tax). This tax is levied at a rate of 0.17%, much lower
than in neighbouring countries and numerous exemptions are also available. Private foundations established in
Belgium also avoid the annual wealth tax such as in France.
Legal entity income tax (LEIT)
Furthermore, provided that they are not engaged in activities of profitable nature or professional character,
private foundations are subject to the legal entity income tax . The latter, unlike the corporate income tax, does
not tax the total annual income but only certain categories of income and capital gains namely, real estate
income, moveable income and miscellaneous income. Subsidies, gifts or legacies received by a private foundation
are not subject to LEIT.
Distributions made by the foundation to the beneficiaries
The main area of complexity of private foundations regards the issue of distributions. The lack of certainty in
relation to the tax treatment applicable to the distributions made by the foundation to its beneficiaries has also
made it the main weakness of private foundations.
The Belgian Ruling Commission recently confirmed that a distribution made by a private foundation will not
trigger the application of income tax once in the hands of the recipient.
Additionally, the rulings confirmed that, where a distribution is made to the beneficiaries with the aim of
achieving the benevolent purpose, there will be no Belgian gift tax or inheritance tax chargeable, even after the
death of the founder.
Unlike in cases such as stipulations on behalf of a third part, private foundation does not constitute an
agreement thus not allowing the application of the fictitious legacy provision (art 8 Inheritance Tax Code).
The Commission however has taken the highly debatable position that inheritance tax is due on the assets
received by the beneficiary upon the dissolution of the foundation. For this, a supplementary declaration of
succession must be filled.
II.

NEW TAX RULES FOR TRANSPARENT LEGAL STRUCTURES

In connection with the foregoing matter, we must mention the new Belgian legislation concerning foreign private
wealth structures (PWS), such as trusts, foundations and off-shore companies.
This legislation, commonly referred to as the Cayman-tax, introduces transparent tax treatment for income
generated via such foreign structures, which implies that all income, earned by the structure as from 1 January
2015 onwards is directly taxed in Belgium, without conversion, in the hands of either the person who set up the
structure or its beneficiaries or potential beneficiaries.
In other words, tax is payable on income earned by legal constructions directly by their "founder(s)" or "third
party beneficiaries", irrespective of whether the construction distributes any income to the tax payer (tax without
cash).
The term "legal constructions" is broad. It covers, on the one hand, fiduciary arrangements (without judicial
personality) - such as trusts - (category a), and on the other hand, foreign foundations and companies that are
lowly taxed abroad (category b).
It should be stressed at the outset that the new legislation does not apply to companies with regular commercial
activities.
With respect to the second group of entities (foundations and corporations), two lists of entities that fall under
the new rules have been established by Royal Decree, one for entities established in the EEA and another for
entities established in countries that are not part of the EEA.

Within the EEA only the following entities are covered:

Liechtenstein Stiftung
Liechtenstein Anstalt
Luxembourg Socit de gestion de Patrimoine Familial

This list is limitative and no other legal structures established within the EEA are subject to the new tax
treatment. Entities on this list are irrefutably presumed to be lowly taxed.
In contrast, the list of legal structures established outside the EEA is not all-inclusive and entities on this list are
only rebuttably presumed to be lowly taxed, which means that the tax on their earnings (re-calculated under
Belgian tax rules) does not exceed 15%.
The tax payer may prove that the foreign entity is actually higher taxed and in this way avoid tax transparency.
One can note that the Swiss Foundation is affected.
Most interestingly, all this goes against the opinion of the Belgian Ruling Commission who held in December last
year that a Liechtenstein private foundation had to be treated in the same way as Belgian foundations.
According to the Ruling Commission, since Liechtenstein is an EEA member, Lichtenstein's legal persons had
therefore to be recognised as such under Belgian law and treated in a non discriminatory manner.
Would this mean that the new legislation is discriminatory ?

Appendix Lowly taxed foreign investment entities outside the European Economic Area
Location

Legal format

US Virgin Islands:

Exempt Company

Anjouan (Comores) :

International Business Company

Antigua and Barbuda :

International Business Company

Anguilla:

International Business Company

Aruba:

Stichting Particulier Fonds

Bahamas :

International Business Company

Bahamas :

Foundation

Barbados :

International Business Company

Barbados :

International Society with Restricted


Liability

Belize:

International Business Company

Bermuda :

Exempt Company

British Virgin Islands:

Company

Brunei:

International Business Company

Cayman Islands

Exempt Company

Cook Islands:

International Company

Costa Rica :

Company

Djibouti :

Exempt Company

Dominica :

International Business Company

Isle of Man:

Company

French Polynesia:

Socit

Grenada:

International Business Company

Guam:

Company

Guatemala:

Fundacin

Guernsey :

Company

Guernsey :

Foundation

Hong Kong :

Private Limited Company

Jersey :

Company

Jersey:

Foundation

Labuan (Maleisia) :

Offshore Company

Libanon :

Ondernemingen die in aanmerking


komen voor het offshore company
regime

Liberia:

Non-resident company

Macau:

Fundao

Maledives:

Company

Marshall Islands:

International Business Company

Mauritius:

Global Business Company category 1

Mauritius:

Global Business Company category 2

Micronesia

Company

Monaco:

Foundation

Montserrat:

International Business Company

Nauru:

Company

Nauru :

Andere met de overheid


onderhandelde ondernemingsvormen

Dutch Antilles:

Stichting Particulier Fonds

New Caledonia:

Socit

Niue :

International business company

Northern Marianas:

Foreign sales corporation

Palau:

Company

Panama:

Fundacin de inters privado

Panama:

International Business Company

Saint Kitts and Nevis:

Foundation

Saint Kitts and Nevis:

Exempt Company

Saint Lucia:

International Business Company

Saint Vincent and Grenadines:

International Business Company

Salomon Islands:

Company

Samoa :

International company

San Marlno :

Fondazione

Sao Tom and Principe:

International Business Company

Seychelles :

International business company

US State of Delaware:

Limited Liability Company

US State of Whyoming:

Limited Liability Company

Turks and Caicos Islands:

Exempt Company

Tuvalu:

Provldent Fund

Uruguay :

Sociedad Annima Financiera de


Inversin

Vanuatu :

Exempt Company

Vanuatu :

International company

United Arab Emirates:

Offshore Company

Switzerland:

Foundation