Belgian Holding Companies

Belgian Holding Companies

Belgium has a corporate income tax rate of 33.99% (including a 3% so-called 'crisis surcharge') and has never been considered a financial center. However in order to attract the headquarters of foreign multinational companies Belgium accords favorable tax treatment to entities known as "co-ordination centers" (currently being phased out). It also offers a low-tax regime to expatriate employees with specialist skills, and has a relatively benign holding company taxation regime.

For a country to be an attractive location in which to set up a holding company 4 criteria must be satisfied:

Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary's jurisdiction.

Dividend Income Received: Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company's jurisdiction.

Capital Gains Tax on Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company's jurisdiction.

Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company's jurisdiction.

By these criteria Belgium is a fiscally attractive jurisdiction in which to locate a holding company:

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Withholding Taxes On Incoming Dividends

As a member of the EU Belgium is governed by the provisions of the EU's Parent-Subsidiary directive, whose effect is that where a Belgian holding company controls at least 10% (15% prior to January 1, 2009) of the shares of an EU subsidiary for a minimum period of 12 months, or engages to do so, any dividends remitted by the EU subsidiary to the Belgian holding company are free of withholding taxes.

Where the provisions of this directive do not apply (or where anti-avoidance provisions are in place) Belgian holding companies can rely on an extensive network of double taxation treaties the effect of which is to obtain a reduction in withholding tax rates on dividends remitted to Belgium from the subsidiary jurisdiction.

Belgium has 88 double taxation treaties in place (at the time of writing). (Denmark has 80 and the UK over 100). The greater a country's network of double taxation treaties the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction.

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Corporate Income Tax on Dividend Income Received

The Belgian corporate income tax rate stands at 33.99%, including a 3% so-called 'crisis surcharge'. Nonetheless dividend income received by a Belgian company is subject to a substantially reduced level of corporate income tax in two situations:

EU Subsidiary: Where the provisions of the EU parent-subsidiary directive apply dividends received by a Belgian parent corporation from an EU subsidiary are exempt from any further corporate income tax. The EU parent-subsidiary directive applies if both the parent and subsidiary corporation are resident for fiscal purposes in the EU and the parent corporation owns at least 10% (15% prior to January 1, 2009) of the shares of the subsidiary for a minimum period of at least 12 months.

Non-EU subsidiary: Under domestic legislation known as the "Belgian Participation Exemption rules" where a Belgian parent corporation receives dividend income from a non-EU subsidiary, only 5% of the dividend income is subject to the Belgian corporate income tax rate of 33.99% with the other 95% of dividends being tax-exempt provided that the Belgian holding company holds at least 10% of the foreign subsidiary's shares or has a shareholding valued at EUR2.5m (EUR1.2m prior to January, 2010). Unlike other jurisdictions there is no time limit on how long the shares must have been held for this exemption to apply.

(By way of comparison a Danish holding company is only exempted from corporate income tax on incoming dividend income if it has held at least 20% of the shares in the foreign subsidiary for a minimum period of 12 months and provided the foreign subsidiary is not deemed a "Controlled Foreign Corporation").

Subsidiaries resident in certain jurisdictions which have a considerably more favorable tax regime than that applying in Belgium are disqualified for the purposes of the 5% rule, with the effect that dividend income received by Belgian parent corporation from such subsidiaries will be taxed at the normal corporate income tax rate. The Belgian tax authorities have published a list of jurisdictions disqualified for the purpose of this rule and included amongst this list are all offshore jurisdictions. Thus dividend income received by a Belgian parent corporation from an offshore subsidiary will be subject to the normal corporate income tax rate. Other categories of company whose foreign income will be taxed include:

Foreign Source Income Not Taxed: Dividend income received by a Belgian holding company from a corporation resident in a jurisdiction in which foreign source income is not taxed will be subject to the normal Belgian corporate income tax rate. Other than corporations resident in offshore jurisdictions this list would include corporations resident in Costa Rica, Hong Kong, Malaysia, Singapore and Oman.

Non-discriminatory more Favorable Fiscal Regime: Dividend income received by a Belgian holding company from a subsidiary resident in a territory with a non-discriminatory but more favorable fiscal regime would be subject to the normal Belgian corporate income tax rate. Surprisingly this would include companies incorporated in territories such as Hong Kong.

Holding & Finance Companies: Dividends received from holding and finance company subsidiaries resident in a territory which has a tax system considerably more beneficial than that available in Belgium are subject to the normal Belgian corporate income tax rate. Other than corporations located in traditional offshore tax havens this list would include companies located in Luxembourg, Liechtenstein & Uruguay.

Companies Benefiting from Discriminatory Tax Systems: Since 1998 dividend income received by a Belgian parent corporation from a subsidiary located in a territory which has discriminatory fiscal laws are subject to normal Belgian corporate income tax rate. This would for example include companies registered in those offshore jurisdictions which have high levels of tax for resident corporations but negligible rates for non-resident corporations.

Companies in Free Trade Zones: Dividend income received by a Belgian parent corporation from a subsidiary located in and trading from a territory which is a free trade zone are taxed at the normal corporate income tax rate. This would include companies located in Madeira and the United Arab Emirates.

NB: Belgian participation exemption rules apply to EU companies which do not meet the EU Parent-Subsidiary Directive criteria in that either the Belgian parent corporation does not have a 10% shareholding or alternatively does have such a shareholding but not for the minimum period required.

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Capital Gains Tax on the Sale of Shares

In Belgium capital gains are deemed corporate income and are taxed at the normal rate. By way of exception capital gains realized by a Belgian parent corporation on the sale of shares in an EU or non-EU subsidiary are exempt from corporate income tax in Belgium irrespective of the size or duration of shareholding, provided the 'taxation conditions' of the participation exemption regime are met. Capital losses on the sale of shares are not tax deductible. (N.B. A Danish holding company by contrast is only exempted in Denmark from capital gains tax on the sale of shares in a subsidiary if it has held the subsidiary's shares for a minimum period of 3 years and provided the subsidiary is not deemed a "Controlled Foreign Corporation").

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Withholding Taxes on Outgoing Dividends

Dividends paid by Belgian subsidiaries to EU parent corporations are exempt from Belgian withholding taxes provided the EU parent corporation has held 10% of the shares in the Belgian subsidiary for at least 12 months.

If the parent corporation is not an EU entity or if these conditions are not otherwise satisfied then a standard withholding tax rate of 25.75% applies on outgoing dividends unless that rate has been reduced (usually to 15% or less) by the provisions of a double taxation treaty. Belgium has 88 double taxation treaties in place. (Denmark has 80 and the UK has over 100).

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