Belgium: Domestic Corporate Taxation
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. Unlike other jurisdictions there is no time limit on how long the shares must have been held for this exemption to apply.
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.
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.