BELGIUM Trends and Developments Contributed by: An Weyn and Aurore Sultus, Arteo
Preventing taxation upon subsequent distribution by the legal construction The look-through taxation applies regardless of wheth - er or not the legal construction has actually distributed any of its income to the founders. To prevent double taxation occurring if income is in fact later distributed to a Belgian resident, Belgian tax law provides that distributions by a legal construction are exempt from further taxation as dividend income if the distributed income has already been effectively taxed in Belgium under the look-through provisions. This means that the exemption rule does not apply to any income that has not actually been taxed under the look-through approach because the income was either not taxable or exempt under the Belgian domes - tic rules (eg, in the case of capital gains on shares) or under the provisions of a double tax treaty (eg, in the case of foreign-source real estate income). Exit tax upon emigration of the founder Upon the emigration of the founder abroad, the undis - tributed income of the legal construction is deemed to be distributed by way of a dividend. As a result, the founder will be taxed on a fictitious dividend income at a flat rate of 30% upon relocation. The exit tax can be paid in instalments over five years if the legal con - struction is established in the EEA. No foreign tax credit Foreign taxes paid by targeted legal constructions cannot be credited against any Belgian income tax due from their founders. This may lead to international double taxation. Reporting obligation The founder of a legal construction must report its existence through the annual income tax return. Fail - ure to fulfil this obligation is punishable by a fine of EUR6,250 per year and per undeclared legal con - struction. Advanced rulings Several rulings have been published by the ruling commission on the applicability of the look-through taxation.
A compartment of a Luxembourg UCI ( société d’investissement à capital variable ) has been deter - mined to be a legal construction because the share - holders were related persons and the substance exclusion was not accepted by the ruling commission as the fund managed the private wealth of the share - holders, according to the ruling commission. The Belgian ruling commission decided that a UK Self- Invested Personal Pension (SIPP) must be regarded as a legal construction but it was excluded from the scope of the look-through taxation as the SIPP carried out a genuine economic activity with several prem - ises, a couple hundred employees in service and a sufficient amount of equipment. The “hybrid” definition has been applied to a Luxem - bourg S.C. ( société civile ). It was also decided that a Luxembourg SOPARFI is within the scope of the look- through provisions if the 1% test is not met. Pursuant to the latest reform, it was confirmed in a tax ruling that a French investment fund taking the form of an SLP ( société de libre partenariat ) is an excluded entity insofar as no (related) persons hold more than 50% of the rights per compartment. Belgian Cayman tax and compatibility with tax treaties The Belgian tax authorities do not accept that the look-through taxation may violate tax treaties. A gen - eral application of the Cayman tax in cases where there is no abuse of law and the foreign structure is created for legitimate purposes does, however, seem to infringe the relevant tax treaty rights to which the taxpayers are entitled. Indeed, several states have made an explicit reservation regarding the introduc - tion of the savings clause in tax treaties in the context of the multilateral instrument. For example, on 7 February 2025, the Court of First Instance of Leuven ruled that the application of the look-through taxation rules to income realised at the level of a company based in Hong Kong violated the provisions of the income tax treaty concluded between Belgium and Hong Kong.
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