The Belgian participation exemption regime can be summarized as follows.
1. Dividend-received deduction
Under the participation exemption regime, 95% of dividends received by a Belgian company from a Belgian or foreign company which is subject to corporate income tax are exempt. In other words, only 5% of the dividend received is taxable at the corporate income tax rate of 40.17%.
The exemption is granted very liberally:
(1) there is no minimum holding period requirement, i.e. the exemption is available as of the date the shares are acquired;
(2) there is a minimum shareholding requirement of 5% or BEF 50 million (except for banks and insurance companies and stock exchange companies, for which there is no minimum shareholding requirement);
(3) the exemption applies to dividends distributed by EC and non-EC companies;
(4) there is no full ownership requirement, i.e. the exemption is available for shares in which the parent holds a derivative right such as a "usufruct";
(5) the exemption applies even if the distribution results in a write-down of the book value of the underlying shares; however, this write-down is, in principle, no longer deductible;
(6) the exemption also applies to payments received upon liquidation of a company or when the shares are redeemed.
2. Capital gains and losses
Capital gains on shareholdings realized by a Belgian company are fully tax-exempt, provided that the dividends on the shares qualify for the participation exemption discussed above. The capital gains exemption also applies to shares distributed to the shareholders upon liquidation of the holding company.
For the exemption to apply, there is no minimum shareholding or holding period requirement.
The exemption only applies to the extent that the capital gains realized on the shares exceed previously deducted reductions in value on the shares, which were fiscally deducted before July 24, 1991.
On the other hand reductions in value and capital losses on shareholdings are not deductible. However, a capital loss incurred upon liquidation of the company in which the participation is held can be deducted up to the loss of the paid-in share capital represented by the shares.
3. Anti-abuse provisions
The participation exemption does not apply to dividends derived from, and capital gains realized on, shares in the following companies:
(1) companies established in jurisdictions where they are not subject to a corporate tax similar to the Belgian corporate income tax;
(2) companies established in jurisdictions where the tax system is significantly more advantageous than in Belgium;
(3) holding or finance companies which are subject in the country where they are established to a tax regime which derogates from the normal tax regime;
(4) investment companies;
(5) foreign companies distributing dividends out of (dividend) income that does not fall within the scope of the participation exemption.
Dividends distributed by companies described under (3) and (4) above nevertheless qualify if it can be demonstrated that these dividends are paid out of profits (dividends) which qualify for the participation exemption (i.e., the dividends would qualify for the participation exemption if they were paid directly to the Belgian resident company). This look-through rule does not apply if the holding, finance or investment company is established in a (tax haven) jurisdiction as described under (1) or (2) above.
The Belgian tax authorities have published a list of tax haven jurisdictions.
The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.
De Bandt, van Hecke & Lagae - Brussels. (32-2) 501.91.80
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