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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.
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.
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) :
Anguilla:
Aruba:
Bahamas :
Bahamas :
Foundation
Barbados :
Barbados :
Belize:
Bermuda :
Exempt Company
Company
Brunei:
Cayman Islands
Exempt Company
Cook Islands:
International Company
Costa Rica :
Company
Djibouti :
Exempt Company
Dominica :
Isle of Man:
Company
French Polynesia:
Socit
Grenada:
Guam:
Company
Guatemala:
Fundacin
Guernsey :
Company
Guernsey :
Foundation
Hong Kong :
Jersey :
Company
Jersey:
Foundation
Labuan (Maleisia) :
Offshore Company
Libanon :
Liberia:
Non-resident company
Macau:
Fundao
Maledives:
Company
Marshall Islands:
Mauritius:
Mauritius:
Micronesia
Company
Monaco:
Foundation
Montserrat:
Nauru:
Company
Nauru :
Dutch Antilles:
New Caledonia:
Socit
Niue :
Northern Marianas:
Palau:
Company
Panama:
Panama:
Foundation
Exempt Company
Saint Lucia:
Salomon Islands:
Company
Samoa :
International company
San Marlno :
Fondazione
Seychelles :
US State of Delaware:
US State of Whyoming:
Exempt Company
Tuvalu:
Provldent Fund
Uruguay :
Vanuatu :
Exempt Company
Vanuatu :
International company
Offshore Company
Switzerland:
Foundation