Like many other countries, Belgium stimulates donations and legacies to charities by granting tax benefits. An important condition hereto is that the charitable organization is established within the European Economic Area. Following Brexit, charitable organizations established in the United Kingdom therefore no longer qualify for the Belgian tax benefits. Belgian residents must reconsider their donations and legacies to UK charities. UK charities must consider creating a presence in the European Economic Area if they want to continue to receive donations and legacies from Belgian residents.
Income tax relief
Belgian residents for whom a warm glow is not enough might nevertheless be persuaded to give to charity by the income tax relief they can obtain for qualifying gifts.
For income year 2020 (assessment year 2021), the income tax relief amounts to 60% of the gift made, with a maximum of (i) 20% of the taxpayer’s net income and (ii) €397.850.
The main conditions for a gift to qualify for the income tax relief are the following:
- The gift amounts to at least €40 (to be assessed per year and per charitable organization);
- The gift must be made to a recognized charitable organization that issues a gift certificate;
- The charitable purpose of the organization must be included in the limited list of recognized activities (eg scientific research, culture, environment, …); and
- The charitable organization must be established within the European Economic Area (“EEA”).
This last condition implies that Belgian residents can no longer obtain an income tax relief for gifts made to charities established in the United Kingdom (“UK”), as the UK left the EEA following Brexit.
Lower gift tax rates
Gift tax is a matter of the Regions in Belgium: the Flemish Region, the Walloon Region and the Brussels Capital Region. Generally, it is the Region where the donor has his / her residence that will be entitled to levy gift tax.
The Flemish Region applies a more favourable gift tax rate of 5,5% to gifts of movable assets made to qualifying charitable organizations and will even reduce this rate to 0% for gifts made as from 1 July 2021. Important conditions for a charitable organization to qualify for this favourable gift tax rate are the legal form of the organization and the establishment of the organization within the EEA (seat of incorporation, central management or headquarters within the EEA).
The Walloon Region and the Brussels Capital Region equally apply flat gift tax rates to gifts of movable assets, but do not provide for a more favourable regime for gifts made to charities:
Qualifying charity
Non-qualifying charity
Flemish Region
0% (as from 01/07/2021)
7%
Walloon Region
5,5%
5,5%
Brussels Capital Region
7%
7%
All three Regions allow the possibility to make gifts without paying gift tax, provided that the gift is not registered in Belgium. The registration of gifts made in a notarial deed is mandatory. This obligation does not apply to informal gifts.
If no gift tax is paid in Belgium, Belgian inheritance tax will however be due if the donor dies as a Belgian resident within three years following the gift.
Lower inheritance tax rates
Like gift tax, inheritance tax is also a matter of the Belgian Regions. Generally, the Region where the testator had his / her main residence at the moment of death will be entitled to levy inheritance tax. All three Regions apply a more favourable flat inheritance tax rate to legacies made to qualifying charitable organizations, with the Flemish Region reducing the current rate of 8,5% to 0% as from 1 July 2021:
Qualifying charities
Flemish Region
0% (as from 01/07/2021)
Walloon Region
7%
Brussels Capital Region
7% or 25%
(7% if the income tax relief is applicable)
Both the legal form and the presence of the charitable organization in the EEA are important requirements for a charity to benefit from the favourable flat inheritance tax rates. All three Region require for charitable organizations to have their seat of incorporation, their central management or their headquarters within the EEA.
Following Brexit, UK charities will no longer qualify for the favourable inheritance tax rates. Legacies made to UK charities are now subject to high progressive inheritance tax rates in all three Regions:
Flemish Region
€0,01 - €35.000
25%
€35.000,01 - €75.000
45%
> €75.000
55%
Walloon Region
€0,01 - €12.500
30%
€12.500,01 - €25.000
35%
€25.000,01 - €75.000
60%
> €75.000
80%
Brussels Capital Region
€0,01 - €50.000
40%
€50.000,01 - €75.000
55%
€75.000,01 - €175.000
65%
> €175.000
80%
Considering the high progressive inheritance tax rates, the net legacy received by UK charities will be significantly lower now the UK is no longer part of the EEA.
Donations and legacies in the post Brexit era?
Belgian residents who want charities to get the most out of their donations and legacies (instead of the Belgian Treasury), must reconsider the donations and legacies they make to charitable organization established in the UK.
UK charities who want to continue to attract Belgian maecenases must consider creating a sufficient presence in the EEA.
