As announced in our newsletter of 25 November 2013, the Belgian government was planning to introduce, as from 1 January 2014, a tax transparency measure in personal income tax under its Program Law, enacted at the end of 2013. This measure would affect founders of foreign legal structures by introducing the concept of fictional attribution of property ownership.
However, the draft of the tax transparency law was not adopted before the end of 2013 and was, therefore, not published in the Belgian Official Gazette in 2013.
The aim was for the tax transparency measures to be consistent with the obligations, introduced in July 2013, for founders and beneficiaries to report foreign legal structures in their annual income tax returns as from assessment year 2014 (income of the year 2013), as announced in our newsletter of 22 July 2013.
The law on the reporting obligation was adopted in July 2013 and was published in the Belgian Official Gazette in August 2013.
The foreign legal structures (targeted by the reporting obligation, and intended to be caught by the planned tax transparency measures) include not only trusts, but also foundations and companies, in so far as the latter are included in the "blacklist" set out in a Royal Decree.
The Royal Decree intended to contain the "blacklist" was not published in the Belgian Official Gazette in 2013.
Below, you will find an update on the current state of affairs, without the tax transparency measures and without the "blacklist".
1 The reporting obligation has been introduced
1.1 Who needs to report?
First, the obligation applies to founders. The definition of a founder should be understood as:
• A natural person who has set up the foreign structure; or
• A natural person who has contributed property and rights, if the structure was set up by a third party; or
• A natural person who is a direct or indirect heir of the persons referred to above, unless such heirs can provide that they or their heirs will never enjoy any financial or other advantage deriving from the structure.
Secondly, the reporting obligation applies to beneficiaries. The definition of beneficiary should be understood as:
• The natural person who is at some time and in whatever manner, a beneficiary or a potential beneficiary of the structure.
As long as the tax transparency legislation has not been adopted and has not been published in the Belgian Official Gazette, the reporting obligation also applies to potential beneficiaries. The draft tax transparency legislation revokes the reporting obligation for potential beneficiaries, but as stated, the legislation has not yet been adopted.
1.2 What needs to be reported?
Founders and beneficiaries of a foreign trust, need to report the existence of the foreign trust.
The "blacklist" has not yet been published, and as long as it has not, the reporting obligation for founders and beneficiaries of foundations and companies remains void.
1.3 As from when is the reporting obligation applicable?
The reporting obligation applies as from the date of the personal income tax return for the assessment year 2014 (income of the year 2013).
2 Tax transparency has not been introduced (yet)
As long as the draft tax transparency legislation has not been adopted and has not been published in the Belgian Official Gazette, only founders and beneficiaries of foreign trusts need to report their existence.
No fictional attribution of property has (yet) been adopted on the basis of which income, derived from the assets, rights and capital owned by a foreign trust, can be taxed in the hands of its founder residing in Belgium.
Given that the Royal Decree containing the "blacklist" has not (yet) been published, there is no reporting obligation for founders and beneficiaries of foundations and companies (as yet).
Since the draft tax transparency legislation has not (yet) been adopted, there is no fictional attribution of property, on the basis of which, founders of a foundation or a company could be taxed on the income derived from the property owned by such foundation or company.
3 The new personal income tax on distributions made by foreign legal structures has not (yet) been introduced
The draft tax transparency legislation not only provided for a fictional attribution of property, it also introduced a new flat tax rate of personal income tax amounting to 25% of the value of the distributions, made either by trusts or by foundations and companies included in the "blacklist".
Given that the draft tax transparency legislation has not (yet) been adopted and published, this new flat rate of personal income tax of 25% on distributions, is not effective (as yet).
4 Sequel?
As to the sequel to this situation, there is no certainty for the moment. The fact that the tax transparency legislation was not adopted before the end of 2013, does not imply that this legislation will not be adopted at a later date.
The same can be said of the Royal Decree containing the "blacklist"; it should not be assumed from the fact that it has not yet been published, that it will not be published in the future.
