Law & Numbers - News Tax

The Belgian tax regime of capital gains on shares

09.04.2014 (Belgium)

It is widely known that Belgium is a country where capital gains on shares are subject to little or no tax. Non-Belgian tax residents can also benefit from this favorable tax treatment of capital gains on shares by relocating their share portfolio to Belgium.

As such, this requires the creation of a belgian company to which the non-reident taxpayer will transfer his portfolio for free or at its book value with a view to sell it at the lowest tax cost.

At the time of the transfer, the shares will be recorded in the Belgian company’s annual accounts for their acquisition value, that is zero or the book value.

As a result, no profit may be recorded at the moment of the acquisition so that this acquisition in itself does not lead to taxation.

The European Court of Justice has now confirmed that a valuation at historical cost must be applied whenever assets are acquired at a price that is lower than their real value, even when they are acquired at no cost.

At the time of the sale, capital gains will be subject to little or no tax provided that certain conditions are met.

In the good old days, capital gains on shares where fully exempt without restriction. Recently however, a new tax regime relating to capital gains on shares has been introduced.

They are, as a general rule, still fully exempt, but provided the following two main conditions are respected:

1. The so-called “subject-to-tax” condition of the issuing company

The taxation condition, in short, means that the shares issuing company is subjected to a normal taxation regime.

2. The one year holding requirement

The latter condition means that the shares have to be held in full ownership during an uninterrupted period of 1 year.

This condition has been in force since tax year 2013.

Moreover, from tax year 2014, 'large' companies that satisfy the aforementioned conditions must pay a tax of 0.412% on capital gains on shares that they realize.

As such, the 0.412% tax does not apply to SMEs (small and medium sized enterprises).

SMEs are companies with legal personality that do not exceed more than one of the following thresholds:

- Annual average number of employees: 50

- Annual turn-over, excluding VAT: EUR 7,300,000

- Balance sheet total: EUR 3,650,000

It should be noted that a company can no longer be considered as SME when it disposes of more than 100 employees.

If the company is a member of a group of associates or related companies, their employees are aggregated and their turn-over and balance sheet total are determined on a consolidated basis.

The current tax regime of capital gains on shares can be summarised as follows:

• Full exemption for capital gains on shares realised by SMEs whereby both the holding period requirement and the subject-to-tax condition of the subsidiary company are met

• Taxation at 0.412% for capital gains on shares realised by companies other than SMEs provided that the holding period and the subject-to-tax requirement are met

• Taxation at 25.75% for capital gains on shares when the subject-to-tax condition is complied with, but not the one-year holding period requirement

• Taxation at the standard corporate income tax rate of 33.99% for capital gains on shares, whereby the subject-to-tax condition is not met (and regardless of the one-year holding requirement).

Company type ; Holding period ; Subject to tax” requirement met ; “Subject to tax” requirement not met

SMEs ; >= 1 year ; Exempt ; 33,99%
SMEs ; < 1 year ; 25,75 % ; 33,99%

Other than SMEs - >= 1 year - 0,412 % - 33,99%
Other than SMEs - < 1 year - 25,75% - 33,99%

Obviously, these new requirements make the Belgian tax regime on capital gains on shares less attractive, specially the detention requirement, but there are still some good bargains to be made in our country.

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