Belgium has approved the 2024 budgetary measures, including new CFC rules, increased progressive tax on credit institutions, and strengthening Cayman tax rules.
New CFC rules
One key aspect of Belgiam’s CFC rules is the implementation of the Anti-Tax Avoidance Directive (ATAD). The ATAD aims to tackle the non-distributed income of Controlled Foreign Companies (CFCs) resulting from non-genuine arrangements or a series of arrangements designed for obtaining tax advantages (known as the Model B approach). The new CFC rules have been amended to transition to the Model A approach. This requires the inclusion of specified passive income of a CFC unless the CFC demonstrates adequate economic activity from equipment, personnel, assets, and buildings.
An exemption is also applicable if the specified passive income constitutes less than one-third of the total income of a Controlled Foreign Corporation (CFC). These specified passive incomes include royalties, interest, dividends, income from the disposal of shares, options, and bonds, rental income, income from banking, investments, asset management, insurance, and other financial activities.
The criteria for a Controlled Foreign Company (CFC) remain unchanged, such as the CFC must be subject to corporate income tax at a rate lower than 50% of Belgium’s corporate income tax rate.
The amended CFC rules will take effect starting from the 2024 assessment year.
Higher progressive tax on credit institutions and elimination of tax deduction
A higher progressive tax on credit institutions. The standard rate, at 0.13231%, will be applied to customer debts, while an increased rate of 0.17581% will be levied on the portion of the tax base surpassing EUR 50 billion. Additionally, starting from the 2025 assessment year, deductions on annual taxes paid by credit institutions, collective investment undertakings, and insurance undertakings will no longer be available.
Strengthening of Cayman tax rules
The Cayman tax rules are further strengthened to reduce the flow of funds to tax havens. The amended rules are:
- At least 50% of an undertaking for collective investment (UCI) must owned by unrelated individuals for the UCI to be classified as an illegal structure.
- An exit tax is established when the tax residency of the founder of a legal structure is transferred outside Belgium.
- Capital gains on previously exempted shares will be taxed at 30% at distribution.
- The definition of “founder” is expanded to include individuals who hold rights in legal structures indirectly through intermediary structures that are not legal entities, such as a private limited company.
The changes go into effect from 1 January 2024.
