Belgium’s Constitutional Court has published Decision No. 4/2025 on 16 January 2025, responding to a preliminary question submitted by the Court of First Instance in Liège. The ruling clarifies when small companies can apply the reduced withholding tax rate on dividends.

The issue concerns whether limiting reduced withholding tax to fully cash-paid capital, excluding part-in-kind payments without abuse risk, violates the equality and non-discrimination principles of the Belgian Constitution.

A company established in 2013 faced a tax dispute regarding dividend distributions. In 2019, an incorporator contributed funds from a partner’s account to settle unpaid share capital. The company later applied a reduced 15% withholding tax rate on dividend distributions in 2019 and 2020, claiming eligibility as a small company. However, tax authorities argued the reduced rate did not apply because the capital was partially paid in kind, not entirely in cash, and assessed a 30% rate instead. The company appealed, arguing the transaction could have been structured differently to meet the conditions.

The Court ruled that tax advantages are permissible if the difference in treatment is reasonably justified. It emphasised the legislator’s broad discretion in setting tax rates as part of socio-economic policy, allowing for corrective actions. The Court will only reject such decisions if they are erroneous or unreasonable.

The Court ruled that distinguishing between cash and in-kind contributions aligns with the legislator’s intent to encourage cash contributions for fresh capital while limiting risks like the overvaluation of in-kind contributions. This distinction supports social and economic policy, which can tie into fiscal policy.

The Court also found the distinction justified to prevent abuse, noting that contributions of debt claims in current accounts could lead to manipulation of accounting records. As a result, the Court sided with the tax authorities, concluding that limiting the reduced rate to cash contributions does not constitute unjustified discrimination.