Belgium’s tax authorities have issued two circular letters – Circular 2024/C/82 and Circular 2024/C/83 – on 13 December 2024 – providing clarity on specific aspects of the controlled foreign company (CFC) rules introduced in 2023. The amended rules call for the taxation of passive income of a low-taxed CFC entity owned by a Belgian controlling company, unless the CFC has sufficient economic substance.
The first circular letter (Circular 2024/C/82) provides guidance on applying and calculating CFC rules. This circular provides clarifications on determining if a foreign company is subject to CFC rules (i.e., taxed at less than half the rate it would as a Belgian tax resident).
To determine if a foreign company or establishment qualifies as a low-taxed entity for CFC purposes, i.e. if its foreign tax is at least half of the corporate tax due in Belgium, the (qualified) domestic minimum top-up tax (‘QDMTT’) levied in the foreign entity’s country is not considered a qualifying income tax.
The second circular letter (Circular 2024/C/83) covers procedural aspects, including recent changes to other anti-abuse regulations. In this circular letter, the focus is on determining if a foreign company is subject to CFC rules and qualifies for a safe harbor (e.g., for substantial economic activity).
To qualify for this safe harbor, the entity must establish legitimate business operations, including staff, assets, equipment, and buildings. This is assessed based on relevant facts. However, if a CFC’s economic activity doesn’t meet all of these criteria, the taxpayer can still prove substantial economic activity in the specific case.
