Over the last weeks, the legislator made some major changes to the withholding tax system. The latest tax measures have been implemented by the Act of 13 December 2012 and the Program Act of 27 December 2012 into the Belgian Income Tax Code (“BITC”). In addition, the Royal Decrees of 20 December 2012 and 27 December 2012 made some changes to the RD/BITC with a view to adjusting some withholding tax exemptions.
In this Newsflash we briefly go through the changes made to the new withholding tax rates as from 2013 in general, and in particular the changes to:
- residential REITs (“sicafis résidentielles”, “residentiële vastgoedbevaks”)
- the Belgian tax charge on bond funds
- the withholding tax exemptions for dividends paid to some foreign investors and dividends paid by Belgian investment companies to non-resident savers.
- the transitional system for investment income paid in 2012.
Withholding tax rate as from 2013
The Program Act of 27 December 2012 generalised the “default” withholding tax rate for all investment income at 25% as from 1st January 2013. As a result, interest payments and dividends paid among others by investment companies or corresponding to shares with a VVPR strip will no longer be taxed at the 21% reduced rate.
Section 269 BITC provides a limited number of exceptions for which the reduced rate still applies:
- Interest from regulated savings deposits in excess of the tax-exempt amount received by individuals (15%);
- Dividends from residential REITs (15%);
- Royalties resulting from copyrights and related rights and from legal and compulsory licenses up to the EUR 56.450 threshold as indexed for income year 2013 (15%);
- Liquidation surpluses (10%);
- Compensation for missing coupon or missing lot (15% or 25%)
- Interest from Leterme State bonds (15%)
The withholding tax on investment income collected in 2013 will again be deemed to be final tax (“précompte mobilier libératoire”, “bevrijdende roerende voorheffing”). Consequently in the tax return for assessment year 2014, individuals are not obliged to report the investment income collected in 2013 (except for some limited exceptions).
The 4% surcharge on certain investment income introduced by the Program Act of 28 December 2011 will no longer be applicable as from 1st January 2013.
Dividends paid by residential REITs
As from 1st January 2013, dividends paid by residential REITs are subject to a 15% withholding tax. Before 2013 those dividends were exempt from withholding tax. The exemption laid down in section 106, §8 RD/BITC is abolished by the RD of 27 December 2012.
The conditions to benefit from the 15% reduced rate applicable to residential REITs are not completely the same as those applicable in the past to benefit from the withholding tax exemption. Certain conditions have become more lenient to be in line with the fundamental freedom of capital and establishment applicable in the EU. Others have become stricter due to budgetary measures.
- As from 2013, also dividends paid by investment companies established in other Member States in the European Economic Area with similar characteristics as Belgian REITs can benefit from the reduced rate;
- The shares of the residential REIT may be listed on a foreign stock exchange;
- The minimum threshold for residential investments is increased from 60% to 80%;
- Residential investments can be held in the entire European Economic Area;
- The legislation would no longer refer to companies investing “directly or indirectly” but only to those investing “directly” in qualifying real estate.
By way of transitional measure for 2013 and 2014, the new 80% investment requirement would not apply. Instead, the 60% requirement would continue to apply to dividends paid or attributed in 2013 and 2014 by companies benefitting from the current withholding tax exemption, as provided in section 106, §8 RD/BITC as it exists per 31 December 2012.
Changes to the Belgian tax charge on bond funds
A particular tax system for funds investing more than 40% in fixed interest bearing securities has been introduced in the Belgian legislation by the Act of 27 December 2005. A Belgian withholding tax applies on “the part of the amount corresponding to the interest component, received in the case of redemption of own shares or in the case of full or partial distribution of the net assets of a UCITS more that 40% of whose assets are invested directly or indirectly in debts, to the extent that this interest component relates to the period during which the beneficiary has held the shares”.
Under this particular tax system, capital gains realised upon redemption of own units by or upon the full or partial distribution of the net assets of an investment fund are treated as interest subject to Belgian withholding tax (since 1st January 2013, at a rate of 25%) provided certain conditions are met.
As from 20 December 2012, in order to fall within the scope of this particular tax system, the funds should invest more than 25% in debt instruments. The Act of 13 December 2012 has reduced the rate of 40% to 25% so that the range of funds subject to the tax and reporting obligation increases. In addition, some loopholes in the legal provisions dealing with the computation of the tax base “by default” have been closed. For more details, we refer to our Newsalert of 23 November 2012.
Withholding tax exemptions
Exemption provided by section 106, §2 RD/BITC
As from 7 January 2013, the exemption from withholding tax laid down in section 106, §2 RD/BITC is limited to Belgian dividends received by foreign pension funds, as amended by the Royal Decree of 20 December 2012 to exclude from the scope of application foreign individuals that are resident in a tax havens.
Exemption provided by section 106, §7 RD/BITC
Dividends paid by investment companies to non-resident investors in principle benefit from an exemption from withholding taxes (except to the extent that the dividends distributed stems from Belgian-source dividends) provided in section 106, §7 RD/BITC. This exemption was not applicable if the dividends were paid by REITs as there was a specific exemption for residential REITs under section 106, §8 RD/BITC (see above). The Royal Decree of 27 December 2012 provides that as from 1 January 2013, also dividends paid by a REIT would be exempt from withholding tax when the dividends are received by a non-resident investor (also only to the extent that the dividends distributed do not stem from Belgian-source dividends).
Transitional regime for 2012
A transitional regime applies to investment income received in 2012.
The central contact point within the tax authorities would be deemed to have never existed.
For income collected in 2012 (assessment year 2013), taxpayers need to report all investment income as well as all miscellaneous income collected under section 90, 5°, 6°, 7° and 11° BITC in their personal tax return (section 313 BITC as applicable for assessment year 2013), only provided that the 4% surcharge is still likely to be due and except for:
- Liquidation surpluses and interest from Leterme government bond, which have been subject to respectively a 10% and 15% withholding tax;
- Interest and dividends liable to a 21% withholding tax for which the 4% surcharge has been levied;
- Investment income which has been subject to a 21% or 25% withholding tax, as well as interest on regulated savings deposits which exceeds the first exemption bracket and has been subject to a 15% withholding tax, provided that the total amount of investment income collected by the taxpayer in 2012 cannot give rise to the 4% surcharge. If the taxpayer is not required to report, he will have to complete a statement in his tax return confirming that he has not earned any investment income on which the 4% surcharge is due.
In case the 4% surcharge has not been withheld at source, the taxpayer had the option to have the 4% surcharge withheld until 31 December 2012 (by transferring back an amount equal to the 4% surcharge to the debtor) – the debtor has until 31 March 2013 to pay this surcharge to the Treasury.
If the 4% surcharge has been withheld at source but eventually appears not to be due (e.g. threshold not reached), the taxpayer could claim back this 4% surcharge through his tax return for tax year 2013. This implies reporting all investment income targeted by the 4% surcharge.