On 26 July, a new Royal Decree amending the Royal Decree implementing the Belgian Income tax code (RD/BITC) was published. The Decree includes various amendments, but one of the main updates was the extension of the withholding tax (WHT) exemption to Belgian sourced interest paid to foreign institutional Alternative Investment Funds (AIF).
In principle, interest paid by a Belgian company to a foreign investment fund will generally trigger 30% WHT, unless an exemption or reduced rate based on a double tax treaty can be applied. This being said and following the Royal Decree issued on 27 September 2015, the scope of the withholding tax exemption for movable income (excluding Belgian source dividends) paid or attributed to certain Belgian investment companies has been broadened to include similar investment companies located in the European Economic Area (EEA). In a nutshell, since 2015, article 116 of the RD/BITC has also provided for a WHT exemption for Belgian sourced interest paid to qualifying EEA investment companies.
The aforementioned exemption mainly concerned Belgian AIFs and foreign EEA AIFs, but only those whose shares were not publicly offered in Belgium in the latter (unusual situation). Only EEA investment companies governed by similar foreign legislation to that applicable to Belgian qualifying investment companies could benefit from the WHT exemption, even if their shares were not publicly offered in Belgium. Before the amendment that is the subject of this newsflash, institutional AIFs reserved for eligible investors were excluded from the scope of application of article 116 of the RD/BITC. Types of equivalent investment vehicles governed by similar foreign legislation could therefore not benefit from this exemption.
From 5 August 2023, the amended version of article 116 of the RD/BITC referring to AIFs as regulated under articles 285 and 288 of the Belgian AIFM entered into force. Foreign EEA AIFs whose shares are not publicly traded in Belgium but are governed by similar foreign legislation will therefore also qualify for the exemption.
This change creates a golden opportunity for this specific type of foreign investment vehicle to invest in Belgian real estate. Although other Belgian WHT exemptions besides the one provided by article 116 RD/BITC exist, in certain situations it was not clear whether these other exemptions or reductions could be applied for such foreign investment vehicles, mainly due to debates on whether the corresponding double tax treaty could be invoked for the foreign investment vehicle.
The aforementioned new amendment may make life easier for EU regulated funds to invest in Belgian real estate because they now have access to an internal WHT exemption for direct interest payments to the fund. For existing fund structures where the tax authorities challenge the use of an intermediary holdings company to access the EU Interest Royalties directive due to a lack of substance/beneficial ownership, this new internal interest WHT for EU regulated funds is certainly good news. This is because there are no longer any tax advantages to financing local Belgian SPVs through an intermediary holding structure as these funds can now make use of the WHT exemption.
How can PwC help?
Our experts are at your disposal to support you in assessing whether the foreign investment fund investing in Belgium and receiving Belgian sourced interest qualifies for the above-mentioned exemption.