The so-called ‘Cayman Tax’, introduced as from 1 January 2015, is a taxation regime in the Belgian income tax code that introduces a tax transparency of certain legal constructions that have been set up by Belgian private individual tax residents. The income of certain qualifying entities will be taxed directly in the hands of these individuals if they are to be considered as founder and/or beneficiary, as if they would have received the income directly.
A distinction is made between 3 categories of legal structures: (i) trusts and other structures without legal personality (type 1), (ii) foreign entities with legal personality that are subject to an effective tax rate of less than 15% calculated according the rules of Belgian income tax law (type 2) and (iii) a legal construction type 1 or type 2 wrapped up in an agreement will be considered as a type 3 legal construction (type 3).
In this respect, the legal structures type 2 were previously listed in two Royal Decrees dated 18 December 2015 (exhaustive list of entities within the European Economic Area – EEA) and 23 August 2015 (non-exhaustive list of entities outside the EEA). On 3 December 2018 the Royal Decree regarding entities within the EEA was already adjusted, for more information on this we refer to our news flash dated 6 December 2018.
New Royal Decree
On 16 May 2019 a new Royal Decree was published in the Belgian Official Gazette amending the existing Royal Decree of 23 August 2015. The new Royal Decree aims to align the rules for entities outside of the EEA with the new rules that were already implemented by the end of last year for entities within the EEA.
The Royal Decree stills refers to an effective tax rate of 15% calculated according to the rules of Belgian income tax law and contains a (non-exhaustive) list of entities that are presumed to fall within the scope of the Cayman Tax. However, furthermore the Royal Decree clarifies that the following entities – similar to entities established within the EEA – are presumed not to be subject to an effective tax rate of 15%:
- Investment vehicles (private UCI’s and AIF’s) that are held by one individual or several individuals who are related to each other;
- The so-called hybrid entities, i.e. legal structures that are not transparent for Belgian income tax purposes, but that are tax transparent in the jurisdiction where they are established.
Please bear in mind that the Royal Decree will be applicable for income received, granted or made payable by legal constructions as from 1 January 2019. Taking into consideration the above, it is clear that the proposed amendments to the Royal Decree concerning the scope of the Cayman Tax may again have a substantial impact. If you would like to discuss this further into detail, please contact your regular PwC advisor, Kristof Wuyts or Virginie Dehalleux.