2023-10-24 00:00:36
To complete its 2024 budget, the Belgian government has decided to seek additional revenue by once again toughening the “Caiman tax”.
As a reminder, the Cayman tax was introduced in 2015 in order to tax taxable income (dividends, interest, etc.) from “legal arrangements” (trusts, low-taxed companies, certain insurance contracts, etc.) through transparency on the part of their “founder” (Belgian resident natural person), as s he had perceived them directly. This tax has since been modified numerous times.
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The reform of the current system is directly inspired by the report of the Court of Auditors last April, which put its finger on some shortcomings and formulated several recommendations intended for the legislator. The establishment of a new “mini exit tax” (or exit tax) is undoubtedly the most obvious measure.
To fully understand the benefit of this measure, we must start by remembering that the Cayman tax is only payable by founders — Belgian residents. Emigration of the founder to jurisdictions where taxation is more lenient – provided of course that the transfer of tax domicile is not fictitious – therefore makes it easy to avoid (without tax cost) the Cayman tax. The government intends to reshuffle the cards, by taxing the founders of legal structures in the event of departure from Belgium.
We can expect increased controls on transfers of tax domicile by the Belgian tax authorities.
The details of this “exit tax” mechanism are not yet known.. It is likely that the founder’s move will trigger a fictitious liquidation of the legal structure. Concretely, this implies that the founder will be taxed on the reserves (and unrealized capital gains) of the legal construction as a “dividend” (taxable at 30%). Please note that current tax legislation already provides for similar tax treatment (assimilation to a fictitious liquidation) in certain situations, notably in the event of the founder contributing his rights to a legal arrangement (article 5/1, §2 of the CIR ).
The following example illustrates the potential impact of this exit taxation. Here is a Belgian resident who holds an SPF (family wealth management company) Luxembourg (type of legal structure) having accumulated reserves amounting to 10 million euros. The departure of the founder would trigger the taxation of the legal structure’s reserves as a “dividend”, at the rate of 30% (i.e. 3 million euros).
Small tax revolution
This “exit tax” would in principle be immediately due, particularly if the host country is located outside the European Economic Area (EEA). We can cite here some of the favorite destinations of tax exiles like Monaco, United Arab Emirates, Switzerland, Israel. Please note that in the event of moving to another EEA State (for example, Luxembourg), the immediate payment of the exit tax could potentially be contrary to freedom of establishment.
It would certainly be a small revolution in the Belgian tax landscape. Unlike France, Belgium does not provide for an “exit tax” mechanism. Thus, a wealthy Belgian individual (holding a range of “legal constructs”) can today in principle leave the tax orbit. Belgian without having to pay tax.
Having a legal structure has become a real headache in recent years. This situation leads, in fact, to complex tax obligations and increased tax risks.
We can expect increased controls on transfers of tax domicile by the Belgian tax authorities.
Having a legal structure has become a real headache in recent years. This situation, in fact, leads to obligations fiscales complexes and increased tax risks. It is all the more so that:
- the risk of detection by the tax authorities is high. The latter is generally aware of the existence of the legal structure (even if the taxpayer has not declared it!) thanks to automatic exchanges of information (“Common Reporting Standard” or CRS);
- the tax authorities now have a period of ten years to tax the founder’s income (art. 354, al. 4 of the CIR, amended by the law of November 20, 2022, which provides for a tax period of 10 years for “complex” declarations).
Denis-Emmanuel Philippe
Associate Attorney (Bloom Law)
Lecturer at the University of Liège
1698111878
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