Following the judgement of the Court of Justice of the European Union (CJEU) in the Tate & Lyle case, Belgium has introduced a reduced 1.6995% withholding tax rate on dividends distributed by a Belgian company to a corporate shareholder that (i) is either established in the EEA or in a country with which Belgium has a tax treaty that includes an information exchange clause, and (ii) has held or will hold a shareholding below 10% of the distributing company’s capital with an acquisition value of at least 2.5 million EUR for a minimum one year period.
Previously, dividends distributed by a Belgian company to a minority corporate shareholder established in the EU/EEA and having a shareholding below the 10% threshold provided by the Parent/Subsidiary Directive, were mostly subject to the withholding tax rate provided by the applicable double tax treaty. If a Belgian company pays dividends under similar circumstances to a Belgian corporate shareholder (i.e. to a company holding a shareholding of less than 10% with an acquisition value of at least 1.2 million EUR), then the latter can, in principle, credit the dividend withholding tax against its corporate income tax liability; in addition, the dividend in principle qualifies for a 95% participation exemption, resulting in an effective tax rate of 1.6995% (33.99% of the taxable balance of 5%). In its Tate & Lyle judgement of 12 July 2012, the CJEU ruled that this different treatment of cross-border and domestic dividends was an unjustified restriction of the free movement of capital.
In a circular letter of 28 June 2013, the Belgian tax authorities provided for a transitional regime, which – in a slightly amended form – has now been taken over by the Act of 18 December 2015. Under this new legislation, a reduced withholding tax rate of (in principle) 1.6995% applies for certain cross-border dividends distributed by a Belgian company to minority corporate shareholders. The reduced rate applies under the following conditions:
1. The corporate shareholder must be established in another EEA Member State or in a country with which Belgium has concluded a double tax treaty that includes a clause on the exchange of information.
2. The corporate shareholder must have one of the legal forms specified in the Parent/Subsidiary Directive or a comparable legal form.
3. The corporate shareholder must, at the date of payment or attribution of the dividend, hold a shareholding of less than 10% in the distributing company with an acquisition value of at least 2.5 million EUR. (If the corporate shareholder holds a shareholding of 10% or more, then it qualifies for the withholding tax exemption under the Parent/Subsidiary Directive.)
4. This shareholding must be held for an uninterrupted period of at least one year.
5. The Belgian withholding tax must not be available for crediting or reimbursement in the shareholder’s country of residence. (If the Belgian withholding tax can be partly credited or reimbursed in the shareholder’s country of residence, then the benefit of the special withholding tax rate is reduced accordingly.)
6. The distributing Belgian company must receive a certificate from the beneficiary of the dividend, in which the beneficiary confirms: (i) that it has the required legal form; (ii) that the acquisition value of the shareholding in the Belgian company at least amounts to 2.5 million EUR; (iii) that the dividend is related to a shareholding that has been or will be held for an uninterrupted period of at least 1 year; and (iv) to what extent the dividend withholding tax is in principle available for being credited or reimbursed in the beneficiary’s country of residence.
For more information, please contact:
Ivo Vande Velde – Counsel (ivo.vandevelde@tiberghien.com)
Pascal Schumacher – Associate (pascal.schumacher@tiberghien.com)
Tuesday, 19 April 2016