Belgium: Taxation of outbound dividends

In November 2009 the European Court of Justice issued a decision in which the Italian tax regime of outbound dividends was found contrary to the principle of free movement of capital. Under certain circumstances, this decision could have an important impact on Belgium which could also be found in breach of EU principles.
The standard dividend withholding tax rate in Belgium is 25%. There is a withholding tax exemption applicable to dividends distributed to a parent company located in Belgium, in another EU Member State or in a State, with which Belgium has concluded a double taxation agreement, provided a participation of at least 10% has been held for an uninterrupted period of at least one year.
Although the rate of withholding tax is due irrespective of whether or not the beneficiary is a resident, a resident corporate shareholder is entitled to a refundable tax credit for any Belgian dividend withholding tax incurred. Consequently Belgian dividend withholding tax generally does not imply an effective tax burden.
Similar to the Italian tax regime, Belgium applies a so-called “dividend received deduction” regime (DRD) to corporate resident shareholders. Under this regime dividends received are excluded from the taxable base up to 95%, if the dividend relates to a participation of 10% or to a participation acquired for at least 1.2 million euro which is held for an uninterrupted period of at least one year. Moreover, a Belgian corporate shareholder may even offset financing and other expenses against the remaining 5% dividend received income.
Therefore even if a dividend distributed to a Belgian resident corporate shareholder is subject to withholding tax, a Belgian corporate shareholder would be taxed only on 5% of such a dividend. This kind of situation could occur when a participation does not exceed the 10% minimum participation threshold for withholding tax exemption purposes but does exceed the nominal 1.2 million euro threshold for DRD purposes.
Following the recent decision of the Commission against Italy, for non-resident corporate shareholders holding a similar participation in a Belgian company, the Belgian withholding tax of 25% could be considered a less favorable treatment compared to the treatment reserved to a Belgian resident corporate shareholder.


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