Belgium: Additional municipal taxes

On 1 July 2010 the European Court of Justice (ECJ) issued a judgment related to the compatibility of the application of additional municipal taxes on foreign-source interest and dividends with the free movement of capital principle stating that it is contrary to the free movement of capital.

Individuals who are resident in Belgium for taxation purposes are subject to a flat rate of personal income tax on dividend and interest income at 25% and 15% respectively. Dividends and interest income paid by a Belgian company or collected through a Belgian intermediary (e.g. a Belgian bank) is subject to Belgian withholding tax at source. In this case, the individual has no obligations to further report the dividend and interest income in their personal income tax return. The withholding tax in this case is a final tax.

However, in cases where the dividend or interest payment derives from another European source and is not collected through a Belgian intermediary, no Belgian withholding tax is deducted and the income must be reported on the individual’s income tax return. In this case, the income is subject to personal income tax of 25% and 15% respectively and supplementary municipal taxes between 0% and 9.5%, calculated on the amount of personal income tax.

The ECJ ruled that the imposition of supplementary municipal taxes on income arising from foreign investments, as opposed to income arising from Belgian investments, constitutes unfavorable tax treatment which is inconsistent with the free movement of capital. The ECJ rejects the Belgian government’s argument that the legislation is justified by reasons relating to the coherence and specific nature of the Belgian tax system and the need to guarantee the effectiveness of fiscal supervision.

Based on this decision, individuals who are Belgian tax resident may request a refund in respect of municipal taxes paid on foreign sourced dividend and interest income.


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