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New double tax treaty between Belgium and France - Foreign tax credit French dividends abolished

On November 9, 2021 Belgium signed a new Double Tax Treaty with France. [1] This new treaty contains numerous noteworthy updates, amongst others the abolishment of the possibility for Belgian residents (individuals) to claim a foreign tax credit on French dividends.[2] The new treaty will presumably apply as from 1st of January 2023 for withholding taxes and as from assessment year 2024 for income taxes

No longer foreign tax credit for French dividends and interest

A first change concerns the lump-sum amount of foreign tax that - according to the ‘old’ treaty as concluded in 1964, with cross-reference to Belgian domestic law - can be deducted from the Belgian personal income tax that is due on French dividends by a Belgian individual shareholder.[3]

The domestic legislation which enabled this lump-sum foreign tax credit for Belgian shareholders was abolished in 1988. However, the Supreme Court confirmed at several occasions, against the Belgian tax authorities, that the latter does not hinder Belgian residents to still claim the tax credit based on the Belgian-French Double Tax Treaty. Hence, individual investors can in principle still benefit from the tax credit, as double tax treaties and international law prevail over domestic law.

In practice this foreign tax credit can be claimed via the personal income tax return. Based on the same reasoning, this tax credit is in theory also available for French interest. In 2021, the Belgian tax authorities have issued a circular letter in this respect.[4]

However, the lump-sum amount of foreign tax on movable income that can be credited against Belgian personal income tax has now been removed from the new Double Tax Treaty, which will result in a markedly increased tax burden.

This increased tax burden will seemingly be mitigated by a decrease of the maximum withholding tax rate for dividends, from 15% to 12,8%, as provided by the treaty (new article 10). Though, currently, dividends that are distributed by a French company to non-resident individuals (e.g. Belgian residents) are generally already subject to a final withholding tax of 12,8%. Similarly, the new treaty provides a withholding tax exemption for interest, though in general no French withholding tax is levied on interest paid to non-resident individuals. The mitigating aspects will thus mainly remain without effect.

Other changes (updates) to the treaty

Other changes of note include, for example, the fact that the treaty will also apply with respect to (taxes on) capital. This may e.g. be relevant for French residents that hold a securities account with a Belgian financial intermediary (e.g. a bank) that is in principle subject to the Belgian annual tax on securities account. Further, the new treaty includes clarification on the treatment of income obtained via an entity that is treated as tax transparent (cfr. the Belgian Cayman tax regime), a new provision on taxation of gains on immovable property including the highly debated taxation of capital gains on participations in companies which hold a substantial amount of immovable property and a change to the 183-days rule with regard to employee remuneration (this is a non-exhaustive list).

Entry into force: presumably by January 1, 2023 at the earliest

The new treaty will enter into force after the exchange of ratification instruments by Belgium and France.  For Belgium ratification can only be concluded after parliamentary approval in the federal and regional parliament(s). the ratification is generally expected to be concluded during 2022 at the earliest.  The treaty would then apply in Belgium as from 1st of January 2023 for withholding taxes – assessment year 2024 for income taxes.  This would mean, for example that in principle it would still be possible for Belgian resident investors to claim a foreign tax credit for French dividends in the personal income tax return for dividends that will be received in 2022.

 

 

[1] Treaty between the Kingdom of Belgium and the French Republic for the avoidance of double taxation with respect to taxes on income and on capital and for the prevention of evasion and avoidance of tax, signed on 9 November 2021: https://eservices.minfin.fgov.be/myminfin-web/pages/fisconet/document/b5d4c5f2-d1b5-41ff-aab6-320751732174.

[2] See our previous news-flash regarding case law of the Supreme Court: https://www.mytaxcompass.be/articles/posts/2021/february/recent-tax-developments-new-measures-and-recent-case-law/.

[3] Commonly referred to as ‘FBB’ (in Dutch) or ‘QFIE’ (in French).

[4] Circular letter 2021/C49 – ‘FAQ betreffende het forfaitair gedeelte van de buitenlandse belasting (FBB) en dividenden van Franse oorsprong’ (dd. 28.05.2021).

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Kris Lievens
Partner

Corporate Tax
Brussels

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Stefanie Pauwels
Tax Partner

Corporate Tax
Antwerp

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