Witholding taxes on dividends, interest and royalties

Dividends

In principle, dividends distributed by a Belgian company are subject to a Belgian domestic withholding tax of 25% (a reduced rate of, e.g., 15% is possible provided certain conditions are met).

Based on the implementation of the EU Parent-Subsidiary Directive of 23 July 1990 into Belgian tax law, in principle a withholding tax exemption applies to dividends distributed by a Belgian tax-resident company if the recipient company:

• is established in Belgium or another EU Member State
• has a direct holding of at least 20% in the capital of the Belgian distributing company (as from 1 January 2005). This level will ultimately be reduced to 10% for dividends distributed or made payable from 1 January 2009
• maintains this holding for an uninterrupted period of at least one year or commits to holding it for a minimum period of one year
• is incorporated with other companies in the appropriate legal form (in a cross-border context)

Furthermore, the withholding tax rate can in most cases be reduced under applicable tax treaties, irrespective of whether the EU Parent-Subsidiary Directive applies.

Minor formalities require observation.

Interest

In principle, interest payments are subject to a Belgian domestic withholding tax of 15%. Belgian domestic law provides for numerous exemptions  – e.g. interest income on Belgian registered bonds paid to non-residents is exempt from withholding taxes.

Under the Belgian tax statute implementing the EU Interest and Royalties Directive, in principle, a withholding tax exemption is available on interest or royalty payments between two associated companies, provided they are both regarded as established in the EU and meet the following conditions:

• one of the two companies has had a direct or indirect holding of at least 25% in the capital of the other for an uninterrupted period of at least one year
• a third EU tax-resident company has had a direct or indirect holding of at least 25% in the capital of each of the companies for an uninterrupted period of at least one year
• where the holding has not been held for a minimum of 12 months at the time the payment is made, the company concerned must undertake to observe the 12-month period
• the companies are incorporated in the appropriate legal form (in a cross-border context)

Minor formalities require observation.

Royalties

Belgian domestic tax law defines royalties very broadly as “income derived from the letting, use or concession of movable goods”. The Belgian tax authorities consider a “concession” as any agreement under which a right is granted (in exchange for valuable consideration) to use or exploit a tangible or intangible asset, provided no legal ownership therein is transferred.

In principle, this type of income is subject to a 15% withholding tax unless an exemption applies (e.g. no withholding tax is due if the recipient is a Belgian company).

In the event of a cross-border payment of royalties, the withholding tax rate may be reduced if a double taxation treaty applies (with a lower withholding tax rate on royalties, e.g. the Belgian-US tax treaty provides for a 0% withholding tax) or on the basis of the implementation in Belgian tax law of the EU Interest and Royalties Directive (see above: interest). Minor formalities require observation.

Note that exemptions similar to those under the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive are available to Switzerland.