On July 21st the new Belgian law establishing a permanent system on voluntary disclosure in tax-related and social security affairs has finally been adopted by the Belgian National Assembly. The new law has entered into force on August 1st. The new voluntary disclosure procedure was meant to become effective on January 1st, 2016 but was repeatedly postponed due to a persistent dispute with the regions about the competence of the federal authorities in regulating voluntary disclosure of ‘regional taxes which are collected by the federal authorities’. The dispute was eventually solved by amending the draft law, following which amendments (i) such regional taxes shall only be subject to voluntary disclosure after the federal authorities have concluded a cooperation agreement with the regions (clause 18) and (ii) the applicant delivers written proof of the evaded taxes (f.e. federal income tax, Walloon inheritance tax, …. – clause 11).
The new federal law does not apply to regional taxes which are collected by the regions themselves. The legislative initiative for such regional taxes remains entirely to the regions. The Flemish government is currently drafting a law on the voluntary disclosure of Flemish inheritance tax (Question n° 2462 and n° 2493, July 5th 2016, www.vlaamsparlement.be).
However, the new federal law remains ineffective to applications for voluntary disclosure covering both federal and regional taxes. Not any cooperation agreement has been concluded yet and consequently no applications for voluntary disclosure of ‘regional taxes which are collected by the federal authorities’ can be filed yet. Moreover, it remains currently unclear how applications shall be handled, covering both federal taxes and regional taxes which are collected by the regions. Imagine the assets and income on a foreign bank account of a deceased resident of Flanders, which have not been subject to Flemish inheritance tax nor to federal income tax. Caution is required in such files, not least because the Belgian Minister of Finance has stated that the mandatory professional secrecy of the Contact Center on voluntary disclosure files is not applicable on communications towards regional authorities.
The main features of the new law is very similar to previous (abolished) federal voluntary disclosure legislation. From a tax perspective the sums and income are categorized based on whether the assessment period has expired or not. The first category (assessment period has not expired yet) is taxed at its normal tax rate, increased with 20 percentage points (2016), 22 percentage points (2017), 23 percentage points (2018), 24 percentage points (2019) and finally 25 percentage points as from 2020. Contrary to previous legislation, the gravity of tax fraud ceases to be a factor in determining the tax rate. The second category (assessment period has expired) will be taxed at a flat rate of 36% in 2016, 37% in 2017, 38% in 2018, 39% in 2019 and 40% as from 2020.
From a social security perspective, social security contributions due to self-employment are subject to a flat rate of 15% of the professional income (2016). In 2017 the percentage increases to 17%, in 2018 to 18%, in 2019 to 19% and as from 2020 to 20%.
Starting on June 1st, 2016 legal entities serving as directors are due to charge VAT on their management fees. However, if the legal entity director and the company in which it acts as such form a VAT group, the management fees will not be subject to VAT. VAT grouping requires companies to have close financial, economic and organisational ties (cf. article 4 VAT code; article 1, §1 R.D. no. 55 dated 9 March 2007 concerning taxable persons who form a VAT group). The condition of close financial ties is met when i) one company holds a direct or an indirect participation of at least 10 percent of the share capital of another company which it wants to form a VAT group with, ii) at least 10 percent of the share capital of the members of the VAT group is held directly or indirectly by the same shareholder or iii) there exists a direct or indirect de facto or de jure control relationship between the members (Circular Letter AOIF no. 42/2007 (E.T.111.702) dated 9 November 2007; VAT Decision no. E.T.127.850 dated 30 March 2016). The question arose whether a VAT group can be formed between several legal entity directors who manage the same operational company, without one holding a participation in the other, or without any control relationship between them. In his decision dated 30 March 2016, the Belgian Minister of Finance stated that a VAT group between the legal entity directors and the operational company is allowed if i) all the legal entity directors are both director and shareholder of the operational company, ii) the legal entity directors collectively hold more than 50% of the voting rights of shares in the operational company and iii) the legal entity directors agree that every decision concerning the orientation of the operational company’s policy is taken in unanimity (VAT Decision no. E.T.127.850 dated 30 March 2016).
More than two years after the old legislation on voluntary disclosure in tax-related and social security affairs has been abolished, the current Belgian federal government has drafted a new law. The new law had been delayed due to a conflict of competence between the federal and regional authorities, but is expected to enter into force in June or July of this year after its approval by the Belgian Parliament (Source “De Tijd” March 10th, 2016).