Extension of the scope of the Cayman tax for E.E.A. entities
Since 2015, entities established in the European Economic Area (E.E.A.) were only targeted by the Belgian Cayman tax if they were included in a limitative 'blacklist'. The limitative list with targeted entities is now replaced by broad definitions. More entities established in the E.E.A. risk to fall under the scope of the Cayman tax.
Targeted foreign legal structures in the E.E.A.
As announced in our newsletter of 12 June 2018, the government was planning to broaden the scope of the Cayman tax.
The draft Royal Decree (R.D.) regarding the extension of the scope for foreign legal structures established in the E.E.A. was published in the Belgian Official Gazette of 3 December.
Old blacklist with limitative list
Initially, the targeted foreign legal structures established in the E.E.A. were included in a limitative 'blacklist'.
This old 'blacklist' was included in the R.D. of 18 December 2015 and targeted the following legal structures:
- Certain undertakings for collective investments of which the rights are held by one person, or by several individuals who are related to each other, as the case may be, assessed per compartment;
- Hybrid companies, (i) to the extent they receive Belgian source income that is not taxable in Belgium and (ii) of which the income is deemed to have been received by the shareholders of the company on the basis of the tax law of the state where the company is established;
- The following entities with separate legal personality:
- Liechtenstein: Stiftung
- Liechtenstein: Anstalt;
- Luxembourg: Société de gestion patrimoine familial;
- Luxembourg: Fondation Patrimoniale (draft pending before the Luxembourg parliament).
New blacklist with broad definitions
The new R.D. of 21 November 2018 extends the aforesaid categories with broad definitions.
1. Undertakings for collective investments
Whereas the old 'blacklist' targeted public and institutional undertakings for collective investments, now all undertakings for collective investments established in the E.E.A. can fall under the scope of the Cayman tax, including private alternative investment funds such as the SICAV-SIF in Luxembourg.
It is still required that the undertaking for collective investment is held by one person or several related individuals, as the case may be, assessed per compartment.
With respect to the notion of 'related individuals', the R.D. upholds the definition of article 2, §1, 13°/1 of the Belgian income tax code. Individuals are deemed to be related if:
- On or more natural or legal persons control another legal person within the meaning of article 5 of the Belgian Companies Code; OR
- These persons are related by blood or affinity up to the fourth degree; OR
- These persons are married with each other, have concluded a legal cohabitation, or have their main residence or seat of fortune at the same address.
2. Hybrid companies
The targeted hybrid companies are companies that are granted separate legal personality by the state of establishment, but the state of establishment levies the income tax in the hands of the shareholders.
An example of such a hybrid company is the Luxembourg Société en Commandite Simple.
From now on, hybrid companies can fall under the scope of the Cayman tax with all their income, irrespective the source thereof, and not only to the extent these companies receive income from a Belgian source.
The R.D. provides for two exceptions. The hybrid companies established in the E.E.A. will not qualify as a targeted foreign legal structure if:
- The main purpose of the entity consists of an activity that generates income that would be exempted from Belgian income tax on the basis of a double tax treaty in the hands of the Belgian resident or legal person subject to the tax for legal entities, if the Belgian resident or legal person would have received the income directly; OR
- The Belgian shareholder is actually subject to a minimal tax in the state where the hybrid company is established;
In order to assess whether the requirement of minimal taxation is met, first the taxable income of the hybrid company needs to established on the basis of the Belgian rules. Then, the taxable basis is limited to the share of the Belgian shareholder in this taxable income. Only if the Belgian shareholder is subject to an income tax that amounts to at least 1% of his / her share in the taxable income, the hybrid company will not qualify as a foreign legal structure under the Cayman tax.
In the report to the King, it is specified that the notion 'income tax' must to be interpreted strictly. Lump sum taxes, subscription taxes or other diverse taxes do not qualify.
On the basis of these exceptions, the French Société Civile Immobilière (SCI) falls out of the scope of the Cayman tax. The main purpose of the SCI is to generate immovable income, that is exempted from Belgian income tax on the basis of the double tax treaty with France. Also, the shareholder of the SCI is generally subject to more than 1% income tax in France.
3. Low taxed entities with legal personality
Finally, the list with specific targeted legal persons is replaced by a broad definition that extends the scope of the Cayman tax to all low taxed entities with legal personality established in the E.E.A.
These entities are defined as companies, associations, organizations, institutions and entities with legal personality that are either not subject to income tax in the state of establishment, or are subject to an income tax that amounts to less than 1% of the taxable income of the legal structure, calculated on a Belgian taxable basis.
Exception is made for entities of which the main purpose consists of an activity that generates income that would be exempted from Belgian income tax on the basis of a double tax treaty in the hands of the Belgian resident or legal person subject to the tax for legal entities, if the Belgian resident or legal person would have received the income directly.
Nor the Luxembourg Société de gestion de patrimoine familial, nor the Liechtenstein Anstalt or Stiftung are subject to income tax in the respective states of establishment. Therefore, the fact that entities from the old 'blacklist' are no longer explicitly included in the new 'blacklist' does not mean that these entities do no longer qualify as legal structures. Moreover, from now on, other entities established in the E.E.A. that meet the definition can also fall under the scope of the Cayman tax.
Entry into force
The new R.D. is applicable to all income that is received, attributed or made payable by a legal structure as from 1 January 2018.
With respect to the application of the withholding taxes, the R.D. is applicable to income that is granted or made payable as from the 10th day following the day of the publication in the Belgian Official Gazette, meaning as from 13 December 2018.