Whereas in the declaration of intent, the new tax was presented as a solidarity tax, as a fair contribution from the persons with the most financial strength, the Belgian government now lays her cards on the table in the final draft bill. The successor of the (annulled) tax on securities accounts will be… a (new) tax on securities accounts 2.0, a wealth tax, not necessarily limited to the persons with the most financial strength.
Belgian financial institutions must prepare for an exodus of foreign investors, Belgian investors will prefer foreign insurance companies over Belgian insurance companies when the tax is introduced.
The new annual tax on securities accounts (TSA) will be a subscription tax, levied on the securities account itself and not on the holder of the securities account. A securities account is defined as an account on which financial instruments can be credited and debited.
The TSA is applicable to securities accounts held both in Belgium and abroad when the account holder is a Belgian resident. The tax is not limited to natural persons residing in Belgium, but also applies to companies and legal entities subject to the tax for legal entities that are established in Belgium.
Furthermore, the TSA is applicable to securities accounts held by non-Belgian residents (both natural persons and legal persons) when the securities account is held in Belgium.
As the TSA concerns a wealth tax, non-Belgian residents can nevertheless avoid the application of the TSA on their Belgian securities accounts when the applicable double tax treaty allocates the right to tax wealth to the jurisdiction of residence (eg the Netherlands).
The draft bill does not specify how the taxability of a securities account must be assessed when there is more than one account holder and (at least) one of them can invoke a double tax treaty. The following situations come to mind:
- A (Belgian or foreign) securities account is held in full ownership by a Belgian resident and a Dutch resident jointly;
- A (Belgian or foreign) securities account is held in usufruct by a Belgian resident and in bare ownership by a Dutch resident (eg following a succession).
All financial securities held in the securities account are targeted, including derived products (such as index trackers, turbo’s, …).
The draft bill specifies that cash held in the securities account equally falls under the scope of the TSA.
The scope of application is therefore broader than the annulled tax on securities accounts 1.0, as certain derived products and cash were then excluded.
Registered shares, registered in the company’s share register and not held in the securities account, do not fall under the scope of application.
The TSA is due when the average value of the assets held in the securities account amounts to more than €1.000.000 during the reference period.
In principle, the reference period starts on 1 October and ends on 30 September of the following year. The reference period can be shorter when a securities account is closed or when the account holder moves from Belgium to a state with which Belgium concluded a double tax treaty that allocates the right to tax wealth to the jurisdiction of residence.
The threshold is assessed on the average value of the assets in the securities account at 4 reference points within the reference period (31 December, 31 March, 30 June and 30 September).
The threshold is assessed per securities account and not per account holder. The TSA will therefore not be applicable, for example, when an account holder holds two separate securities accounts, each including financial products and cash with an average value of €950.000. TSA will however be applicable, for example, to a securities account with an average value of €1.500.000, even if there is more than 1 account holder.
The tax rate amounts to 0,15% and is levied on the average value of the assets held in the securities account that exceeds the €1.000.000 threshold.
Moreover, the TSA is limited to 10% of the difference between the average value and the threshold of €1.000.000, in order to avoid that the payment of the TSA due results in the lowering of the value of the securities account below the threshold.
Securities accounts held by foreign legal structures that are targeted by the Cayman tax also fall within the scope of application. Such foreign legal structures concern the following:
- All trusts;
- Foreign low taxed foreign companies and other entities with separate legal personality;
- Contracts, to the extent the contract invests in type a) or type b) entities or provides for the distribution of assets of type a) or b) entities (e.g. insurance contracts).
If it concerns a multi-layer structure, the securities accounts held by all targeted entities within the multi-layer structure are in scope.
The following situations come to mind:
- Foreign securities accounts held by a targeted foreign legal structure of which the founder (as defined for Cayman tax purposes) is a Belgian resident;
- Belgian securities accounts held by a targeted foreign legal structure, irrespective where the founder has his / her residence.
In principle, the TSA will not be applicable on securities accounts held by:
- The National Bank of Belgium, the European Central Bank, comparable foreign central banks and financial institutions included in article 198/1, §6, 1° up to and including 12° of the Belgian Income Tax Code;
- Listed companies included in article 1, §3 of the law of 25 April 2014; and
- Public or institutional (alternative) undertakings for collective investments (UCITS or AIF), undertakings for collective investments in debt receivables and certain pension funds.
The exemption will however not apply when a third party (other than the aforesaid entities) has a claim on the value of the securities account.
The exception will also not apply to the type 3 entities when the rights of such entities are held either by one person or by several related persons.
Further, the draft bill provides for an exemption for securities accounts (directly or indirectly) held by non-residents (for their own account) at a central securities depository included in article 198/1, §6, 12° of the Belgian Income Tax Code or at a deposit bank licenced by the National Bank of Belgium in application of article 36/26/1, §6 of the law of 22 February 1998, provided that the securities account is not used for a Belgian branch.
Lastly, an exemption is included for securities accounts held by intermediaries on behalf of third parties to cover financial instruments that are registered on securities accounts in their accounts or to cover the rights held by an institution, company or entity mentioned above under 1, 2 or 3, at another intermediary or at a central securities depository mentioned in article 2, first alinea, punt 1 of Regulation nr. 909/2014.
Securities accounts held by an insurance company in relation to Branche 23 insurance contracts cannot benefit from the aforesaid exemptions.
According to the explanatory memorandum, holding an investment via a Branche 23 insurance (with an underlying securities account), is a complete substitute for a directly held securities account. The policy holder / beneficiary has a claim on the value of the securities account held by the insurance company.
However, as the tax is levied on (actual) securities accounts, the global securities account of the insurance company will be subject to the TSA.
This means that insurance contracts with a value below the threshold of €1.000.000 will also be subject to the TSA when the insurance company’s global securities account exceeds the €1.000.000 threshold. This means that the TSA can also be applicable to smaller savers with a Branche 23 contract far below the threshold of €1.000.000.
The draft bill introduces two anti-abuse provisions, a general anti-abuse provision and a specific anti-abuse provision.
Transactions that qualify as tax abuse are not opposable towards the tax administration, i.e. the TSA will be levied as if the abuse did not take place.
Following the general anti-abuse provision, there will be tax abuse when the legal action or series of legal actions results in:
- A transaction whereby the taxpayer places himself outside the scope of application of the TSA, contrary to the objectives of the TSA;
- A transaction whereby the taxpayer claims a tax advantage contrary to the objectives of the TSA.
This general anti-abuse provision does not only target top down situations, whereby the value of the securities account is lowered below the threshold, but also bottom-up situations, whereby the value of the securities account is not augmented above the threshold!
This first, general, anti-abuse provision is rebuttable, i.e. the taxpayer can provide the evidence that the legal action has another objective than the avoidance of the TSA.
Further, the following two specific situations will irrebuttably concern abuse:
- The splitting of a securities account in multiple securities accounts held at the same intermediary;
- The conversion of taxable financial instruments, included in a securities account, into registered financial instruments.
The fact that an investor might want to split a securities account into multiple securities accounts at the same intermediary to have securities accounts with a different investment strategy (eg. one more dynamic, one more defensive), has not crossed the mind of the Belgian government.
If the securities account is held at a Belgian intermediary, this Belgian intermediary must withhold the tax due and must submit the TSA return. Belgian intermediaries must comply with these obligations by 20 December (following the end of the reference period on 30 September).
In all other circumstances, the account holder must submit the TSA return and pay the TSA due. If there is more than one account holder, every account holder is jointly and severally liable. Every account holder can submit the tax return on behalf of all account holders.
Account holders must pay the TSA due by 31 August of the year following the end of the reference period (i.e. by 31 August 2022 for the reference period ending on 30 September 2021). The deadline for the personal income tax return is applicable to the TSA return.
If the securities account is held by a foreign legal structure targeted by the Cayman tax, the founder of this structure (as defined for Cayman tax purposes) must submit the TSA return and pay the TSA due.
Foreign intermediaries will have the possibility to have a responsible representative recognized in Belgium who can submit the TSA return and pay the TSA due. A Royal Decree will lay down the conditions and modalities thereof.
Non-compliance with the TSA obligations is sanctioned with a fine of 10% to 200% of the TSA due. Interest is due when the TSA is paid late.
At the tax administration’s request, all information required to establish to correct TSA must be provided. A Royal Decree will lay down the modalities of the sanctions that can be imposed in the event of non-compliance with this request.
The new TSA will enter into force on the day following the publication in the Belgian Official Gazette, with exception of the anti-abuse provisions that will have effect per 30 October 2020.
The first reference period will start on the day of the entry into force of the TSA and will end on 30 September 2021.
Belgian parliament has yet to adopt the new TSA.
It is clear from the draft bill that the TSA can also affect smaller investors (eg Branche 23 insurance contracts). Situations with multiple account holders where at least one of them can invoke a double tax treaty are not covered. Moreover, the anti-abuse provisions have a far too broad application. Lastly, the TSA will have a significant impact on the competitiveness of Belgian financial institutions and Belgian insurance companies.
We can only hope that Belgian parliament will take a critical look at the draft bill and will refine accordingly.
We will of course follow up on the TSA and will keep you updated!