1.7323 1.5271 1.50544.23 0.75 2015 EU officials and Belgian taxes Summary & FAQs Marc Quaghebeur
Marc Quaghebeur mq@dvp-law.com De Broeck Van Laere & Partners www.dvp-law.com Rue Jules Besme 126 Tel : 02.423.00.42 B-1081 Brussels Fax : 02.423.00.32
Introduction This document is a summary introduction to the tax rules governing EU officials in accordance with Articles 12 and 13 of the Protocol on Privileges and Immunities of the European Union as well as the tax rules in Belgium and in a number of other EU Member States. These insights have been gained by giving presentations to EU officials in Brussels, answering their questions and trying to anticipate misunderstandings. The first part is a summary of the rules, and the tax implications for EU officials who are either domiciled outside Belgium or for whom Belgium is their tax domicile. The second part covers some of the frequently asked questions at the lectures I gave for the Union Syndicale. This text does not have the ambition to be comprehensive, and to cover all issues and situations. However, it can be read as a guide to understand the rules and to ask your adviser the correct questions. Marc Quaghebeur Brussels, 17 February 2015
CONTENTS THE PROTOCOL EXPLAINED... 9 Why a Special Tax Regime for EU Officials?... 9 Article 12 - Exemption... 13 Article 12 What does exempt mean?... 14 Article 12 What does exempt not mean?... 15 Article 13 Domicile... 17 Article 13 Can an EU Official change his domicile?... 19 Article 13 Domicile of the Spouse... 20 Article 13 - Gainful occupation... 24 Article 13 Domicile of the Children... 25 Article 13 Consequences of domicile... 25 Article 13 Domicile For which taxes?... 26 MY DOMICILE IS OUTSIDE BELGIUM... 29 I am not domiciled in Belgium, do I pay tax?... 29 You have earnings... 29 You own real property in Belgium... 29 You have a Belgian bank account... 31 You hold shares or bonds issued by a Belgian company... 32 You sell and make a capital gain... 32 Do I need to file a tax return if I am not domiciled?... 33 Do I declare my Income at home as well?... 34 If I pay tax in Belgium and at home, do I pay tax twice?... 35 What is the EU Savings Directive?... 38 A common misunderstanding about the EU Withholding Tax 39 What information does Belgium give to EUMmbria?... 39 What does this mean for you?... 40 What can EU officials do to prevent reporting?... 40 If I am not domiciled, which taxes do I pay in Belgium?... 42 Inheritance tax when a non-domiciled EU official dies... 43 Inheritance Tax - Double Taxation?... 44 A non-domiciled EU official makes a donation... 45
BELGIUM IS MY DOMICILE... 47 I am domiciled in Belgium, do I pay tax?... 47 Earnings... 47 Income from Real Property... 48 Dividends... 49 Interest... 49 Capital gains... 50 Inheritance tax when a domiciled EU official dies... 51 Inheritance Tax - Double taxation... 53 Gift Tax and other Estate Planning... 54 FAQS AT THE UNION SYNDICALE LECTURES... 55 Exemption of income... 55 Pensions... 55 What does exemption mean?... 56 Taking account of the EU income... 56 Domicile... 59 Where is my domicile?... 59 Spouses and partners... 63 How does it work?... 64 Belgian Income Tax... 65 Dividends and interest... 65 Rental income... 68 Titres service... 70 Capital gains tax... 71 Inheriting and Inheritance Tax... 73 What is the applicable law?... 73 Making a will... 74 The European Regulation on Successions... 76 Gift tax... 81 Questions of Estate Planning... 83 ANNEXES... 86 Model of a Handwritten will... 86 Gift and Inheritance Tax Rates... 88
EU OFFICIALS AND BELGIAN TAXES 8
THE PROTOCOL EXPLAINED THE PROTOCOL EXPLAINED Belgium is the host country for many international institutions. Before establishing their seat in Belgium, most of these institutions sign a convention with Belgium in which their privileges and immunities are secured. These conventions usually have one or two provisions that deal with the tax situation of the officers of the international institution. Usually, these provisions grant a tax exemption for income received from the institution, while any other income is liable to tax in Belgium. For officials of the European Institutions, the situation is completely different. Why a Special Tax Regime for EU Officials? 1. It is a principle of diplomacy that when an international organisation sets up its seat in a country, that state will not tax the institution or its officials. By granting fiscal immunity in a bilateral agreement, it secures the institution s independence. When the founding fathers of the European Union worked out the status of the Institutions, they had to take measures to avoid double or triple taxation. And they had to combine that with immunity for the Institutions and the EU officials. Of course, the Institutions would levy their own taxes on the remuneration they pay to their officials, but not on any other income. Theoretically, income tax could be claimed by the country where they are working for the institution, in the country where they are living and by their country of origin. And that could be the state that has given them their citizenship or the state where they were living before joining the institution. 2. They had to come up with a solution that would guarantee a sort of free movement of EU officials. If an official decided to go and 9
EU OFFICIALS AND BELGIAN TAXES work in another country, he should not be worse off and the Court of Justice of the European Union will later add that he should also not be better off. The rules were laid down in Article 12 and Article 13 of the Protocol on Privileges and Immunities of the European Union. 10
THE PROTOCOL EXPLAINED 11
EU OFFICIALS AND BELGIAN TAXES Article 12 Officials and other servants of the Union shall be liable to a tax for the benefit of the Union on salaries, wages and emoluments paid to them by the Union, in accordance with the conditions and procedure laid down by the European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure and after consultation of the institutions concerned. They shall be exempt from national taxes on salaries, wages and emoluments paid by the Union. 12
THE PROTOCOL EXPLAINED Article 12 - Exemption 3. Article 12 lays down the principle that 'Income from the Union' paid to EU officials is liable to the Union Tax and that it is exempt in any of the Member States. That is the case for his earnings (salaries, wages and emoluments), but also for : allowances; child benefit; an invalidity pension; his retirement pension; the survivor s pension paid to his spouse or children; These types of income are exempt from income tax in the country where the EU official works, where he lives, where he was recruited... in short in every Member State. Of course, a State that is not an EU Member State is not held by the Protocol, and the Union Income may well be liable to income tax there. This would not be a problem for EU officials who are working in a diplomatic mission outside the EU. However, this is something that EU officials who are considering retiring outside the EU should keep in mind that if they retire in e.g. Australia or in the U.S., they will be liable to income tax there. There is one exception: Switzerland 1. EU officials who have a double nationality, the nationality of an EU Member State and that of a non EU Member State risk paying tax on their EU remuneration if the other state taxes its citizens based on their citizenship, even if they are living abroad. That is in particular the case for U.S. citizens. 1 Agreement of 26 October 2014 between the Swiss Federal Council and the Commission of the European Communities with a view to avoiding the double taxation of retired officials of the institutions and agencies of the European Communities resident in Switzerland. 13
EU OFFICIALS AND BELGIAN TAXES Article 12 What does exempt mean? 4. Exempt under Article 12 of the Protocol means in the first place that the official does not have an obligation to declare the Union Income in an income tax return or to pay income tax on that Union income in any Member State. 5. That also means that a Member State cannot indirectly charge income tax on that income. The Court of Justice of the European Union has confirmed that: the tax authorities of a Member State cannot charge more tax to the official's spouse by calculating the tax on her income and on that of the official (Case 6/60, Humblet, [1960] ECR, 1125) ; the tax authorities of a Member State cannot refuse to grant a tax reduction of the annual real estate (précompte immobilier) to a landlord when an EU official is renting his property and has two or more dependent children (Case 260/86 Commission v Belgium, [1988] ECR 955); the tax authorities of a Member State cannot discriminate EU officials by refusing them certain tax advantages (Case C- 229/98, Vander Zwalmen and Massart v. Belgian State, [1999] ECR, p. I-7113). the tax authorities of a Member State cannot take account of the income paid by the European Union to its officials and other staff (or pensions and allowances paid to former officials), in calculating the cap on a tax such as the wealth tax (impôt sur la fortune) (Case C-558/10, Bourgès-Maunoury and Heintz v Direction des services fiscaux d Eure-et-Loir, [2012] ECR, p. I-418). 14
Article 12 What does exempt not mean? THE PROTOCOL EXPLAINED On the other hand the state where the EU official works or lives does not have to give him any preferential treatment. The Court of Justice has confirmed this in a couple of cases: The public authorities may calculate a charge or due (a school levy for a child that attends a public school) on the basis of the salary paid by the Union to the EU official. That charge is not a tax in the sense of article 12 paragraph 2 of the Protocol (Case 32-67, I.G.F. Van Leeuwen v. City of Rotterdam, [1968] ECR, p. 63). EU officials must not be treated as low income taxpayers; they must not be given the same advantages as low income tax-payers to subsidise the purchase of property (Case C- 333/88, Tither v. Commissioners of Inland Revenue, [1990] ECR, p. I-01133) the taxman must not give a tax deduction to the spouses of EU officials as if they were married to someone who was not working or who had low earnings (Case C-229/98, Vander Zwalmen and Massart v. Belgian State, [1999] ECR, p. I-7113). 6. Furthermore, that state must not give exemptions for other taxes than the income tax: inheritance tax, VAT, real estate tax, stamp duty (or registration tax on the purchase of property), water tax, garbage collection tax, etc may be due. The taxman in the country of domicile may: charge income tax on the rental value of a property in anothepr Member State (Case C-263/91, Kristoffersen v. Skatteministeriet, [1993] ECR, p. I-02755) ; charge inheritance tax on a survivor s pension paid by the European Institutions (Brouerius van Nidek v. Inspecteur der Registratie en Successie, Case 7/74 [1974] ECR 757). 15
EU OFFICIALS AND BELGIAN TAXES Article 13 In the application of income tax, wealth tax and death duties and in the application of conventions on the avoidance of double taxation concluded between Member States of the Union, officials and other servants of the Union who, solely by reason of the performance of their duties in the service of the Union, establish their residence in the territory of a Member State other than their country of domicile for tax purposes at the time of entering the service of the Union, shall be considered, both in the country of their actual residence and in the country of domicile for tax purposes, as having maintained their domicile in the latter country provided that it is a member of the Union. This provision shall also apply to a spouse, to the extent that the latter is not separately engaged in a gainful occupation, and to children dependent on and in the care of the persons referred to in this Article. Movable property belonging to persons referred to in the preceding paragraph and situated in the territory of the country where they are staying shall be exempt from death duties in that country; such property shall, for the assessment of such duty, be considered as being in the country of domicile for tax purposes, subject to the rights of third countries and to the possible application of provisions of international conventions on double taxation. Any domicile acquired solely by reason of the performance of duties in the service of other international organisations shall not be taken into consideration in applying the provisions of this Article. 16
THE PROTOCOL EXPLAINED Article 13 Domicile 7. Article 13 of the Protocol puts forward the principle that EU officials, their spouses (as long as they are not working) and their dependent children keep their domicile for tax purposes in the Member State where they had their domicile at the time they were recruited, if they move their residence only to enter the service of the Union. 8. Article 13 states that for the application of income tax, wealth tax, death duties, and in the application of the double tax treaties between Member States, officials and other servants of the Union shall be considered to have maintained their domicile in the latter country. There are a few conditions. at the time of entering the service of the Union, they must have moved to another Member State, i.e. have established their residence in the territory of another Member State than the country where they have their domicile for tax purposes, they must have moved their residence solely by reason of the performance of their duties in the service of the Union, and the country of domicile must be a Member State. Usually that will be the Member State where the official was recruited. 9. Moreover, Article 13 clearly disregards the domicile an EU official may have solely by reason of the performance of duties in the service of another international organization. That domicile shall be ignored. The Protocol does not say what domicile shall be taken into account, but it stands to reason that that would be the previous domicile. 17
EU OFFICIALS AND BELGIAN TAXES 10. A few examples will help explain this: a Greek national living in Athens recruited in Greece keeps his domicile in Greece when he comes to work for the European Parliament in Luxembourg ; an Italian national who was living in Belgium where she worked for a consultancy group before joining the Council has her domicile in Belgium ; a Bulgarian national who was raised in the UK, studied in Germany and got his first job with a bank in Luxembourg, married a French lady and lived with her in Metz, while commuting to Luxembourg, has his domicile in France ; a Lithuanian national married an Italian while living and working in London before joining the European Parliament keeps her domicile in the U.K. An Irish national who joined the Commission in 1974 coming from Ireland but who retires in Belgium was domiciled in Ireland as long as he was working for the Commission but took up domicile in Belgium when he decided to spend his retirement in Belgium. 18
THE PROTOCOL EXPLAINED Article 13 Can an EU Official change his domicile? 11. The question is not without relevance. 12. Article 13 states that the official maintains his domicile if he has moved his residence solely by reason of the performance of his duties in the service of the Union. What if an official was already planning to go and live in that country? 13. The question was submitted to the Court of Justice of the European Union that decided that Articles 12 and 13 establish a division of powers between the European Union, the Member State where an official works and the Member State where he has maintained his domicile. (Case C-88/92, Jansen van Rosendaal v Staatssecretaris van Financiën, [1993] ECR, p. I-03315). The official does not have the free choice to move his tax domicile to another State. However, the Court does not exclude that the official was already planning to move to the other state, but in that case his intentions alone are not sufficient. He must also prove that he had already taken steps to transfer his domicile irrespective of entering the service of the Union. 14. Of course, one can change domicile after leaving the service of the Union. An EU official who stays in Belgium upon retirement will become a Belgian resident. 19
EU OFFICIALS AND BELGIAN TAXES Article 13 Domicile of the Spouse 15. Article 13 of the Protocol extends the benefit of the deemed domicile to the spouse and the children. 16. For the spouse, the provision (that the EU official maintains his domicile in the state of recruitment) also applies "to the extent that the latter is not separately engaged in a gainful occupation". In the minds of the authors of the Protocol, the situation was quite clear. The EU official came to work in Brussels, and his wife followed. As long as she was staying at home, she was also deemed to have maintained her domicile in the state from where the husband was recruited, and if she decided to take up a job, she would then take up residence in the country where she was living. 17. Since then, things have changed a lot. EU officials meet their spouses at work or after hours, their spouse can be another EU official or a local resident. Or they come with their partners, they marry in Belgium (or they don t), they separate or divorce and their wife of partner continues to live here. Alternatively, the spouse starts a job and then he decides that he prefers to be a stay-athome dad. 18. How do we have to read article 13 in those circumstances? First of all, it is important to note that article 13 does not say that the spouse has the same domicile as the EU official. It states that this provision shall also apply to a spouse, to the extent that the latter is not separately engaged in a gainful occupation. This provision must then be translated as the spouse who, solely by reason of the performance of their [spouse s] duties in the service of the Union, establish[es] their residence in the territory of a Member State other than their country of domicile for tax purposes at the time of entering the service of the Union, shall be considered, both in the country of their actual residence and in the country of 20
THE PROTOCOL EXPLAINED domicile for tax purposes, as having maintained their domicile in the latter country provided that it is a member of the Union. Therefore, the spouse keeps the domicile he or she had when the EU official came to Belgium. That will usually (but not necessarily) be the same as the EU official, but that is not always the case. It is possible that the spouse had kept his/her domicile in another country and if that is an EU Member State, the spouse keeps his/her domicile there. In any event, a spouse who marries an EU official (i.e. after he joined the institutions) does not take his domicile. Saying that the spouse takes up the domicile of the EU official is, therefore, clearly not correct. The spouse has a domicile of his/her own. 19. A few examples: An EU official comes to live in Belgium from Milan with her Italian husband. As long as the spouse does not work, he is deemed to live in Italy, but when he takes up a gainful occupation (see p. 24 ) in Belgium he will become a Belgian resident. An EU official whose domicile is in the UK works in Belgium meets a Belgian girl who lives in Waterloo. They marry and she gives up her job to look after the children. She was a Belgian resident and she remains a Belgian resident. If an EU official marries a Croatian girl he met on holiday, and she comes to live with him, then she takes up Belgian residence. They met when he was already an EU official, she takes up domicile in Belgium when she comes to live in Belgium. An EU official meets another EU official in Brussels and they marry. Both keep their domicile of recruitment, even if he 21
EU OFFICIALS AND BELGIAN TAXES was recruited in Sweden and she came from Greece. See on p. 23 to see for what happens upon retirement. An EU official with domicile in the Netherlands married a Belgian resident man (Belgium accepts same sex marriages). Because they met in Belgium, the Belgian husband keeps his domicile in Belgium. The official is posted in the EU representation in Finland. The Belgian husband stops working to follow his husband to Finland. Will he keep his Belgian residence? The EU official maintains his Dutch. The husband will take up Finnish residence. He does not acquire his husband s Dutch domicile. He will not keep his Belgian domicile because he does not establish his residence in another Member State at the time of (his husband) entering the service of the Union and he cannot be considered having maintained his domicile in the latter country if he has never had his domicile there. He will take up residence in Finland. If the EU official and his spouse separate, i.e. take up separate residences, she continues to be his spouse (until they end the marriage by divorce) and she will continue to keep her domicile where her husband has his domicile. If they divorce, she will become resident where she is living at that time. 20. The rule only applies to spouses. Partners, even partners who have registered their partnership (in Belgium cohabitation légale, in the U.K. civil partners or in France pacsés, cannot claim to have maintained domicile when their registered partner EU official comes to work in Belgium. 21. What happens when the spouse stops working? Does the spouse of an EU official who came to Belgium (or Luxembourg, ) who had 22
THE PROTOCOL EXPLAINED lost his Italian domicile when he started working, become an Italian resident again? Or does he remain a Belgian resident? In my opinion, the wording of the text "to the extent that the latter is not separately engaged in a gainful occupation" can be read in one way only. Domicile can vary with the occupation of the spouse, and that appears to be the way the EU Institutions read this text as well. I do not think that this means that the husband becomes a Belgian resident when he starts to work in Belgium and remains a Belgian resident until he leaves Belgium. A close reading of Article 13 shows that when he stops working, he takes up the old residence again: he has the domicile he had before coming to Belgium "to the extent that he is not separately engaged in a gainful occupation". And it is only "to the extent that he latter is separately engaged in a gainful occupation" that he has Belgian residence. This has a curious effect when the spouse is alternatively working during odd years and unemployed during even years. He/she would be alternatively a Belgian resident and an Italian resident. That is likely to complicate matters. 22. When an EU official retires, he takes up domicile in the country where he takes up residence. If he goes back to his country of domicile, e.g. Spain, he will just keep his domicile in Spain. If he retires in Belgium, he will take up domicile in Belgium, and if he moves to France, France will be his new domicile. Normally, his spouse will follow the EU official, and move back to Spain, stay in Belgium or move to France. If for one reason or another she stays in Belgium (e.g. because the children are still at school), she takes up residence in Belgium. If it is because she continues to work in Belgium, she has taken up domicile in Belgium and is keeping it here. 23
EU OFFICIALS AND BELGIAN TAXES There can be a complication when the spouse stays in Belgium because she is still working as an EU official and has not retired yet. What about the retired EU official, does he then take up his wife s domicile even if he stays in Belgium? We have seen above (p. 20) that article 13 does not say that the spouse (in this case the retired EU official) has the same domicile as the EU official even if that is often the case. A Danish retired EU official does not take up Greek domicile because his spouse is an EU official with a Greek domicile. My conclusion would be the same when they had the same (e.g. Swedish) domicile as EU officials. If the husband retires first, his wife may have maintained a Swedish domicile because she followed her husband and joined the Institutions later or she may have joined at the same time. If the husband continues to live here, he is actually making the choice to take up residence in Belgium, but he cannot invoke the fiction that he has maintained his domicile in Sweden because he did not come to live in Belgium solely by reason of the performance of his spouse s duties in the service of the Union. He has his actual residence in Belgium because he took up residence in Belgium for the performance of his own duties and he stayed here. He can only take up Swedish residence by moving to Sweden. 24 Article 13 - Gainful occupation 23. What is a gainful occupation? A gainful occupation is any employment or profession that the spouse carries out. What when the spouse works as a volunteer, without remuneration? In this respect it is important to note that the original text, in French, says "dans la mesure où celui-ci n'exerce pas d'activité professionnelle propre". In the French text, a professional activity is sufficient to lose domicile of origin, even if the spouse does not earn any income (although that will usually not be the case). The
THE PROTOCOL EXPLAINED texts in other languages also refer to a "professional activity" rather than a gainful occupation. However, receiving unemployment benefit would not qualify as a gainful occupation, whereas working for free as a director or consultant to a charity could be seen as a professional activity. Article 13 Domicile of the Children 24. Children shall be deemed to have their residence and domicile in the country where their EU official parent is deemed to have his domicile, if they are dependent on and in the care of the EU official. That does not only apply to the EU official's own children and his adopted children, but also to those of his spouse or partner, if the children are dependent on him and are in his care. Article 13 Consequences of domicile 25. For an EU official, Article 13 means that he is deemed not to have moved his residence or his domicile, and that he must pay tax in that country as if he was still living there, on any income other than his remuneration from the Union (that is exempt under Article 12). This rule binds the taxman in the country where the officially actually lives and works and the taxman in the country where he is deemed to have his domicile for tax purposes. 26. But what about any other countries, the country where he owns property, the country where a company is paying him a dividend, or where he teaches? These countries are held by Article 13 of the Protocol, but indirectly through a reference to the double tax treaties. In fact, all Member States have signed a double tax treaty with all or most of the other Member States, in which they determine in which country income can be taxed: the country of origin of the income (the source of the income) or the country of residence. 25
EU OFFICIALS AND BELGIAN TAXES When a British EU Official who is living in Belgium but has maintained his domicile in the U.K., has income from a third country, e.g. France, he can invoke the double tax treaty between the U.K. and France, not the treaty between Belgium and France. If necessary the country of his deemed domicile will deliver a certificate of fiscal residence so that he can invoke the treaty benefits and avoid double taxation. Article 13 Domicile For which taxes? 27. According to Article 13 their original country of domicile will be their domicile for income tax, wealth tax, inheritance tax, and for the application of the double tax treaties between Member States. Income Tax In the first place, Article 13 applies to income tax: that is the tax on income from real property, on income from investments (dividends, interest, royalties, etc... ) as well as on the earnings from any professional activity other than that as an EU Official. Wealth Tax The EU Official also retains his original domicile for the wealth tax. Fortunately, that is a limited problem. Sweden has abolished its wealth tax in 2008 and only France levies a wealth tax (impôt de solidarité sur la fortune (ISF)) from its residents if their wealth exceeds 1,300,000. In Spain, the government has temporarily reintroduced the "Impuesto sobre el Patrimonio" ; it was extended for 2015. Inheritance Tax Finally, the EU official retains his original domicile for the death duties or inheritance tax, at least if he dies in office. Article 13 clarifies that movable property belonging to an EU official or other 26
THE PROTOCOL EXPLAINED servant, their spouse (who is not gainfully employed) or their children (if dependant and in their care) is exempt of inheritance tax in the country where they are staying (for work). It will be taxed in the country of his tax domicile. 28. Article 13 only applies to income tax, wealth tax and inheritance tax. Other taxes are due in Belgium. That is the case for Registration tax or stamp duty on the transfer of real property. Usually this is charged only in the country where the property is located. There is little or no chance of double taxation; in general, this does not cause any difficulties. VAT Gift tax is not covered by the protocol either and is normally seen as separate from inheritance tax. Capital Gains Tax is not listed in Article 13. Does that mean that it falls outside the ambit of article 13? There may be a historic explanation why the capital gains tax is not mentioned. At the time there were only six member states, but some of the newer Member States have a separate Capital Gains Tax code (U.K., Ireland,...), while others do not have any capital gains tax or include it in their income tax code. Moreover, the double tax treaties that cover income tax issues usually have a provision dealing with Capital Gains Tax. It appears that the U.K. tax authorities have taken a literal reading of the Protocol. Since that does not mention the Capital Gains Tax, an EU official who has maintained his U.K. domicile must be treated as 'not resident and not ordinarily resident' for Capital Gains Tax purposes, while 'resident but not ordinarily resident' for income tax purposes. 27
EU OFFICIALS AND BELGIAN TAXES Garbage collection taxes Road taxes 28
MY DOMICILE IS OUTSIDE BELGIUM MY DOMICILE IS OUTSIDE BELGIUM I am not domiciled in Belgium, do I pay tax? 29. If you are an EU official with a domicile in another EU Member State (let s call it EUMmbria), you pay income tax in Belgium on income from a Belgian source like any non-resident, i.e. like any of your friends who still live in EUMmbria. The difference, of course is that you have a higher chance of having income in Belgium because you live in Belgium and they do not, but you are assimilated to a resident of EUMmbria like them. In principle, you pay tax on your worldwide income in your country of domicile or residence (the state of residence, EUMmbria) but not on the remuneration you receive from the EU Institutions, and in the country where the income has its source (the state of source ). If that is Belgium, you are taxed here on any income that originates in Belgium. You have earnings 30. If you earn remuneration other than EU income e.g. from a Belgian employer, as a self-employed in Belgium, etc that income has to be declared and will be liable to tax in Belgium 31. However, tax may be due as well in your country of domicile, EUMMbria, see, p. 34. You own real property in Belgium 32. If you own property in Belgium, you will receive every year a bill for the real estate tax (précompte immobilier / onroerende voorheffing). It is charged automatically by the region. It is calculated as a percentage of the cadastral revenue, depending on the commune. There is no uniform tax rate for the whole of 29
EU OFFICIALS AND BELGIAN TAXES Belgium. In some communes the rate can be very low, while in others, it can go up to 50 % of the indexed cadastral revenue. The cadastral revenue (revenu cadastral / kadastraal inkomen) is the theoretical rental value for the property in figures dating back to 1975. 2 33. If you own property you must also declare the income in your annual income tax return. The tax regime depends on the situation: you do not have to declare the cadastral revenue of your main residence, you are not liable to income tax on it. If you have a second residence in Belgium, you have to declare the cadastral revenue. The tax will be calculated on 140% of the cadastral revenue corrected for inflation; that means you pay tax on 2.43 times the cadastral revenue. If you own a property that is let out you (but not to a company or for a business), you also declare the cadastral revenue. The tax is calculated on 2.43 times the cadastral revenue. As a rule of thumb, the cadastral revenue is about one month s rent. As a landlord, you pay income tax on about two and a half months rent. If your tenant is a company or an individual who uses the property for his job (e.g. a liberal profession ), you have to declare the rent you actually receive (including any expenses paid by the tenant) but you are entitled to a deduction of 40% of the cadastral revenue. However, this deduction is limited to 2.82 times the cadastral revenue. 2 If the property is let, the landlord cannot charge back the real estate tax to a private tenant for whom the property is his main residence. 30
MY DOMICILE IS OUTSIDE BELGIUM Generally speaking, the landlord pays tax on about ten months rent. 34. If you receive rent, you can deduct the interest paid (during the tax year) to finance the acquisition or the renovation or refurbishment of the property. The deduction is limited to the taxable income. 35. When you sell the property, the capital gain realised on your main residence is exempt. The capital gain on a second residence or other property in Belgium is tax exempt if you have kept the property for five years. If you buy and sell before the five years are over, capital gains tax is due at 16.5 %. 36. However, tax may be due as well in your country of domicile, EUMmbria, see, p. 34. You have a Belgian bank account If you receive interest on a Belgian bank account 25% tax is withheld at source (précompte mobilier/roerende voorheffing). There is an exemption for the first 1,880 (per spouse or partner) in interest received on a savings account. 37. As a non-resident, you can get an exemption of tax on interest. As an EU official, you can obtain a form HIS 276 that confirms that you have maintained your domicile outside Belgium; the bank will accept that as proof of non-residence. Check p. 38 about the EU Savings Directive. 38. If you hold shares or bonds on an account with your bank, the bank will deduct 25% withholding tax. 39. You do not need to declare income on foreign bank accounts. 31
EU OFFICIALS AND BELGIAN TAXES You hold shares or bonds issued by a Belgian company 40. If you hold shares in a Belgian company, or if you have bonds issued by a Belgian company, that company will deduct tax at source at 25% (15 % for dividends paid on certain shares issued since 2013). 41. However, tax will probably be due as well in your country of domicile, EUMMbria, see, p. 34. Note that you can get an exemption or a reduction of the withholding tax under the double tax treaty between Belgium and EUMmbria. You sell and make a capital gain 42. When you sell your main residence in Belgium, the capital gain is exempt. When you sell a second residence or other property in Belgium, there is no capital gains tax if you have kept the property for five years. It is only if you buy and sell within five years that capital gains tax is due at 16.5 %. 43. Please note that capital gains tax may be due as well in your country of domicile, EUMMbria, see, p. 34. 44. 32
MY DOMICILE IS OUTSIDE BELGIUM Do I need to file a tax return if I am not domiciled? 45. In principle, an EU official living in Belgium but with a domicile outside Belgium, in EUMmbria, must file an income tax return as a non-resident (impôt des non-residents / belasting van niet verblijfhouders) if they have income that is taxable in Belgium. That will be the case if they have rental income from a property that is rented out, if they sell a second residence within five year or if they have earnings (see above). It is on the resulting net income that the income tax is calculated in accordance with the following rates for year of assessment 2016 (income 2015). On the bracket Rate The tax is between between 0 and 7,090 0% 0 7,090 and 8,710 25% 0 405 8,710 and 12,400 30% 405 and 1,512 12,400 and 20,660 40% 1,512 and 4,816 20,660 and 37,870 45% 4,816 and 12,561 over 37,870 50% over 12,561 Husband and wife or civil partners (cohabitants légaux/wettelijk samenwonenden) are taxed together. Each has a personal allowance of 7,090 that can be increased with other allowances (e.g. for dependent children). However, as the table indicates, the tax is calculated starting from 7,090. If the allowances exceed 8,710, the tax is calculated at 30%, etc. The EU official and his spouse are not taxed together if the EU official has income in excess of 10,230. 33
EU OFFICIALS AND BELGIAN TAXES Do I declare my Income at home as well? 46. If you have your tax residence in another EU Member State, you will normally have to declare all your income with the exception of the remuneration from the Institutions, in your country of domicile, in EUMmbria. Failure to declare you income may expose you to penalties and possibly criminal prosecution. 47. Please note that it is more than likely that the rules to calculate the taxable income and the deductions you are allowed to set off against the taxable income are different at home than they are in Belgium. That means that you may have to declare and pay tax on all the rent you receive for your Belgian property while you pay minimal tax in Belgium. It also means that you may have to pay capital gains tax at home, while you do not pay capital gains in Belgium. 48. Furthermore, if you have any income from your country of domicile, you may want to check that you are treated as a resident there because taxation may be lower or you may be entitled to tax deductions that are not available for non-residents. 34
MY DOMICILE IS OUTSIDE BELGIUM If I pay tax in Belgium and at home, do I pay tax twice? 49. If you receive income from Belgium or from any other country than your country of domicile, there is indeed a risk that you pay tax in both countries. This is where we need to explain how double taxation arises and how double tax treaties work. When you live in one country and work in another, there are two countries that want to tax you: the country where you live (your country of residence ) and the country where you work (the country of source of your income. And that results in double taxation, both in the country of your residence and in the country of source of the income. Each country has some rules of its own to avoid double taxation, but they also sign double tax treaties, or rather conventions for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains. In such a convention the two states agree which of them can tax income from real property, dividends, interest, royalties, salaries, pensions, etc. More importantly, it also states what the other has to do to prevent double taxation. If you live in Belgium and have income from the Netherlands, we need to look at the double tax treaty between Belgium and the Netherlands to see which of the two may tax you. 50. The Protocol adds a layer of complication. You live in Belgium and you may have income from the Netherlands, but in accordance with article 13 of the Protocol, your country of residence is not Belgium but EUMmbria, and the country of source of your income is now not only the Netherlands but also Belgium. 35
EU OFFICIALS AND BELGIAN TAXES 51. Most EU Member States have signed double tax treaties with most other EU Member States to eliminate double taxation and you will have to check two double tax treaties, the double tax treaty between EUMmbria and the Netherlands and the double tax treaty between EUMmbria and Belgium. Take an Irish EU Official who is living in Belgium but has maintained her domicile in Ireland, and receives income from Spain. In accordance with the double tax treaty between her country of domicile (Ireland) and the country of source (Spain), she can claim the treaty benefits to avoid or limit double taxation. Spain cannot refuse to apply that treaty with Ireland. And Ireland will have to help her get the treaty benefits, e.g. by giving her a certificate of residence. If there is no double tax treaty between the country of domicile and the country of source, an EU official will have to see whether his country of domicile has any provisions in its domestic tax legislation to unilaterally eliminate double taxation. 52. There are two ways to eliminate or reduce double taxation. Taxation with credit In most countries, you declare your worldwide income; tax is calculated on your worldwide income in EUMmbria and if the double tax treaty allows Belgium to charge tax on the income, you can, normally speaking, deduct the Belgian income tax from the tax in EUMmbria. That is called the taxation with credit method. The 36
MY DOMICILE IS OUTSIDE BELGIUM tax in the country of source is credited against (deducted from) the tax in the country of residence. That means that you always pay the local tax at home. In the example, that is 40 %. If you pay more tax in Belgium than at home, you cannot get the difference back. Exemption with progression method 53. Some countries (Austria, Belgium, Bulgaria, Cyprus, France, Germany, Luxembourg, Portugal and Romania) apply a different method, the so-called exemption with progression method. That means that they do not tax the Belgian income. However if you have income tax is taxable at home, they will only tax the local income at the rate that would (theoretically) apply to your worldwide income. When determining the tax rate, they look all your income, i.e. you Belgian income and your EUMmbrian income, they calculate the theoretical tax rate on your worldwide income and apply that to your EUMmbrian income. The good news is that if you have no income in EUMmbria, you will not pay any income tax in EUMmbria. However, if you have some taxable income there, the Belgian income will push the tax rate up. In this example, the tax rate goes up from 40 to 43%. 37
EU OFFICIALS AND BELGIAN TAXES What is the EU Savings Directive? 54. Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments is also known as the EU Savings Directive or as the EU Savings Tax Directive. This is a bit of a misnomer because the directive does not impose a tax; it obliges Member States to exchange information about the interest you receive in another country. If you are a resident of Denmark you receive interest from a Dutch bank, the Dutch bank has to report that information to the Dutch Tax Authorities and they will pass that information on to the Danish Tax Authorities. The main purpose of the Directive is to make sure that you do not forget to declare the interest income; if you have not declared it, you may get some questions from the Danish Tax Authorities. Most EU Member States are exchanging information with each other. If you have bank accounts in another EU Member State, the bank will report information on the interest you received to the tax authorities of your country of domicile. 55. The following countries exchange banking information : Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg (since 1 January 2015), Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Some other countries and territories do the same: the British Virgin Islands, Cayman Islands, Guernsey and Jersey the Isle of Man, Montserrat and Turks and Caicos. Until 2009, Belgium and Luxembourg did not report that information but withheld tax at source. Austria, Switzerland, Andorra, Aruba, Liechtenstein, Monaco, the Netherlands Antilles, and San Marino, are still doing that. They withhold an EU 38
MY DOMICILE IS OUTSIDE BELGIUM Withholding Tax (withholding tax for the state of residence / prélèvement pour l Etat de Résidence (PER) / woonstaatheffing). This tax is 35% and three quarters of that tax are paid back to the state of residence of the tax payer on a no names basis. A common misunderstanding about the EU Withholding Tax 56. It is not because Belgium has withheld the EU Withholding Tax at 35 % that you have paid all your taxes. You still have to declare that interest income in your tax return in your country of residence. If you have not declared the interest income, you may still be in time to declare the interest income and you should be able deduct the EU Withholding Tax at 35 %. Please refer to article 13 of the Council Directive 2003/48/EC What information does Belgium give to EUMmbria? Belgium will give the following information to the state of residence of the taxpayer: the name and address of your bank; your identity and residence; your tax identification number (TIN) or if you do not have one or if it is not mentioned on your identification documents (passport, identity card, etc.), your place and date of birth. your bank account number, or a precise description of the financial instrument (e.g. bond) on which the interest is paid; an explanation of the interest payment : interest credited on your bank account, interest paid upon redemption of a Sicav,...). 39
EU OFFICIALS AND BELGIAN TAXES What does this mean for you? if you are a EU official with a domicile in EUMmbria, you are exempt from the Belgian withholding tax (25 %). However, your Belgian bank will report the interest paid on your accounts or accrued on your investments to the Belgian tax authorities and they will inform the tax authorities of EUMmbria. And then you may get questions from the tax authorities in EUMmbria about why you did not declare the income. If you are an EU official with a Belgian domicile the Belgian bank will not report any information about the interest you received. However, you are not exempt from the Belgian withholding tax (25 %), although for interest on bank deposit accounts the first 1,880 in interest is tax exempt (see p. 31). What can EU officials do to prevent reporting? 57. First of all, you could move your investments to a country that does not exchange information (Austria, Switzerland, etc ) and pay 35% tax, or to a country that is not covered by the EU Savings Directive (Bermuda, Hong Kong, ), but that still does not mean that you have complied with your tax obligations; you still have to declare that income at home. The EU withholding tax is not an income tax but a penalty for anonymity. Moreover, as of 2017, it will be almost impossible to keep anything hidden as nearly 70 countries will start exchanging information about interest, dividends, pensions, real property under the OECD s common reporting standard. 58. A better alternative is to find a financial product at home, in your country of domicile, with a favourable tax status (e.g. tax exempt interest or tax exempt capital gains). Banks in your country of domicile do not report to the tax authorities of your country of domicile, at least not under the EU Savings Directive. E.g., Belgian 40
MY DOMICILE IS OUTSIDE BELGIUM banks do not report on Belgian residents; they should invest in savings accounts (that are exempt for the first 1,880) and Sicavs. Other countries have similar tax efficient products ; e.g. the U.K. have ISAs with tax free interest and capital gains. Moreover, the first 11,000 in capital gains is tax exempt every year. Finally, life insurance products can be interesting, but interest on life insurance products will be reported under the new EU Savings Directive. 41
EU OFFICIALS AND BELGIAN TAXES If I am not domiciled, which taxes do I pay in Belgium? 59. You are not exempt from VAT on your purchases and shopping in Belgium. The VAT is 21%. 60. When you buy property in Belgium, a stamp duty or purchase tax (droit d enregistrement/registratierecht) is due plus a percentage by way of notary s fees. The rate is 12.5% (10% in Flanders). The stamp duty is calculated on the sales price or the market value of the property. 61. If you buy new property or property under construction, usually VAT at 21% will be due. 62. If you finance the property with a mortgage, a registration tax of 1% of the value of the mortgage is due. 63. You also have to pay local taxes such as the garbage collection taxes, etc 42
MY DOMICILE IS OUTSIDE BELGIUM Inheritance tax when a non-domiciled EU official dies 64. We must make a very important distinction : the Protocol deals with inheritance tax only, not with the inheritance rules. Even if you are deemed to be domiciled in your country of origin for inheritance tax purposes, you have probably taken up domicile in the country where you live for the application of the inheritance rules (see www.taxation.be About wills and successions). This may limit your freedom to make wills and you may have to take account of the forced heirship rules (e.g you cannot disinherit your children or your spouse). The same rules apply to your spouse (who has no gainful occupation) and your children (if they are dependant and in your care). 65. When an EU official dies in service, his heirs will have to file two inheritance tax returns: one in Belgium, for the real property he owned here and one in his country of domicile (say EUMmbria) for his worldwide estate. However, some countries have abolished their inheritance tax. The heirs of EU Officials who have their domicile in Austria, Cyprus, Estonia, Latvia, Malta, Portugal, the Slovak Republic, or Sweden will only have to file a Belgian inheritance tax return for their Belgian real property. Other countries do not charge inheritance tax on the children (Bulgaria, Croatia, Czech Republic, Latvia, Lithuania, Luxembourg, Malta, Poland, Slovenia and certain regions in Spain), while others do not charge inheritance tax when the spouse inherits (the same plus Denmark, France, Ireland and the U.K.). An inheritance tax return may have to be filed but inheritance tax may not be due. 43