Dividend and interest payments abroad: what you need to know
If your company pays out income from movable assets – such as dividends, interest or royalties – to an individual or legal entity in another country, the formalities and the withholding tax rate are different from those for payments within Belgium. Often, the rate for withholding tax on these incomes is lower, and in some cases you may even be exempt. However, to apply the lower rate or benefit from the exemption, you need to make sure you have completed certain formalities. Exactly what you need to do varies depending on the situation. We’ve put together this simple plan to help you when you have payments for recipients outside Belgium.
STEP 1: Who is the beneficiary – a company or a natural person?
The first step is to identify the beneficiary of the income you are paying out.
If you are paying a natural person, you will need to apply the provisions in the relevant double taxation convention. Most double taxation conventions state that the income on movable assets is taxed in the country where the beneficiary is domiciled. In some of these cases, Belgium cannot apply any withholding tax at all; in others, it is just a limited amount.
To be awarded the exemption or reduction, you need to submit a tax form for withholding tax on income from movable assets within 15 days of releasing the payment. The application must be accompanied by either a 276div, a 276int or a 276r form, depending on the type of payment, and must be signed by the tax authorities in the country where the beneficiary is domiciled.
STEP 2: The beneficiary is a company: is it affiliated?
If the recipient company is not affiliated with the company making the payment, then once again the double taxation agreement applies. The paperwork described above also applies in this case.
If the recipient is an affiliated company, there are EU directives that apply: the Parent-Subsidiary Directive
for dividend payments or the Interest and Royalty Regime for interest and royalty payments. These directives provide for an exemption from Belgian withholding tax.
Although the Parent-Subsidiary Directive is an EU directive, it is also applicable for dividend payments to affiliated companies domiciled in a country with which Belgium has a double taxation convention and that subscribes to exchange of information. The exemption under the Interest and Royalty Regime can only be applied if the beneficiary is an affiliated EU company.
As before, to be awarded these exemptions you need to submit a tax form for withholding tax on income from movable assets within 15 days of releasing the payment. A declaration by the beneficiary must be included with the application, confirming that the criteria for applying the exemption have been met.
A prior decision by the Ghent Court of Appeal concluded that the exemption cannot be applied if the declaration is dated later than the date on which the income is released for payment.
What can we learn from this?
This means that it is very important that when you are making payments abroad, you check which withholding tax rate applies in Belgium and make sure the correct formalities are completed.
If you pay income from movable assets to people or companies in other countries, perhaps you could use some assistance sorting out the correct paperwork to be eligible for the reduced rates for withholding tax? Just get in touch with our specialists – they’ll be happy to help!
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.