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Belgium welcomes the wealthy
Tax advisors working with wealthy clients from neighbouring countries have long recommended Belgian residency due to a number of anomalies within the country’s tax system
In the province of Antwerp, the presence of Dutch nationals is noticeable in affluent towns such as Brasschaat and Schoten, while the heirs to some of France’s biggest fortunes have moved just across the border from Lille. A journey of 80 minutes from Gare du Nord in Paris to Brussels’ Gare du Midi goes some way to explaining the presence of so many affluent Parisians living in Uccle. To avoid taxes on unearned income, investments need to be placed in perceived tax havens such as Luxembourg or Switzerland, right? Actually, investments in Belgium usually incur low to no taxation and residents can legally pay virtually no tax on their accumulating assets if their investments are structured correctly.
National governments across Europe typically have tax systems based on the principle of ‘fiscal neutrality’, whereby income from all sources is added together to determine an individual’s total revenues. Income is then taxed in bands at progressively higher amounts up to a maximum percentage. All revenues above a certain level are then taxed at this highest rate. Belgium’s tax code, by comparison, has completely different tax regimes for earned and unearned income. Taxes on earned income have traditionally been among the highest in the world, whereas there are low to no taxes on unearned income.
• The actual rental income received from property is untaxed, although a nominal amount of tax is payable on the notional rental value.
• Capital gains in most circumstances are not taxed. If an individual wants to sell assets that have grown enormously in value, be they property, shares or a business, it can be beneficial to move from France, Germany, the Netherlands or the UK to Belgium before selling the asset to avoid capital gains taxes.
• Income from directly held investments – cash accounts, bonds and shares, for example – are taxed at much lower levels than the highest rates on earned income. In addition, it is possible to avoid income taxes completely by investing via collective vehicles such as mutual funds, unit trusts or insurance policies.
• There is no wealth tax in Belgium. This has been a particular source of concern for the French government, which is acutely aware of the large number of French tax exiles living in Belgium.
Historically, whenever the Belgian government has looked to raise extra revenue from its citizens, the tendency has been to focus on payroll and indirect taxes, hence the very high levels of earned income taxes and VAT. It has also led to some of the more bizarre taxes, such as the tax on mortgage loans (how is it possible to pay tax on money that isn’t yours?). Due to the debt crisis, which has affected Belgium particularly badly, the amount of extra revenue the Belgian government has to find is of a magnitude that would be unrealistic to collect from raising what are already among the highest payroll taxes in Europe. Hence the growing expectation that the 2012 budget would represent a radical departure from the past as the Belgian government looked to more affluent sections of society to find extra revenue.
PLUS ÇA CHANGE
In the event, the changes to be introduced have focused mainly on the tax advantages of setting up management companies rather than taxes on wealth. So rather than focus on levelling the playing field between earned and unearned income, the target for raising tax revenues has been individuals setting up management companies (so as to reduce earned income taxes) rather than the independently wealthy. Aside from a modest increase in the marginal tax rates on certain types of unearned income, the favourable tax regime for the affluent remains largely intact in Belgium.
Philip Curran is an independent financial advisor based in Brussels