The Belgian tax administration has introduced a new provision that could have an impact on your organisation. Given the potential impact on your organization, we wanted to briefly explain this upcoming reform.
As you know, non-profit organizations (cf. vzw/asbl), international non-profit organizations (cf. ivzw/aisbl) and private foundations are subject to an annual tax of 0.17% on the value of their assets (cf. ‘patrimoniumtaks/ taxe patrimoniale’). In short, this tax aims to avoid the accumulation of assets in such entities. After this tax remained unchanged for years, the current regulation will be thoroughly reformed in a draft law that has been submitted. Below we briefly outline the highlights of the latter:
1. New progressive rates and higher exemption
The new scheme introduces a progressive rate, with the following rates being proposed in advance:
- First tranche of EUR 50,000: exempt;
- On the EUR 50,000 to EUR 250,000 bracket: 0.15%;
- On the bracket from EUR 250,000 to EUR 500,000: 0.30%;
- Above EUR500,000: 0.45%.
Thus, the fixed rate of 0.17% disappears and the exemption when the taxable assets of the entity concerned do not exceed the limit of EUR 25,000 is replaced by a first tranche exemption of EUR 50,000. Moreover, private foundations can also no longer opt to pay the tax due immediately for 3 years.
2. All assets will be targeted regardless of their location
The tax will henceforth apply to all the assets of the non-profit organization or private foundation “wherever they are”. Based on Constitutional Court case law, real estate located abroad is thus no longer excluded from the taxable base. However, in order to (partially) avoid possible double taxation, the draft law does provide for a credit mechanism for property already subject to a similar tax abroad.
3. Tax relief for certain sectors
To mitigate the impact of the new progressive rates on certain sectors to be supported, the legislature provides for a tax reduction for well-defined sectors. In particular, these are entities active in the healthcare sector, licensed bespoke companies, medical homes and patrimony institutions where at least 75% of the assets are used by one of the previous 3 mentioned institutions. For all these sectors, the value of their assets is reduced by 62.3%, so that only 37.7% of the value of their assets is effectively taxed. As a result, these institutions never pay more than the current flat rate of 0.17% on their assets.
4. Anti-abuse provision
To clear up any questions regarding the precise scope of the general anti-abuse provision, the legislator clarifies that it applies in full to the aforementioned tax. Consequently, the anti-abuse provision can be invoked by the tax administration in the absence of an essential non-fiscal motive.
5. Entry into force
The reform of the patrimony tax will enter into force on January 1st, 2024. Thus, the new regulation will already be applicable to declarations to be filed no later than March 31st, 2024.
Our BOFIDI experts will be pleased to help you
The impact of the proposed changes – especially the significant increase in the rate – should not be underestimated. Obviously, this brief explanation will not be able to answer all your questions. We therefore suggest you discuss this further with your regular PKF BOFIDI advisor. If necessary, they can already calculate a simulation of the possible financial impact on your organization.
This article was written by Joachim Pauwels and Claudia Cruyvers.