At NautaDutilh, we have extensive experience assisting clients with tax regularisation as the Belgian government has already allowed, on a number of occasions, taxpayers to report previously undeclared income without fear of prosecution. Even though the government declared that the 2013 tax amnesty would be the last, the Act of 21 July 2016 provides for yet another such scheme.
The new rules, which entered into force on 1 August, provide for a permanent system of tax and social security regularisation and closely resemble the 2013 tax amnesty. The aim remains the same, namely to convince taxpayers to report previously undeclared income and pay a defined amount in order to obtain a regularisation certificate granting immunity from tax and criminal prosecution. The procedure is also the same. Interested parties can request regularisation of their tax situation by submitting a notification to the "Regularisation Contact Point" in Brussels. The formalities to be fulfilled in this regard (i.e. the notification form and regularisation certificate) are set out in the Royal Decree of 8 August 2016, meaning it's been possible to effectively request regularisation of unpaid federal taxes since that date.
Who can benefit from the new system?
As before, the new system is accessible to all taxpayers, even those who've previously benefitted from tax amnesty. Qualifying legal and natural persons can now regularise their tax situation by reporting to the tax authorities, in accordance with the applicable statutory provisions, previously undeclared income, social security contributions, VAT transactions and even capital for which the tax statute of limitations has expired. Moreover, persons holding (i) assets through a foreign structure subject to the so-called Cayman tax , (ii) a foreign life insurance policy, or (iii) an offshore bank account also qualify for regularisation.
Which taxes can be regularised?
A wide range of taxes qualify for regularisation, including income tax, VAT, federal registration taxes, mortgage rights, registry charges and the taxes mentioned in the Code on Various Duties and Taxes (such as the insurance tax). On the other hand, taxes which are not imposed by the Belgian federal government (e.g. certain registration taxes and inheritance taxes) do not qualify for regularisation. Indeed, for this reason, the Constitutional Court set aside several provisions of the 2013 tax amnesty scheme insofar as they related to regional taxes. Thus, the new scheme does not extend to inheritance or registration taxes that fall under the authority of the regions (such as real estate transfer taxes). Consequently, it is currently not possible for taxpayers that wish to regularise both federal and regional taxes to benefit from the new system.
However, it is highly likely that it will be possible to regularise regional taxes in the future, provided the regions conclude a cooperation agreement with the federal government. Apparently, an agreement in principle has been reached, meaning regularisation of regional taxes may be possible as early as this fall.
In order to qualify for tax amnesty, the taxpayer must produce evidence of (i) amounts that have been declared and have thus been taxed in the past (these amounts are then excluded from regularisation) and (ii) for amounts for which such evidence is not available, the nature and category of the applicable taxes as well as the period during which these taxes were not paid. It is obvious that, in practice, such evidence will be very difficult to produce.
What are the effective tax rates ?
The most important question for taxpayers is undoubtedly the financial impact of regularisation. The new legislation distinguishes between the regularisation of income and (other) amounts. (The distinction made under the 2013 tax amnesty between professional income and other income is no longer applicable.) In this context, regularised income refers to all income normally subject to income tax, while regularised amounts are all amounts normally subject to federal registration duties, as well as mortgage rights, registry duties and the taxes specified in the Code on Various Duties and Taxes. It should be noted that this distinction was made in order to avoid jurisdiction problems and that it is not relevant as regards the effective tax rate . Both categories, along with VAT transactions, are subject to the normally applicable rates which are then increased by a penalty of 20 percentage points.
For example, the regularisation of undeclared dividends (normally subject to tax at a rate of 27%) results in a tax burden of 47%. Moreover, it should be noted that the new legislation carries over a distinction from the old system between underlying capital that is still subject to tax and that for which the tax statute of limitations has expired (i.e. grey or black money received before 2009), which affects the effective rate. While the former is subject to tax at the above-mentioned rates, the latter is regularised at a uniform rate of 36%. Furthermore, the new system does not make a distinction based on the severity of the tax fraud. In the past, a higher rate was applied to so-called "serious and organized tax fraud".
Starting in 2017, the penalty (defined as a percentage of the unpaid tax) will increase every year. For 2017, the penalty is 22%. For 2018-2020, the penalty will be 25%. For capital no longer subject to tax (verjaard kapitaal), the penalty rises to 40%. For 2021 and following years, no increase is foreseen.
Although the new system is a permanent one, taxpayers are advised to rectify their tax situation as soon as possible, having regard to the increasing penalty and the extensive sharing of information between the tax authorities.