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On July 26, 2023, a new Royal Decree containing various amendments to the Royal Decree implementing the Belgian Income Tax Code was published. The below update focuses on one of the main amendments, which will be of particular interest to Alternative Investment Funds (‘AIFs’) (and their managers) investing in Belgian debt claims.
Extension of the domestic withholding tax exemption for interest paid to qualifying investment companies
Since December 2015, article 116 of the Royal Decree implementing the Belgian Income Tax Code (‘RD/ITC’) has provided for a withholding tax (‘WHT’) exemption for Belgian sourced interest paid to qualifying investment companies.
Said exemption was available to a large number of beneficiaries, notably including Belgian AIFs and foreign EEA AIFs whose shares are publicly offered in Belgium. EEA investment companies governed by similar foreign legislation to that governing Belgian qualifying investment companies, and whose shares are not publicly offered in Belgium, also qualified for the exemption.
Effective February 2022, the exemption was extended to interest paid to Belgian and Foreign European Long-Term Investment Funds (‘ELTIF’).
Despite the relatively broad scope, the exemption did however not include any reference to institutional AIFs (i.e., AIFs reserved for eligible investors). While other WHT exemptions could in a number of cases be claimed by such investment companies, other situations remained where no exemption was available (it being understood that for Belgian investment companies only, the WHT incurred was creditable and refundable in the framework of their corporate income tax assessment).
The absence of a reference to such institutional AIFs had been pinpointed by various authors. In 2020, a draft Royal Decree already envisaged to amend article 116 RD/ITC in order to close this gap. The proposal was however not approved after the Council of State highlighted the budgetary impact of such an extension (in particular with respect to foreign investment companies).
On July 26, 2023, a new Royal Decree was published and finally introduced references to AIFs referred to under articles 285 and 288 of the Belgian AIFM Law in article 116 RD/ITC, hereby extending the scope of the aforementioned WHT exemption to those funds. Foreign EEA AIFs governed by similar foreign legislation will also qualify.
Conclusion and how EY can help
The above is a positive update for foreign AIFs investing in Belgian debt claims and which were not able to rely on other WHT exemptions based on Belgian domestic tax law and under double tax treaties. We are available to provide more information on the extended scope of the exemption and to review whether foreign funds may qualify.