Soon a new Belgian tax regime for interest earned on savings accounts?

Interest derived from deposits made on so-called ‘regulated savings accounts’ in principle benefits from a withholding tax exemption up to an amount of 980 EUR (for 2023) per year. Interest paid in excess of this threshold, will be subject to a reduced withholding tax rate (15%).

In order to qualify as ‘regulated savings account’, a number of conditions (laid down in article 2 of the Royal Decree implementing the Belgian Income Tax Code (‘RD/ITC’)) must be met. For the third time, and in spite of the amendments made to this regime as a result of previous infringement procedures, the European Commission (EC) sent a new reasoned opinion to Belgium about an alleged infringement of EU law. Indeed, the EC considers that the conditions imposed by article 2 RD/ITC are too restrictive and violate the EU freedom of services (article 56 TFEU).
 

The Belgian tax framework for regulated savings accounts

Although foreign banks are in theory not restricted from offering savings accounts to Belgian resident individuals, such accounts will in most cases not comply with all requirements of article 2 RD/ITC. As a result, interest paid on those accounts will not be entitled to the beneficial tax regime for regulated savings accounts.

Indeed, article 2 RD/ITC provides for a quite extensive list of requirements, which notably include:

• Specific limitations to the type of operations that may be executed with available deposits on those accounts;
• The possibility for the bank to impose certain limits regarding withdrawals;
• Requirements regarding the computation of the remuneration offered on the deposits and the impact of transfers between accounts held by the same accountholder with the same bank on the computation, as well as rules regarding the moment at which the interest must be paid.

In February 2020, the Belgian tax authorities issued a circular letter clarifying the conditions under which savings accounts offered by foreign banks may qualify for the beneficial tax regime for regulated savings accounts.

In the same circular letter, the tax authorities specifically reviewed four foreign savings accounts offerings by banks in France and in the Netherlands. Their conclusion was that none of those accounts qualifies for the regulated savings account regime.

In the past, certain taxpayers however successfully argued before Belgian courts that the beneficial regime should apply to interest derived from their foreign savings accounts.

On 14 July 2023, the European Commission sent a new reasoned opinion to Belgium. The Commission considers that the Belgian tax exemption system applicable to income from savings deposits imposes discriminatory conditions for access to the Belgian banking market.
 

A complex regime, also for Belgian banks

The various conditions imposed by article 2 RD/ITC do not only raise barriers for foreign banks willing to attract Belgian deposits, they may also trigger significant risks for Belgian banks which do not fully comply with those rules.

In this respect, compliance should not only be reviewed based on the contractual terms applicable to the concerned accounts, but banks should also pay specific attention to the operational implementation of the relevant rules in their systems.

Separately, with the current raise of interest rates, an increasing number of Belgian savers is likely to exceed the threshold above which interest derived from regulated savings accounts is taxable (at a reduced tax rate). Belgian banks should make sure to identify those situations and to adequately levy Belgian withholding tax where appropriate.
 

Possible remediation options

Belgium now has two months to reply to the arguments put forward by the Commission. Ultimately, the case could potentially be referred to the European Court of Justice.

In the longer term, Belgium will most likely have to choose between two options. Either it could amend the requirements of article 2 RD/ITC in order comply with EU rules on the freedom of services. Alternatively, it could also simply repeal the favorable tax regime for regulated savings accounts. The later option may however not be the most popular one year ahead of the next federal elections.
 

How we can help

While it is currently unclear how Belgium will react to the reasoned opinion sent by the European Commission, we are available to provide support in reviewing whether savings accounts offered by foreign banks could qualify for the beneficial tax regime for interest derived from regulated savings accounts.

We also have experience in reviewing the compliance status of savings accounts offered by Belgian banks.