Israel – Belgium Tax Treaty

Business activity in Belgium

Belgium thrives on stable governance and a robust legal framework, creating an ideal environment for enterprises. Belgium’s economy flourishes with diverse industries spanning manufacturing, services, and international trade. The manufacturing sector, including chemicals, pharmaceuticals, automobiles, and machinery, benefits from a skilled workforce and technological advancements. Meanwhile, the services sector, encompassing finance, telecommunications, logistics, and information technology, thrives due to Belgium’s central position within the European Union.

Belgium’s international trade relations and strategic ports drive its economic growth. As a founding member of the European Union, Belgium enjoys seamless access to the European single market, facilitating trade and investment opportunities. Ports like Antwerp are vital logistics hubs, enhancing Belgium’s global connectivity and boosting international commerce. Belgium’s commitment to sustainability and responsible practices further strengthens its appeal as a business destination.

Bilateral agreements between Belgium and Israel

• Convention for the Prevention of Double Taxation

Convention on the Prevention of Double Taxation between Israel –Belgium

The agreement between the Governments of Israel and Belgium regarding the avoidance of double taxation was signed in 1972 and entered into force in 1975.

To read the agreement in English, click here.

Applicability of the MLI

Belgium and Israel have signed the MLI, which means that there is an automatic exchange of information between the two countries. Belgium and Israel signed the MLI in 2017 and ratified it in 2019. This means that the treaty between Israel and Belgium changed automatically according to the content of the MLI treaty, subject to the reservations set by both countries.

Residency for tax purposes in Belgium

Residence of an individual

Those with established domicile or those whose center of economic interest is in Belgium are considered residents. Residents have registered in the population register of a commune in Belgium. The fiscal residence of married couples and legal cohabitants is determined by where the family is located.

Under civil law, domicile is essentially the same as residence in income tax law; the term is generally used when considering liability to inheritance tax.

To learn about how an individual is considered a resident of Israel, read here.

Residency of a company

For tax purposes, a company is considered a resident of Belgium if its principal place of business or seat of management is in Belgium, as determined by Belgian case law. The ‘real seat’ theory applies for tax purposes, even though Belgian company law mostly follows the ‘registered seat’ theory. The Belgian Income Tax Code defines resident companies, foreign companies, and introduces a presumption to prevent double non-residence situations.

Regarding permanent establishment (PE), the definition of a Belgian establishment under Belgian tax law is broader than that of the OECD Model Tax Convention or Belgium’s double tax treaties (DTTs). If a non-resident company has a Belgian establishment that doesn’t constitute a PE under the relevant DTT, Belgium generally can’t tax its profits attributable to that establishment. However, the foreign company must still fulfill certain formal tax requirements, such as filing a non-resident tax return and responding to information requests, even if no tax liability arises in Belgium.

To learn about how a company is considered a resident of Israel, read here.

The tax system in Belgium

The Belgium Tax Authority is called the General Administration of Taxes

Income taxation: 25% – 50%

Taxation of companies and branches: 25%

VAT: Standard rate of 21%, with lower rates for various goods and services that can be 12%, 6%, and even 0%

Capital gains tax: 28%

Withholding Tax

Inheritance tax and estate tax in Belgium

Under Belgium’s inheritance law, they follow a system of forced heirship with a certain portion automatically passed to heirs without needing a court order. Under is law, half of the estate is split amongst the children of the deceased while the spouse or partner is given the other half for the rest of their life.

Citizens of other European Union countries can decide if the laws of their country of nationality or Belgium laws should apply to their estate.

Inheritance tax in Belgium is levied on all assets other than real estate outside of Belgium (resident) and real estate inside Belgium (non-resident)

For real estate property, rather than being valued based on the increase between the gift date and the inheritance being granted, values are now based on what the property was worth the day it was gifted, indexed to inflation on death.

According to Belgian inheritance tax law, gifts given less than three years prior to the donor’s death and were not subject to Belgian gift taxes are to be included as part of the donor’s estate to be taxed under inheritance tax law. Such gifts must be included in the inheritance tax return as the value at the donor’s death, not when the gift was given.

Relocation

Belgium offers compelling advantages for businesses considering a move, particularly from a business perspective. Its central location in Europe provides easy access to major cities and markets, making it an ideal base for expanding into the wider European market. With well-developed transportation networks and advanced logistics facilities, Belgium offers efficient connectivity for businesses to transport goods and connect with customers. Additionally, Belgium boasts a skilled and multilingual workforce, providing businesses with access to diverse talent and the ability to engage with international clients. The country’s strong infrastructure and modern communication systems facilitate smooth business operations. Moreover, Belgium’s stable legal and regulatory frameworks offer a favorable business environment, ensuring reliable protections for intellectual property and commercial transactions. Belgium’s strategic location, robust infrastructure, talented workforce, and supportive business climate make it an attractive destination for companies seeking growth and success in Europe.

Real estate taxation in Belgium

The real estate tax in Belgium is a regional tax collected annually based on Cadastral income. The tax rate applied to all real estate (built and unbuilt properties) is based on the region in which the property is located. The Brussels-Capital region has a rate of 1.25%. These rates can be from 1.25% to 2.5% of the property’s value. If this property is being rented out, there is a separate tax on top of the previously mentioned tax. This tax is levied on the income produced from renting the property out, with a tax rate between 25% and 30%.

Transfer of funds from Israel to Belgium

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in Belgium

Belgian business entities are as follows:

1. Sole Proprietor – A single natural person holds the individual entrepreneur and the liability that comes with it. There is no separation of assets of the proprietor.

2. Partnership – Formed by at least two individuals who will run the business together and are both liable for the debt and obligations incurred.

3. Public Limited Company – At least two shareholders, the amount of shares are divided prior to incorporation. Shareholders are liable up to the amount contributed.

4. Cooperative Company with Limited Liability – Like PLC, however, there are different minimums of capital required for registration. There must also be at least three members who decide upon establishing this type of structure.

5. Private Limited Company – More than one shareholder; the amount of share capital is €61,500, paid by at least two shareholders. Can be formed by individuals or legal entities, and liability is still limited for the shareholders.

Incentive laws in Belgium

Belgium has introduced the Innovation Income Deduction (IID) to replace the previous patent income deduction regime. Under the IID, qualifying patent/innovation income is calculated on a net basis, with an increased deduction rate of 85%. This results in an effective tax rate of 3.75% over the lifetime of the intellectual property (IP).

The IID applies to various types of IP, including:

• Patents
• breeders’ rights
• orphan drugs
• data and market exclusivity
• copyrighted software

To be eligible, companies or branches must have full ownership, co-ownership, usufruct, or license of the IP or the right to use it.

The IID covers different sources of qualifying income, such as:

• license fees
• Embedded royalties (IP income embedded in the sales price of own manufactured products for which a third party would pay a license)
• IP income is derived from process innovation and remunerations based on court/arbitral decisions, amicable settlements, or insurance settlements.

Additionally, the deduction encompasses proceeds from the transfer of qualifying IP, subject to reinvestment conditions within five years.

In the initial taxable period applying the IID, the net innovation income should be decreased by overall expenditure incurred in preceding taxable periods ending after June 30, 2016. Alternatively, businesses can spread this recapture straight-line over seven years. If the qualifying IP right ends or is sold before the end of these seven years, a correction is applied to limit the IID based on the amount that would have been used without the spread recapture option.

The introduction of the IID aims to incentivize innovation and provide businesses in Belgium with favorable conditions to maximize the benefits derived from their intellectual property assets.

Belgium Double Tax Treaties