The Ghent Court of First Instance has sought a preliminary decision from the European Court of Justice on whether Belgium’s tax regime for inbound dividends is compatible with EU law.
One of the basic principles of the Belgian income tax system is that a dividend received by a resident individual is subject to a 25 percent withholding tax. That withholding tax is the final tax for the taxpayer, meaning that he does not have to declare the dividend in his tax return.
However, if no tax has been withheld at source, either by the company distributing its profits or by the intermediary (usually a bank), the taxpayer must declare the dividend and pay income tax at a rate of 25 percent.
Belgium taxes inbound dividends the same way. However, under the provisions of Belgium’s double tax treaties, the country where the dividend originates can withhold tax at source on the dividend before it is paid out. Belgium grants unilateral relief to prevent double taxation by applying the deduction method: The foreign tax is deducted from the gross dividend before the Belgian tax is calculated. The Belgian 25 percent withholding tax (or, alternatively, the final income tax) is calculated on the net dividend after deduction of the foreign withholding tax. (See below. (Read the article …)