Good news for many Belgian investors: the tax authorities have recently changed their position regarding the taxation of French dividends. This historic decision will allow many taxpayers to recover part of the Belgian withholding tax.
The Flat Foreign Tax Credit (FTC)
When a foreign-source dividend is paid to a Belgian tax resident, Belgium has the right to tax this dividend (tax rate: 30%). However, double taxation treaties provide that the source country (the country from which the dividend originates) may also apply a withholding tax (generally limited to 15%). The Belgian rate of 30% is then applied to the "net border amount" (i.e., the gross amount minus the 15% paid in France).
For example, on a gross dividend of 100, 15 is paid in France, and 25.5 (i.e., 30% of 85) is taxed in Belgium. The taxpayer thus receives a net dividend of 59.5. If this dividend had only been taxed in Belgium, the taxpayer would have received 70 (i.e., 30% of 100).
To address this issue, the Belgian-French tax treaty currently provides for the application of a 15% flat foreign tax credit (FTC). This means that the Belgian taxpayer should be able to recover 15% at the Belgian tax level, thereby limiting Belgian taxation to 15% instead of 30%.
Why Did the Belgian Authorities Apply Double Taxation?
The Belgian-French double taxation treaty states that this 15% credit is applied "under the conditions set by Belgian legislation." However, the Belgian legislator removed the FTC credit for Belgian individuals from Belgian tax law.
As a result, the Belgian tax authorities applied double taxation to Belgian shareholders of French companies, as follows:
- A withholding tax levied by the French company (generally limited to 15%)
- The Belgian withholding tax applied to the residual amount (30%)
Unsurprisingly, this position was vigorously contested by taxpayers in court.
A Long Legal Battle Finally Resolved
The legal battle lasted over 20 years. Despite the removal of the FTC concept from Belgian legislation in 1988, courts repeatedly confirmed that the mention of FTC in the Franco-Belgian treaty was sufficient to obligate the Belgian state to apply it.
However, the tax authorities remained resistant, arguing that the FTC could only be applied if the French dividends were declared by taxpayers in their tax returns. In practice, this was rare, as the withholding tax is final, meaning these revenues do not need to be declared.
In two decisive rulings on November 23, 2023 (F.21.0168.N and F.22.0034.N), the Court of Cassation (Belgium Supreme Court) definitively settled the matter in favour of taxpayers. The Court ruled that the FTC must be deducted from Belgian tax, even if the dividends were not declared in the tax return.
Following this case law, the tax authorities recently acknowledged that the FTC must be deducted from Belgian tax, even when dividends were not declared (as the withholding tax is final), thereby putting an end to a long-standing tax practice.
Who Can Benefit from This Change?
This new position is particularly important for the following investors:
- Those who have filed claims to obtain a refund of withholding tax on French dividends. For them, the tax authorities should now be willing to reach settlement agreements in ongoing legal proceedings, resulting in a refund of the FTC.
- Those who have recently received dividends in a Belgian account with the application of final withholding tax.
For dividends received in a foreign account, the situation is more complex. These taxpayers had to go through the administrative tax refund procedure, whose outcome remains uncertain despite this reversal.
Temporary Advantage?
Unfortunately, this favourable situation will not last forever. Belgium and France have signed a new double taxation treaty in which the FTC concept has been removed. This new treaty is expected to come into force around 2026-2027, thereby reintroducing full double taxation on French dividends.
Belgian investors therefore have a temporary window of opportunity to assert their rights.
Thanks to its extensive experience in international taxation, Vanbelle Law Boutique provides personalized support at every stage of optimizing your tax situation. Whether it concerns the recovery of unduly withheld taxes, international wealth structuring, or advice on double taxation treaties, our team offers comprehensive management of your cases to secure your interests and maximize your tax benefits.
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