The Belgian Gift Tax
A Belgian tax resident wishing to donate personal movable assets (e.g., cash, securities such as shares of stock or bonds, artworks, gems, physical gold, etc.) has a choice:
- The grantor can go to a Belgian civil law notary to have the deed notarized and registered in Belgium;
- He can go to a non-Belgian civil law notary to have the deed notarized;
- He can physically transfer the assets to the beneficiary; or
- He can use less formal means of documentation, such as a transfer of securities from his securities account to the beneficiary’s securities account.
The third and fourth option are often referred to as “indirect gifts”.
Only gifts documented by a Belgian notarized deed are – in the current state of the law – automatically and mandatorily registered in Belgium. Upon registration of the notarized deed, Belgian gift tax will be levied. Rates vary depending on the Region where the grantor has his/her tax residence (e.g., 3% in Flanders and Brussels, or 3.3% in Wallonia, for gifts from parents or grandparents to children or grandchildren).
For other forms of gifts, there is currently no obligation to have any document evidencing the gift registered in Belgium. Gift tax is due in Belgium only if one voluntarily registers that document in Belgium.
However, when the grantor passes away while being tax resident in Belgium, inheritance tax is due. Gifts made by the deceased less than three years before his or her death are subject to inheritance tax – at rates that are higher than the gift tax rates – unless the gift was registered and gift tax was paid in Belgium.
A typical inheritance tax planning tool in Belgium works as follows: when the grantor reaches a certain age while having a life expectancy of at least three years, he or she makes a gift to his or her children and/or grandchildren before a Dutch civil law notary. The Dutch notarized deed is not (voluntarily) registered in Belgium and, therefore, no Belgian gift tax is due. If the grantor passes away (more than) three years following the date of the gift, his or her descendants will owe inheritance tax, but not on the value of the assets that were donated three years or more prior to his or her death. This planning technique has been baptized “de kaasroute” (i.e., “the cheese route”, whereby “cheese” refers to the Dutch notarized gift deed).
The Law Proposal
A Law Proposal dated June 17, 2020 (available here in Dutch and French) aims to extend the registration obligation to non-Belgian notarized gift deeds. If adopted, the Law Proposal would put an end to Belgian tax-free gifts made before foreign notaries. Gifts notarized outside of Belgium prior to the effective date of the new law would remain untaxed (no retroactivity), but the clock is ticking for Belgian tax residents wishing to make use of the kaasroute.
Given the current political instability in Belgium, it is unlikely that Belgium’s House of Representatives will adopt the Law Proposal any time soon. However, if the drafters of the Law Proposal are able to gather a majority in the House, things could move faster than expected. Therefore, we advise clients who are interested in, or had been considering making use of the kaasroute, not to wait too long to make one or more gifts and have it (them) notarized by a Dutch civil law notary. Grantors who do not not wish to make a straight-forward gift but, for example, donate only the legal title of their personal (movable) assets and retain the right of usufruct (akin to the economic ownership), can do so. Features like these can be incorporated in the Dutch notarized deed.
In the Netherlands, AKD has the capabilities, including Dutch civil law notaries, to help Belgian resident clients who wish to have gifts notarized in the Netherlands prior to the Law Proposal becoming law.
Indirect gifts of personal movable assets (see above) should remain unaffected by the Law Proposal (at least, in its current form). In other words, their registration in Belgium remains optional. Three practical problems often appear with indirect gifts:
- The difficulty for the beneficiaries to prove the date of the gift and, if that date cannot be corroborated, the Belgian inheritance tax authorities will assume that the gift was made less than three years prior to the grantor’s death, and impose inheritance tax accordingly.
- The difficulty (or, sometimes, impossibility) to add certain features to a gift when the latter is not documented through a notarized deed (g., the gift of legal title and retention of the right of usufruct).
- Belgian civil law requires that a gift is documented through a so-called authentic (read: notarized) deed in order to be valid and enforceable. If all beneficiaries and heirs of the grantor are and remain on good terms with one another and no third party contests the indirect gift, this should not be a major obstacle. However, as soon as one of the beneficiaries or a third party contest the gift as such or any substantive feature thereof, the absence of an authentic deed is likely to create legal uncertainty.
When the present Flemish Government took office, it expressed its intention to extend the three-year period for gifts not to be included in the grantor’s taxable inheritance to four years. No specific initiative has been taken yet by the Flemish legislator, but this, too, could materialize relatively quickly. Again, in order to secure the current tax regime, including the three-year period between gift and death, one should not wait too long to take action.
As with any smart tax planning, one must take professional legal and tax advice prior to making decisions and implementing them. The present document does not constitute such professional legal or tax advice and cannot be relied upon as such. The individual situation of each individual is different and no generic information can replace personalized legal or tax advice. AKD’s Dutch civil law notaries will not pass notarized gifts without having seen individual professional legal and tax advice by a competent Belgian (tax) advisor or lawyer.