If you receive foreign earnings or own assets abroad, and you are a Belgian tax resident, you want to avoid paying tax on them both in Belgium and abroad. For this reason, double taxation agreements (DTAs) have been put in place to avoid that companies and private individuals pay tax twice on the same source of income. These bilateral agreements have been signed between many countries in the world with the purpose of avoiding international double taxation. The DTAs also aim to eliminate unintended double non-taxation, to stop tax discrimination, and to combat tax evasion in general.
Belgium has currently agreed to more than 100 DTAs, some 10 of which have been signed, but still need to be ratified. However, when a taxpayer receives income from a country that has no DTA with Belgium, the question rises how in that case double taxation can be avoided. If there is no DTA in place between Belgium and the source country, Belgium does grant tax relief to avoid the negative effect of being taxed in two countries. This is also known as the ‘50% rule’.
Article 156 of the Belgian Income Tax Code of 1992 (ITC92) provides for unilateral relief to mitigate the negative financial impact. In general, relief is subject to two conditions. Relief is only granted if the income (i) was ‘earned abroad’ and (ii) was also ‘taxed abroad’. Belgium will only have to apply the tax reduction if the taxpayer can demonstrate that the foreign income has been subject to taxation abroad. This does not mean that the income must have effectively been taxed. The reduction applies even if the foreign system results in the income being exempt from tax. The type of foreign tax due is not relevant either.
It should be noted that tax relief only applies to foreign real estate, professional earnings and pensions, miscellaneous income and financial support, but not, for example, to investment income such as dividends or interest. If you have received dividend income from a country that has no DTA with Belgium, you will effectively be subject to double taxation.
An important element is that, in general, the burden of proof that the income was taxed abroad, lies with the taxpayer. If the latter cannot demonstrate that the foreign earnings have been subject to the standard taxation regime abroad, or that it has been reported to the foreign tax authorities to begin with, the Belgian authorities will likely reject the benefit of Article 156 ITC92.
However, the tax authorities are of the opinion that, in practice, for foreign real estate income or salary that has been paid by a foreign employer, the taxpayer is not required to demonstrate the fact that the earnings have been subject to a foreign tax regime (Com.IB., Nr. 155/21). In other words, if your salary has not been taxed abroad and there is no DTA in place, you would – at least in theory – have the right to claim tax relief in Belgium under the ‘50% rule’.
TAXPATRIA® can help you with your personal income tax filing to avoid potential double taxation and assist you with your tax refund claim, both in Belgium and abroad.