Belgian tax authorities recently published Circular Letter 2021/C/56 (dd. 10 June 2021) – hereafter ‘2021 Circular’. It addresses various important tax issues arising where Belgian private individual investors hold participations in investment funds (‘funds of funds’) that themselves invest in other funds (‘target funds’). The guidance provides confirmation of a number of widely applied market practices, but it contains also genuine refinements and tolerances. Among the prominent elements of the 2021 Circular figures the position that liquidities in a target fund may be left out of consideration for the fund of funds’ asset test if the target fund exclusively invests in other assets than debt-claims. It seems advisable for investment funds to review their Belgian fund tax reporting for correspondence with the positions in the 2021 Circular.


Since 2006, Belgian-resident private individual investors see themselves often confronted with capital gains taxation when exiting from an investment fund, be it by sale of the shares or units, their redemption, or in the case of the fund’s liquidation (Art. 19bis Belgian Income Tax Code 92 - BITC). This form of personal income taxation has attracted several nicknames, such as “Reynders tax”, “savings tax”, “exit tax”, or “BTIS tax”. The taxation usually kicks in if the fund’s assets are invested for more than 10% in debt-claims, unless the fund statutes provide for a full distribution of net profits. The threshold is not 10% but remains 25% if the shares or units were acquired before 2018. The examination of an investment fund’s percentage of investment in debt-claims is referred to as ‘Belgian asset test’, its product is referred to as ‘asset ratio’. Asset testing in the (very common) situation of investment funds (‘funds of funds’) investing in shares or units of other investment funds (target funds) poses particular challenges, as Art. 19bis BITC requires taking account also of “indirect” investments in debt-claims.

Once an investment fund is in scope of Art. 19bis BITC, the tax rate applicable is 30% (imposed either as withholding tax by a Belgian financial intermediary, or by way of personal income tax assessment procedure). The Belgian resident’s tax base generally consists of the total of interest and capital gains/losses on debt-claims accumulated in the fund, which is determined based on the investment fund’s Belgian Income per Share (BTIS or Belgian TIS) figures. Absent BTIS determination (not mandatory), the fund may nevertheless provide its investors at least with its Belgian asset ratio (but not mandatory either). In this case, the investor’s tax base is determined as the fraction of the capital gain corresponding to the asset ratio; e.g. where the fund has an asset ratio of 40%, an investor derives a capital gain of 150 from exiting from the fund investment will be taxed on 40% of 150. If, however, the fund does not even provide its Belgian investors with its Belgian asset ratio, the entire capital gain will be taxed at 30%, as the asset ratio is deemed to be 100%. Each of these different ways of tax base determination pose additional challenges where the Belgian investor exits from a fund of fund. No legal distinction is made between Belgian and foreign investment funds. However, as for foreign investment funds Belgium may only be one of several retail markets, foreign funds may choose to publish fewer fund tax figures (BTIS and/or asset ratio) than Belgian funds usually do.

The new Circular of 10 June 2021…

The 2021 Circular had been long-awaited and generally provides welcome guidance. Through its detailed nature, the 2021 Circular adds to, and needs to be read in conjunction with, the previous body of systematic guidance by Belgian tax authorities, especially by the circular letters of 2005, 2009, and of 2018 (deduction of expenses in BTIS calculation of 2018). As its 2018 predecessor, the 2021 Circular does not contain any date of first application or transitional rules. It is therefore meant to be applicable in all open cases. Legally, Circulars are not binding, but they constitute the interpretation of the law by Belgian tax authorities.

…gives detailed guidance on Belgian asset testing and BTIS determination

The 2021 Circular is composed of three main sections, and its contents are illustrated through five example calculations. After a brief introduction, the second section gives detailed guidance on Belgian asset testing, whilst the third section addresses issues of BTIS determination.

Noteworthy positions in the second section include the following:

  • Starting point of the Belgian asset testing is a fund’s stated investment policy, however the 2021 Circular warns that the general anti-abuse rule (Art. 344 BITC) can kick in in cases of manifest deviations between the factual asset composition and the fund’s investment policy; see marginal number (m.n.) 4.
  • Whilst debt-claim investments (which generally include liquidities) of all target funds need to be taken into account for the asset test of the fund of funds as a rule, it is under certain circumstances acceptable to leave out liquidities of target funds that exclusively invest in other elements than debt-claims (m.n. 6).
  • If a target fund has not published its own Belgian asset ratio, the fund of funds itself may perform the asset test provided.
  • The 2021 Circular generally holds that asset ratios are not to be rounded and uses itself examples with two after-comma digits; very exceptionally, though, a rounding down of percentages between 10,01% and 10,49% as well as between 25,01% and 25,49% is permitted, meaning that in these cases the fund’s asset ratio is “not higher” than 10% or 25% (m.n. 9). For example, an asset ratio of (unrounded) 10,49% is still considered as “not higher” than 10%.
  • While acknowledging that the EU Savings Directive was abolished in 2015, the 2021 Circular permits (under certain circumstances) to rely on this Directive’s principle of “home country rule” when performing Belgian asset testing (m.n. 11 f.).
  • Whilst the wording of Art. 19bis BITC seems to leave investment funds out of scope only if they mandatorily distribute all their net income, the 2021 Circular interprets this exemption for fully distributing funds in a broad way, as had been acknowledged also in Belgian ruling practice. Concretely, it suffices pursuant to the 2021 Circular that a fund of funds mandatorily distributes “only” the interest and realized capital gains (on debt-claims); cf. m.n. 13. 

The third section of the 2021 Circular deals with the determination of taxable income at the tier of the fund of funds. This boils down to the correct determination of BTIS, as a Belgian-resident private individual exiting from a fund is generally taxed on the difference between the BTIS values on entry date and exit date. BTIS determination per net asset value (NAV) day requires in a fund of funds scenario that the BTIS income or ‘19bis income’ (i.e. interest and capital gains/losses on debt-claims) takes into account the BTIS elements realized by the fund of funds itself and those from the target funds. Noteworthy positions include the following:

  • Determination of the ‘19bis income’ of target funds can occur based on an actual BTIS calculation by the target fund, or alternatively based on the target fund’s Belgian asset ratio. Generally, the fund of funds can choose the method per target fund; however, the choice ought to remain stable (cf. m.n. 17).
  • If for a target fund neither BTIS nor Belgian asset ratio are known, the asset ratio is deemed to be 100%, meaning that an increase of the target fund’s NAV from one day to the next is considered to fully result in ‘19bis income’. In contrast, a negative NAV movement may not be taken into account and therefore the movement is deemed to be zero. See m.n. 18 and especially Example 3.
  • If for a foreign target fund a ‘European Taxable Income per Share’ is calculated on the basis of the (previous) Savings Directive, it may not be used for Belgian purposes, as the scope of taxable income is not congruent with BTIS; cf. m.n. 19, first indent.
  • Whilst dividend distributions from target funds to a fund of funds influence BTIS values at each tier, the overall impact on the fund of fund’s BTIS would generally be zero (BTIS increase at higher tier is neutralized by BTIS decrease at lower tier); see m.n. 25.

Opportunity to review of investment funds’ practice

The issuance of the 2021 Circular, which provides certainty on a range of relevant issues arising in practice, offers an ideal opportunity for all investment funds in scope of Art. 19bis BITC to review their Belgian fund tax reporting as to its legal compliance as well as the best exercise of available options.