New tax treaty between Belgium and The Netherlands

On 21 June 2023, the new tax treaty between the Netherlands and Belgium was signed. This replaces the current 2001 treaty. Kizzy Wandelaer, Executive Director at KPMG Belgium in Antwerp and Cees Nijman, Partner at KPMG Meijburg in Breda, share highlights from the new treaty and explain what the biggest changes are. For example, what about double taxation on dividend income and ongoing bottlenecks around pensions and cross-border workers?

What is first noticeable in the new tax treaty is that the treaty has been simplified in a number of ways. An important change in the dividend article (Article 10 of the new treaty) is that it now includes an exemption from dividend tax. This exemption applies to dividends paid by a company in one country to a company in another country. On condition that the parent holds at least 10% of the equity interest in the subsidiary and that there is a 365-day shareholding. Nijman: "When I read that, I was delighted. If a subsidiary is based in the Netherlands, it should make no difference which country the parent company is based in. No dividend tax should be levied on the dividend from the subsidiary to the parent.” Nijman does know, however, that it is not yet a done deal. "We are still waiting for both countries' joint explanation of the treaty. But it is an exciting and interesting point.” If the preconditions are not met, the 15% withholding tax rate will apply.

Also, under the current treaty, the Netherlands may, under circumstances, levy a 10% tax if interest is paid by a de-borrower in the Netherlands to a creditor in Belarus, and vice versa. Under the new treaty, the right for the source country to levy a 10% tax is eliminated, which Nijman and Wandelaer say is a clear simplification and improvement.

Changes have also been made to director-major shareholders with their own PLC who have emigrated to Belgium. Under the new treaty, it will be possible for the Netherlands to tax dividends with dividend tax up to ten years after emigration, even if the PLC has moved to Belgium, apart from the conservative box 2 assessment that is imposed upon emigration from the Netherlands. Furthermore, the treaty stipulates that under the new treaty, Belgium will not levy tax on the sale or repurchase of the shares or on liquidation if a Dutch tax claim is still outstanding. This must be a claim on the increase in value of the director-major shareholder's shares that arose in the period that this shareholder was a resident in the Netherlands.

In the other direction, so far this article has no added value, Wandelaer explains. “When you leave Belgium, to relocate in the Netherlands, as a natural person you do not receive a conservative assessment. There is, however, a kind of exit tax for companies in Belgium. But who knows what 2024 will bring, after the federal elections on 9 June.” There has been talk of a possible introduction of capital gains tax in Belgium for several years, but the current governing parties have never agreed on this.

The pension article (Article 16 in the new treaty) is unchanged from the current pension article. Even the limit of 25,000 EUR is unchanged, while it would have been logical to index this efficiency limit dating from 2001 to a considerably higher amount in 2023. According to Wandelaer, despite the fact that the content of the text has not changed, there is still a piece of reality behind the content. Wandelaer: "In recent years there has been a lot of internal legal fuss about pension levies in Belgium. In Belgium, they are now wanting to tax pensions built up in the Netherlands progressively. There has been a lot of case law about this.”

The effectiveness of the 25,000 EUR limit is still relevant, especially where ‘real’ annuity payments are concerned. These payments are still taxed in Belgium on the basis of 3% times the annuity capital times the applicable withholding tax rate. The withholding tax rate is currently 30%. Nijman adds, "It would have been nice if the contracting states had raised the target limit for annuity payments.” Wandelaer: “Now it remains complex. It would have been simpler to give priority to the state of residence as the taxing country. That also makes this article a bit more ‘sour’.”

Then there is the compensation scheme. Nijman: "There are many people who live in Belgium and work in the Netherlands and vice versa. We call them cross-border workers. These people have a lot of trouble with the complex legislation that changes regularly. They also have problems building up social security. In this case, the Netherlands offers the general compensation scheme. Suppose you live in the Netherlands and work in Belgium. Does that mean you are more expensive than if you had worked in the Netherlands? In that case, you get a refund from the Dutch tax authorities. That in itself is a nice arrangement, but it remains complex.”

Negotiations on this new treaty have been going on for several years. “It takes a lot of time to negotiate a new treaty,” explains Nijman. “That is because it is very complex and the interests are sometimes contradictory.” By the end of 2022, however, it appeared that an official agreement had been reached between the relevant officials in Belgium and the Netherlands. On Wednesday, 21 June 2023, the new tax treaty was signed by Dutch State Secretary Van Rij, Belgian Finance Minister Van Peteghem and Flemish Finance Minister Van Diependaele in Brussels.

Nijman and Wandelaer are pleased with the simplifications in the new treaty. The new treaty ensures, for example, that problems concerning dividend tax can be solved more easily, so that they can help clients better and faster. Together they are part of the KPMG Belgium-Netherlands Desk, where they work together on a weekly basis. “Everything to do with Belgium-Netherlands is our daily practice,” says Nijman. “We work as a team, with a Belgian and a Dutch colleague. Clients can ask any questions directly to both colleagues.” Wandelaer adds, “We look at it through a tax lens, but also through a legal lens. We advise and execute. A bit of an A-to-Z approach.”

The new treaty texts are available as of 23 June, but it will be some time before they enter into force. First, the treaty goes through a ratification process. This means it must be approved by the parliaments in both countries. Nijman: "I don't expect that to be ready before 1 Jan 2024. But it could be as late as 1 Jan 2025. In any case, the effective date is always in the treaty.”

Wandelaer: “In Belgium, it must be approved by six different parliaments. Because the elections are coming up next June, I hope we will have had a first round of signatures before then.”

In the Netherlands, the issue is that the Upper Chamber and the Lower Chamber must approve the treaty. “If the parliament chooses to do so, they can approve it tacitly,” Nijman explained. “But because this treaty is so important for both countries, it will probably get full parliamentary consideration.” This means that members of the Senate and House of Representatives can ask questions about the treaty to the Secretary of State. The Secretary of State is forced to answer them ante. Nijman: "Then you get a piece of legislative history that you can fall back on later. What did the countries actually mean by these provisions? How should you interpret it? This will be important for later explanations.”