Belgium: Annulment of key provisions of Cayman Tax 2.1 (Constitutional Court decision)
Annulment has retroactive effect
The Belgian Constitutional Court, on September 18, 2025, issued judgment No. 117/2025, annulling several provisions of the Cayman Tax 2.1, which had been in effect since January 1, 2024.
The Cayman Tax imposes Belgian individual (personal) income tax and legal entities tax on earnings generated by assets separated from a Belgian taxpayer’s estate through legal constructions such as foreign trusts, foundations, or low-taxed companies. Under the regime, income from such constructions is taxed transparently in the hands of the founder, and distributions are reclassified as dividends unless proven otherwise.
The court’s decision narrowed the Cayman Tax on four fronts:
- Substance exclusion: The court deemed the definition of genuine economic activity too restrictive, allowing taxpayers to prove their legal construction has substance even if it does not trade goods or services.
- Exit levy: The court decided that only realized and undistributed income—not latent capital gains—can be taxed, and Belgium’s taxing power is limited to the period during which the founder is under Belgian tax jurisdiction.
- Interaction with CFC rules: The court extended the exemption from look-through taxation to income taxed under foreign controlled foreign corporation (CFC) rules similar to Belgian CFC rules, not just Belgian companies.
- "Fonds dédiés": The court found the 50% ownership threshold for collective investment funds disproportionate, allowing taxpayers to demonstrate that ownership exceeding this threshold is not solely for tax avoidance.
The annulment of these elements has retroactive effect.
Read a September 2025 report prepared by the KPMG member firm in Belgium