Double Taxation Treaties: How Belgium Protects Entrepreneurs

When a Belgian entrepreneur carries out activities abroad or receives income from a foreign source, they risk being taxed twice on the same income: once in the source country (where the income is generated) and once in Belgium (the country of residence). To prevent this double taxation, Belgium has concluded double taxation treaties (DTTs) with more than 95 countries. This guide explains how these treaties work, how to benefit from them and what the practical implications are for Belgian entrepreneurs.

What is double taxation?

The problem

Double taxation occurs when two states simultaneously claim the right to tax the same income. This situation results from the coexistence of two fundamental tax principles. Double taxation treaties exist precisely to resolve this conflict between the two principles:

• The residence principle: Belgium taxes its residents (individuals and companies) on their worldwide income, regardless of which country that income is generated in
• The source principle: each country taxes income generated on its territory, even if the recipient is a non-resident

Example: a Belgian consultant carries out a 3-month assignment in France. France can tax the income generated on its territory (source principle), and Belgium taxes the same consultant on their worldwide income (residence principle). Without a treaty, the consultant would pay tax in both countries.

Types of double taxation

• Legal double taxation: the same taxpayer is taxed twice on the same income by two different states
• Economic double taxation: the same income is taxed in the hands of two different taxpayers (e.g. a subsidiary's profit taxed in its own country, then the dividend taxed at the parent company)

Belgium's Network of Double Taxation Treaties

The scope of the network

Belgium has one of the most extensive networks of double taxation treaties in the world, with more than 95 treaties in force. The most important treaties for Belgian entrepreneurs are those concluded with:

Neighbouring countries and main trading partners:

African and Maghreb countries:

The OECD model

Most of Belgium's double taxation treaties follow the OECD Model Tax Convention. This standardised model structures treaties into articles, each dealing with a specific type of income.

How Do Double Taxation Treaties Work?

The allocation principle

Each treaty allocates the right to tax between the two states for each type of income. Three scenarios are possible:

1. Exclusive right for the state of residence: only Belgium can tax the income
2. Exclusive right for the source state: only the foreign country can tax it, and Belgium must exempt it
3. Shared right: both states can tax it, but the state of residence (Belgium) must eliminate the double taxation

Methods for eliminating double taxation

Belgium mainly uses two methods:

The exemption method (with progression clause)

The foreign income is exempt from tax in Belgium, but it is taken into account to determine the tax rate applicable to other Belgian income. This is the most common method in Belgian treaties.

Example: a Belgian self-employed person earns EUR 40,000 in Belgium and EUR 20,000 in France (exempt in Belgium). Belgian tax is calculated on EUR 40,000, but at the rate corresponding to EUR 60,000 of total income (a higher rate, due to the progression clause).

The credit method (tax credit)

Tax paid abroad is deducted (credited) from Belgian tax. This method is less common in Belgian treaties but applies notably to dividends, interest and royalties.

Example: a Belgian company receives EUR 10,000 of dividends from a US subsidiary. A 15% withholding tax (EUR 1,500) is levied in the US. Belgium taxes the EUR 10,000 but grants a tax credit of EUR 1,500.

Types of income under the treaties

Business profits (Article 7 of the OECD Model)

General rule: the profits of a Belgian company are taxable only in Belgium, unless the company carries out its activity in the other state through a permanent establishment.

What is a permanent establishment? A fixed place of business through which the company carries out all or part of its activity:

• Office, branch, factory, workshop
• A construction site lasting more than 12 months (or 6 months under some treaties)
• A dependent agent who habitually concludes contracts on behalf of the company

Concrete example: WebDev SRL, a Belgian web development company, sends a developer to work in a client's offices in Paris for 8 months. If WebDev has no fixed office in France and the developer does not conclude contracts on WebDev's behalf, there is no permanent establishment in France. The profits remain taxable in Belgium only.

However, if WebDev opens an office in Paris with permanent staff, that office constitutes a permanent establishment, and the profits attributable to it are taxable in France.

Income from immovable property (Article 6)

Income from immovable property (rent, capital gains on property) is taxable in the country where the property is located.

Example: a Belgian entrepreneur owns a rental flat in Barcelona. The rental income is taxable in Spain. Belgium exempts it (exemption method) but takes it into account for the progression clause.

Dividends (Article 10)

Treaties generally limit the rate of withholding tax that the source country can levy on dividends:

Example: a Belgian SRL (private limited company) holds 30% of a French SARL that distributes EUR 50,000 of dividends. France levies a withholding tax of 5% (EUR 2,500) instead of the domestic rate of 30%. Belgium grants a tax credit or exemption via the RDT regime (definitively taxed income).

Interest (Article 11)

Treaties generally limit withholding tax on interest to 10% or 15%. Some treaties provide for full exemption.

Within the EU: the European interest and royalties directive (2003/49/EC) provides for full exemption from withholding tax on interest paid between related companies (holding ≥ 25%).

Royalties (Article 12)

Royalties (copyright, patents, trademarks, software) are generally taxable only in the recipient's country of residence (Belgium) under the OECD Model. Some treaties grant limited taxing rights to the source country.

Important for the IT sector: software royalties paid by a foreign client to a Belgian developer are in principle taxable only in Belgium.

Self-employed professions and employees (Articles 14 and 15)

Self-employed (Article 14): the income of a Belgian self-employed person is taxable only in Belgium, unless they have a fixed base in the other state or stay there for more than 183 days over a 12-month period.

Employees (Article 15): the remuneration of a Belgian employee working abroad is taxable in the country of work, unless the following three cumulative conditions are met (the 183-day rule):

1. The employee is present in the other state for less than 183 days over a 12-month period
2. The remuneration is paid by an employer who is not a resident of the other state
3. The remuneration is not borne by a permanent establishment in the other state

Company directors (Article 16)

Directors' remuneration is taxable in the country where the company is established. A Belgian director of a French company is taxable in France on their director's remuneration.

Capital gains (Article 13)

Capital gains on the sale of shares are generally taxable only in the seller's country of residence (Belgium). Capital gains on immovable property are taxable in the country where the property is located.

How to benefit from a treaty in practice

Follow these four steps to make the most of Belgium's double taxation treaties.

Step 1: identify the applicable treaty

Check whether one of Belgium's double taxation treaties covers the country concerned. The full list is available on the FPS Finance website (the "international treaties" section) and on Fisconetplus.

Step 2: determine the type of income

Classify your income according to the treaty's categories (business profits, dividends, royalties, etc.) to identify the applicable allocation rule.

Step 3: obtain the necessary forms

To benefit from a reduced withholding tax rate in a foreign country, you generally need to provide a Belgian tax residency certificate. This certificate is issued by the international treaties office of FPS Finance.

Form 276 Conv.: this form certifies that you are a Belgian tax resident and can benefit from the advantages of the applicable treaty.

Step 4: declare correctly in Belgium

In your Belgian tax return (personal income tax or corporate tax), you must:

• Declare your worldwide income (including foreign income)
• Mention income exempted under a treaty (exemption method)
• Or claim the tax credit for tax paid abroad (credit method)

Records to keep

• A copy of the applicable treaty
• The tax residency certificate (form 276 Conv.)
• Proof of tax paid abroad (withholding tax certificate, foreign tax assessment notice)
• Contracts and invoices documenting the international transactions

Practical cases for Belgian entrepreneurs

These worked examples show how Belgium's double taxation treaties apply to real situations.

Case 1: Belgian IT consultant on assignment in Germany

Pierre, a self-employed consultant in Brussels, carries out a 4-month assignment for a client in Munich. Income from the assignment: EUR 40,000.

Analysis:

• The Belgium-Germany treaty applies
• Pierre has no fixed base in Germany
• He stays for less than 183 days
• The profits are taxable in Belgium only
• Pierre declares EUR 40,000 in his Belgian personal income tax return
• No German tax

Case 2: Belgian company with a subsidiary in Morocco

TechBel SRL has set up a subsidiary in Morocco (TechMaroc SARL) that distributes EUR 30,000 of dividends.

Analysis:

• The Belgium-Morocco treaty applies
• Moroccan withholding tax is limited to 10% (EUR 3,000) instead of the domestic Moroccan rate
• In Belgium, TechBel can apply the RDT regime (definitively taxed income) if it holds at least 10% of TechMaroc and has held it for at least 1 year
• 100% exemption of the dividends in Belgium (Article 202 CIR)
• The tax credit for the Moroccan withholding tax does not apply (the dividends are exempt via the RDT regime)

Case 3: Belgian web developer invoicing US clients

Lisa, a self-employed web developer in Ghent, invoices EUR 25,000 of services to clients in the United States.

Analysis:

• The Belgium-US treaty applies
• Lisa has no permanent establishment in the US
• Her services are independent professional services
• The income is taxable in Belgium only
• No US withholding tax on the services
• Lisa declares EUR 25,000 in her Belgian personal income tax return

Case 4: Belgian entrepreneur receiving software royalties

SoftBel SRL has developed software and licenses it to a Japanese company in exchange for annual royalties of EUR 50,000.

Analysis:

• The Belgium-Japan treaty applies
• The royalties are subject to Japanese withholding tax limited to 10% (EUR 5,000)
• In Belgium, SoftBel declares EUR 50,000 of royalties
• A tax credit of EUR 5,000 can be set off against Belgian corporate tax
• If SoftBel benefits from the innovation deduction (patent box): 85% of the net royalty income is exempt

Belgium's specific agreements

The Belgian-French cross-border agreement (historic)

The old regime for Belgian-French cross-border workers (which allowed cross-border workers to be taxed only in their country of residence) has been abolished. Since 1 January 2012, the standard treaty rules apply. A transitional regime protected the workers concerned until the end of 2033.

The Benelux agreement

Belgium, the Netherlands and Luxembourg cooperate closely on tax matters. Specific agreements govern cross-border work situations, notably remote work (a multilateral agreement since 2023: up to 25% remote work from the country of residence without affecting taxation).

The Multilateral Instrument (MLI)

Belgium has signed the OECD's Multilateral Instrument (MLI, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS). This instrument simultaneously amends numerous bilateral treaties to incorporate anti-abuse measures (BEPS – Base Erosion and Profit Shifting).

Anti-abuse rules

The general anti-abuse clause (GAAR)

Most modern Belgian treaties include an anti-abuse clause (Article 29 of the 2017 OECD Model – the Principal Purpose Test, PPT). If one of the main purposes of a transaction is to obtain the benefits of the treaty, those benefits can be denied.

The European ATAD directive

The Anti-Tax Avoidance Directive (ATAD I and II), transposed into Belgian law, introduces additional rules:

• Interest deduction limitation (Article 198/1 CIR): max 30% of tax EBITDA or EUR 3,000,000
• Exit taxation: taxation of unrealised capital gains when a registered office is transferred
• CFC rules (Controlled Foreign Companies): taxation in Belgium of the profits of subsidiaries located in tax havens
• Anti-hybrid measures: elimination of multiple deductions and cases of double non-taxation

Official resources

• FPS Finance – International treaties: finances.belgium.be
• Fisconetplus (treaty texts): eservices.minfin.fgov.be/fisconetplus
• Form 276 Conv.: available from the international treaties office of FPS Finance
• OECD – Model Tax Convention: oecd.org
• FPS Finance Contact Centre: 02 572 57 57

Conclusion

Double taxation treaties are an essential tool for Belgian entrepreneurs working internationally. Key points to remember:

1. Belgium has more than 95 treaties covering its main trading partners
2. Identify the applicable treaty before any international transaction
3. Classify your income correctly according to the treaty's categories
4. Request a tax residency certificate to benefit from reduced withholding tax rates
5. Declare your worldwide income correctly in Belgium, applying the exemption or the tax credit
6. Consult a specialist for complex international structures

A good understanding of double taxation treaties lets you structure your international activities in a tax-efficient way, while staying fully compliant with the law.

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This article was written by the Espero-Soft team for the blog dedicated to entrepreneurs in Belgium. For personalised advice, please consult a professional.