From now on, you will retain more net from your French dividends than from your Belgian dividends.
Recent case law and a new approach by the tax authorities ensure that the FBB can be settled at 15%, which is more than the 12.8% effective withholding tax in France.
No unanimity on double taxation treaty
If you receive dividends from abroad you will often be taxed twice as a Belgian tax resident, initially as a result of withholding tax abroad and then with a final tax of 30% in Belgium. This also applies to dividends of French origin.
According to internal French law, withholding tax is 12.8%. In Belgium dividends received are then taxed at 30% on top of this French withholding tax.
However, a double taxation treaty between Belgium and France stipulates that Belgium must grant a credit for this French withholding tax. It concerns the fixed part of the foreign tax, hereafter referred to as FBB. This credit amounts to 15% of the net amount of the dividend after deduction of the French withholding tax.
However, the Belgian tax authorities were not prepared to implement this provision of the double taxation treaty since the FBB for individuals had already been abolished in domestic Belgian law since 1988. This approach was not shared by all taxpayers though and was contested several times. They were of the opinion that treaty provisions take precedence over domestic law.
Fiscal authorities accept judgement of the Court of Cassation
Back in 2017, the Court of Cassation already ruled in favour of the taxpayer. However, the tax authorities did not abide by this ruling. In a judgment dated 15 October 2020, however, the Court of Cassation again ruled that the double taxation treaty takes precedence over domestic Belgian law and that the FBB consequently has to be credited. According to a press release and an answer to a parliamentary question (Question 2020-2021, 55, nr. 036, p. 201-203), the tax authorities are abiding by this judgement this time, which is good news if you are a private investor receiving French dividends.
What does it mean in practice?
It means that from now on you are entitled to claim a 15% FBB credit on dividends of French origin, and have it backdated up to five years.
The FBB claims procedure is not unambiguous and differs depending on whether or not the dividends were included in the personal income tax return.
If the objection period has not yet expired, you can file an objection to request a refund of the FBB. Given the limited period of 6 months following the submission of a tax return, it is advisable to act as soon as possible.
If the objection period has expired, you can submit a request for ex officio exemption. This must be done within five years, starting from 1 January of the year in which the tax was levied. For the sake of completeness, we would like to add that the tax authorities have not yet specifically confirmed that such a request for ex officio exemption would be admissible.
If the Belgian bank withheld the withholding tax, you could reclaim in principle the overpaid withholding tax on the basis of Article 368 of the Income Tax Code, which stipulates that you can reclaim unduly paid withholding tax if you opt for the application of liberatory withholding tax (no settlement in the personal income tax return). You can ask for this refund within five years starting from 1 January of the year in which the withholding tax was paid.
Please note that this possibility was not yet confirmed by the Court of Cassation (but was confirmed in a judegment of the Court of Appeal of Ghent). Furthermore, this was not asked to the minister of Finance in the parliamentary question mentioned above. Therefore, some uncertainty remains regarding this situation.
Taxation becomes more advantageous
As a result of these developments French dividends are now more advantageous than Belgian dividends. Indeed, the FBB allows for a larger settlement (15%) than the effective withholding tax in France (12.8%). From now on, you will have a net yield of 74.12% of the French dividend after tax in France and Belgium, whereas previously this was only 61.04%. For Belgian dividends it is 70%.
This advantageous regime will probably only last for a short time and is particularly important with respect to the past. A new double taxation treaty between Belgium and France is in the making and is set to abolish the FBB settlement.
Have you received or will you receive French dividends? If so, it would be advisable to have your personal situation analysed as the administrative deadlines for requesting a refund remain in place. Ann Lettens and Laura Meert would be happy to assist.
Including dividends in your tax return or not? Read more about it here.