Reform of the patrimony tax
On 1 January 2024, the reformed patrimony tax has entered into force. The final bill was approved just before the start of the new year[1]. The change from the fixed tax rate of 0.17% to a progressive tax rate with several tranches implies a heavier tax burden for a significant number of (international) not-for-profit associations and private foundations.
What is the ‘patrimony tax’?
The patrimony tax or the tax to compensate for inheritance taxes was introduced in 1921 to prevent financial resources from remaining inactive for too long and not contributing to economic growth or social progress. Reforms of the tax remained limited in the past, until the legislator decided to modernise the tax in late 2023.
What has changed since 1 January 2024?
An overview of the main changes is set out below.
1. Changed scope of application
As before, the patrimony tax applies to not-for-profit associations (VZW/ASBL), international not-for-profit associations (IVZW/AISBL) and private foundations. Public interest foundations are still excluded from the scope of application of the tax. However, some changes have been made to the scope of application. On the one hand, the legislator has restricted the scope of application of the tax. For instance, only recognised pension funds for self-employed persons were previously excluded from the tax, but as from 1 January 2024, all not-for-profit organisations entrusted with the management of statutory pensions by or pursuant to the law will be fully excluded. On the other hand, the scope of application has also been expanded. Former trade associations (now: not-for-profit associations recognised as trade associations) are now also subject to the tax.
2. Modified taxable base
The taxable base of the patrimony tax is determined based on a valuation of the assets on 1 January of the assessment year. The tax is payable no later than 31 March of the same year. To comply with a judgment of the Constitutional Court (10/2020), foreign real estate assets are now also included in the taxable base from 1 January 2024 (foreign movable assets were already included in the taxable base). The similar tax paid abroad will be credited against the tax due in Belgium. For this credit to be valid, supporting documents must be provided.
3. Modified rate
The main change is the switch from a fixed rate of 0.17% for taxpayers with assets over €25,000 to a progressive rate and a tax-free base of €50,000.
- The first tranche of €50,000 will not be subject to taxes.
- The rate applicable to the second tranche, from €50,000.01 to €250,000, is 0.15%.
- The third tranche, from €250,000.01 to €500,000, is taxed at 0.30%.
- Anything above EUR 500,000 is taxed at 0.45%. This means that some organisations will face a 165% tax increase on this part of their assets (since 0.45% is 2.65 times higher than the former rate of 0.17%).
4. Neutralising the progressive rate
The progressive rate is mitigated for a number of sectors.
Specifically, it concerns:
a) certain taxpayers from the care, cultural, educational and sports sectors (i.e. those who fall under Article 44 §2, 1°, 2°, 3°, 4°, a), or 9° of the VAT Code and that, for more than half of their turnover, carry out operations exempt from VAT under that article);
b) sheltered workshops, medical institutions, integrated health associations and community health centres, private archives centres and animal shelters;
c) patrimonial entities of which at least 75 per cent of the patrimony is used by an institution referred to under a) for the realisation of transactions referred to in Article 44, § 2, 1°, 2°, 3°, 4°, a), or 9°, of the VAT Code or for the operation of sheltered workshops, medical institutions, integrated health associations or community health centres, private archives centres or animal shelters.
According to the legislator, an excessive levy would mortgage their functioning and essential social role. Therefore, 62.3% of their assets are not included in the determination of the taxable base. Consequently, the entity is taxed on 37.7% of its assets only. In practice, this amounts to a neutralisation of the tax rate: the total amount due under the reformed patrimony tax will be nearly the same as under the old regime. In certain cases, the reformed patrimony tax will even be more beneficial.
With regard to the educational sector, we also note that, as under the old regime, the institutions that organise community education or subsidised education (‘inrichtende machten van het gemeenschapsonderwijs of het gesubsidieerd onderwijs’/’les pouvoirs organisateurs de l’enseignement communautaire ou de l’enseignement subventionné’) remain exempted from the patrimony tax with regard to real estate exclusively dedicated to education. Also not-for-profit associations whose sole purpose is to make real estate available for education organised by the aforementioned institutions, remain exempted from the patrimony tax.
5. Simplified declaration
The legislator also wanted to simplify the tax. The declaration can therefore now be submitted digitally, at the latest by 31 March of the assessment year. However, a declaration by post remains possible. Another simplification concerns the exemption from declaration in case of assets below of equal to €50,000. Previously, it was mandatory to file a tax return and indicate that one did not owe any tax. This no longer applies. On the other hand, where it used to be possible to pay the tax for three consecutive years in one go if the tax did not exceed €500, this is no longer possible. The legislator did provide for a transitional provision in this respect.
6. Anti-abuse provision
The wording of the reference provision was adapted to remove any possible doubt as to the applicability of the general anti-abuse provision in the context of the patrimony tax.
According to the preparatory works, the anti-abuse provision can be invoked by the tax authorities in the event of, for example, the split of a not-for-profit association into two separate organizations or the establishment of two or more not-for-profit associations that pursue the same purpose, if it cannot be demonstrated that there are any substantial non-fiscal reasons for doing so.
If you have any questions or would like more information, please do not hesitate to contact us:
Sarah Verschaeve: sarah.verschaeve@aurionlaw.be
Kaat Van Der Schueren: kaat.vanderschueren@aurionlaw.be
[1] Law of 28 December 2023 containing various tax provisions, Belgian Official Gazette 29 December 2023; See also the Fiscal Circular Letter 2024/C/20 concerning the law of 28 December 28 2023, containing various fiscal provisions, 1 March 2024.