IN200 - Double Tax Agreement Between the Isle of Man and Belgium

The Isle of Man signed a Double Tax Agreement with Belgium in July 2009. This is the Island's 16th agreement which meets OECD standards regarding international tax transparency and co-operation.

The Belgium Double Tax Agreements represent a significant development for the Isle of Man. Previously the majority of the international agreements signed by the Island had been in the form of Tax Information Exchange Agreements, which generally do not affect jurisdictional tax and therefore do not create tax planning opportunities.

An Overview: The Isle of Man and Belgium Double Tax Agreement

The Double Tax Agreement between the Isle of Man and Belgium presents opportunities for Belgium and has wider implications across other European (EU) countries. It is a comprehensive agreement with a non-EU (Isle of Man) international financial service centre.

The agreement was ratified by the Isle of Man in October 2009 and now needs to be ratified by Belgium. It is anticipated that the agreement will come into force and therefore be effective from January 2011.

Key Features of the Double Tax Agreement

Key features regarding payments from a Belgium Company to an Isle of Man Resident Company are as follows:

• Dividends: The standard (non-treaty) rate of withholding tax on dividends paid by Belgium companies to non-resident shareholders is 15% or 25%. This is reduced to zero for dividends from a Belgium Company to an Isle of Man Company, provided that the Isle of Man Company holds at least a 10% interest in the company for a minimum period of 12 months.
  
• Interest: The rate of withholding tax on interest paid by a Belgium Company to an Isle of Man Company is reduced to zero, compared to the standard rate of 15%.
  
• Royalties: The rate of withholding tax on royalties paid by a Belgium Company to an Isle of Man Company is reduced to zero, from the standard rate of 15%.

In addition, dividends received by a Belgium Company from an Isle of Man Company are exempt from tax in Belgium if the income from which the dividends are paid is taxed in the Isle of Man at a rate of not less than 10%.

Banking profits and local income from land and property in the Isle of Man are taxed at 10%. This is therefore likely to be of potential benefit to Isle of Man banking subsidiaries with Belgium parent companies.

Belgium as a Jurisdiction for Holding Companies

A number of characteristics make Belgium an attractive location for holding companies. It has tax treaties with over 80 countries, is a member of the EU and operates a “dividend exclusion of the participation regime”.

Dividends: Under the intercorporate dividend exclusion of the participation regime, 95% of the dividends received by a qualifying Belgium Company are exempt from tax. This only applies if a minimum participation test is satisfied. To satisfy the minimum test the recipient company must own a minimum shareholding of 10% or €1.2 million, must have owned or own the shares for at least 12 months, and accounted for these shares as financial assets.

Controlled Foreign Companies: Belgium has no controlled foreign company rules.

Tax Rulings: Where uncertainty exists over treatment, advance tax rulings can be sought from the Belgium tax authorities.

Thin Capitalisation: There are no general rules on thin capitalisation. This provides a high degree of flexibility over funding options for a Belgium Company.

Tax Planning Opportunities

The Double Tax Agreement between the Isle of Man and Belgium offers potential cross border structuring opportunities from the Isle of Man, particularly into higher cost EU jurisdictions through Belgium. A simple example of such a structure is detailed below:



Key features of such a structure, once the treaty is in force will be:

• Dividends and interest paid by the European Company to the Belgium Company are free of withholding tax in the underlying EU country, due to EU Directives.
• A 95% exemption for dividends received by the Belgium Company, and therefore only 5% of the dividends being taxable in Belgium.
• No withholding tax on the dividends or interest paid by the Belgium Company to the Isle of Man Company, due to the Double Taxation Agreement between the Isle of Man and Belgium.
• Debt support and funding through the Isle of Man company can be structured in such a way that little or no net interest remains taxable in the Belgium Company.

Summary

The July 2009 Double Tax Agreement signed between the Isle of Man and Belgium offers a number of attractive features. It provides cross border structuring opportunities from the Isle of Man into higher cost EU jurisdictions, through Belgium.

Additional Information

If you require additional information regarding Isle of Man Double Tax Agreements, please speak to Bruce Watterson at the Dixcart office in the Isle of Man or contact us.