Context

As explained in our headline of 8 June 2005, the EU Savings Directive came into force on 1 July 2005.

As you may know, the EU Savings Directive will affect Belgian-source interest payments made to taxpayers who have their residence in another EU Member State. Belgium will levy a withholding tax of 15% on such interest payments.

However, it was not clear whether withholding tax would also be levied in respect of foreign executives working in Belgium under the special tax regime.

News

On the basis of contacts we had with the Belgian tax authorities, it appears that the “Foreign Director” (Directeur étranger – Directeur buitenland) will be responsible, together with or separately from recognition of the special tax regime, for issuing a certificate to exempt those foreign executives who have their residence in the EU from Belgian withholding tax.

The foreign executive will need to send this certificate to his/her bank. It will be valid for a three-year period, and can be extended for a further period of two years.

After five years, if the foreign executive requests a new extension for the exemption, the tax authorities will re-examine his/her file to check whether the centre of his/her economic interests is still located in the country of origin. This may automatically lead to questions as to the temporary nature of the stay in Belgium and give the tax authorities an opportunity to perhaps challenge the application of the special tax regime.

Please note, however, that no such certificate has yet been issued and the tax authorities still need to confirm how they intend to implement this process.