As you know, similar to salaries paid to employees, directors’ fees are subject to wage withholding taxes. To the extent that the wage taxes withheld do not cover the final income tax due on the directors’ fees, a tax increase will apply (section 157 BITC). This will be the case for instance if a person has a directorship in two or more companies. Directors who want to avoid such increase can make voluntary tax prepayments.

According to a recent decision in Belgian case law (Court of Appeal), company directors cannot choose to pay their income taxes solely by way of tax prepayments because the system of wage withholding taxes is a compulsory system. The payment of wage withholding taxes cannot be replaced by making tax prepayments. If the company does not withhold (sufficient) wage withholding taxes, the tax authorities are entitled to claim the (remaining) withholding tax due from the company.

Moreover, if no (or insufficient) wage taxes are withheld, the tax authorities may want to consider this as a taxable benefit in kind in the hands of the company director. Although previous decisions under Belgian case law (lower courts) do not agree with this view, the above recent decision (Court of Appeal) tends to follow the tax authorities’ viewpoint (tax charge on the benefit in kind) and also seems to be backed up by an (already older) decision of the Belgian Court of Cassation (1992).