Changes to the CFC rule: don’t forget to report your low-taxed entities

The Program Law of 22 December 2023 strengthens the CFC rule, introduced in Belgium in 2017 following to the ATAD Directive.

The CFC rule aims to tax in Belgium the undistributed passive income of a foreign controlled company (50% of the capital and/or voting rights and/or rights to profits) that has benefited from an effective tax rate that is less than half of what would be due under Belgian corporation tax rules (<12.5%). Passive income includes interest, royalties, dividends, rental income and so on.

If these two conditions are met, you are required to report this entity on your tax return. However, this does not mean that the CFC rule applies and that undistributed passive income is taxed in Belgium. In fact, there are exceptions to this measure: you must provide proof either of substantial economic activity or that passive income does not exceed more than one-third of the CFC’s total income. Finally, there is a third specific exemption for companies in the financial sector.

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