Reform of the Patrimony Tax

The Belgian tax administration has introduced a measure that may impact your organization. Below is a brief overview of this upcoming reform.

Non-profit organizations, international non-profits (AISBL), and private foundations are subject to an annual tax of 0.17% on the value of their assets (commonly known as the succession duty compensation tax or patrimony tax). In short, this tax aims to prevent the accumulation of wealth within such entities. After remaining unchanged for many years, the existing framework is now undergoing a major reform through a newly submitted legislative proposal. Here are the key highlights:

1. New progressive rates and higher exemption threshold

The new framework introduces a progressive tax rate with the following thresholds:
• First bracket up to EUR 50,000: exempt;
• From EUR 50,000 to EUR 250,000: 0.15%;
• From EUR 250,000 to EUR 500,000: 0.30%;
• Above EUR 500,000: 0.45%.

The fixed rate of 0.17% will be abolished, and the exemption that currently applies to entities with taxable assets below EUR 25,000 will be replaced by an exemption on the first EUR 50,000. Additionally, private foundations will no longer have the option to pay the tax in advance for a three-year period.

2. All assets subject to taxation, regardless of location

The tax will now apply to the total assets of the non-profit organization or private foundation, “wherever they are located.” Based on Constitutional Court case law, real estate located abroad will no longer be excluded from the taxable base. However, to partially mitigate potential double taxation, the proposed legislation provides a tax credit mechanism for real estate that has already been subjected to a similar tax abroad.

3. Tax reduction for certain sectors

To soften the impact of the new progressive tax rates for specific sectors, the legislator has introduced a tax reduction for certain organizations. This applies in particular to entities operating in the healthcare sector, recognized social enterprises, medical centers, and patrimony institutions that allocate at least 75% of their assets to one of the aforementioned categories. For these sectors, the taxable value of their assets will be reduced by 62.3%, meaning only 37.7% of their assets will effectively be taxed. This ensures that these institutions will never pay more than the current flat rate of 0.17%.

4. Anti-abuse provision

To clarify the scope of the general anti-abuse provision, the legislator explicitly states that it remains fully applicable to the patrimony tax. As a result, the tax authorities can invoke this provision in cases where no substantial non-tax reason is present.

5. Entry into force

The patrimony tax reform will take effect on January 1, 2024. This means the new rules will already apply to tax returns that must be submitted by March 31, 2024.

Our PKF BOFIDI experts are here to help

The impact of these proposed changes – particularly the significant tax rate increase – should not be underestimated. Naturally, this brief overview may not answer all your questions. We therefore recommend discussing this further with your dedicated PKF BOFIDI advisor. If needed, we can already run a simulation to assess the potential financial impact on your organization.

This article was written by Joachim Pauwels and Claudia Cuyvers.