Until recently, individuals investing through a normally taxed company did not have to worry about the Cayman tax. However, in our previous quarterly update, we already pointed out that since 1 January 2024, interposing a normally taxed company no longer suffices to escape the Cayman tax. Individuals investing through a normally taxed company (e.g. a Family Office) should take this into account.
Interposed normally taxed company prevented application of Cayman tax until recently
The Cayman tax subjects Belgian individuals who qualify as a "founder" of a "legal structure" to a look-through tax and a reporting obligation in the personal income tax. The purpose of this is to allow the taxation of non-taxed or low-taxed income from certain foreign constructions in the hands of their founder.
Until last year, qualifying as a founder assumed that an individual directly held rights in a (chain of) legal structure(s). The Cayman tax could therefore easily be avoided by interposing a normally taxed company, thus breaking the link between the individual and the legal structure(s) and preventing the application of the Cayman tax.
As of 1 January 2024: investments via “intermediate structures” also subject to Cayman tax
The interposition of normally taxed companies to avoid the application of the Cayman tax was portrayed by the Court of Audit as a bottleneck of the existing Cayman tax. The law of 22 December 2023 addresses this by also subjecting founders who hold an indirect participation in a legal structure through a (chain of) intermediate structure(s) to the Cayman tax.
An "intermediate structure" is any entity, with or without legal personality, which holds shares in another entity (whether or not a legal structure), such as, for example, a normally taxed Belgian company. Consequently, Belgian individuals who indirectly hold a stake in a legal structure may now also fall under the application of the Cayman tax, regardless of how low in the chain this legal structure is located.
The practical consequences of this new reality cannot be underestimated. Indeed, an individual investing through a normally taxed Belgian company will in principle have to analyse the entire underlying chain to know whether there are legal structures somewhere of which he or she could be considered a founder under the Cayman tax. If the Cayman tax applies, in addition to the existence of the legal structure, the following information will have to be provided in a special annex to the personal income tax return:
- the full name, legal form, address and, where appropriate, identification number of the legal structure;
- in the case of a trust-like figure, the name and address of the trustee of that legal structure;
- all income of the legal structure;
- the amount of the legal structure’s assets at the end of the taxable period and the part of the assets contributed by the founder and;
- the amounts distributed by the legal structure.
Exception for investments in regulated funds and listed companies
Obviously, in certain situations, it is completely unreasonable to expect that an investor has access to the aforementioned information. Regulated funds (e.g. AIFs) and listed companies are therefore explicitly excluded from the definitions of "legal structure" and "intermediate structure". This means that these entities “break the chain" so that their investors cannot be considered as the founder of any underlying legal structures and thus no analysis of the entire underlying investment structure is required. This was recently also confirmed by the Ruling Commission (see ruling no 2024.0113). A Belgian individual investing in an AIF through a normally taxed Belgian company is thus not subject to the Cayman tax and does not have to make an analysis of the underlying investments.
Extension of tax deadlines
In principle, the personal income tax return must be filed by 15 July 2024 (via MyMinfin). For taxpayers that have to report the existence of a legal structure in their tax return for the first time this year, the filing deadline will be extended to 16 October 2024. Note that a return in which a foreign legal structure must be disclosed qualifies as a "complex return", which is subject to the extended investigation and assessment period of 10 years.
Conclusion
Since 1 January 2024, the interposition of a normally taxed company is no longer sufficient to escape the Cayman tax. From now on, individuals investing via a normally taxed intermediate structure will also have to check whether the Cayman tax applies. If applicable, the legal structure will a.o. have to be declared in the personal income tax return. However, an exception applies for investments in regulated funds and listed companies, in which case an analysis of the underlying investment structure will in principle not be required.
