New capital gains tax (and requiem for the Reynders tax)

1. Who?

The reformed capital gains tax would apply to the taxation of individuals (draft article 90, first paragraph, 9° ITC92) and to the taxation of legal entities (in particular Belgian and international non-profit organizations, private foundations, universities, etc.; draft article 222/1 ITC92).

Although the two income taxes are distinct from each other (which has always been the case historically), the tax on capital gains appears to be directly integrated into the taxation of legal entities. This development is particularly burdensome for non-profit organizations and private foundations, which already incur an annual wealth tax of 0.45%. In principle, the impact on Belgian Foundations Administrative Offices would be minimal, as capital gains on certified financial assets are already transparently taxed at the level of the certificate holders, provided that the certification law is in effect.

2. What?

A capital gains tax would apply to capital gains realized from (i) the transfer against consideration (ii) of financial assets. The concept of "normal management of private estate" would no longer apply for capital gains realized on these financial assets.

2.1 Financial assets

The concept of "financial assets" would be defined in article 92, §1 ITC92 and would include four distinct categories:

• Financial instruments,
  
  
• Certain insurance contracts,
  
  
• Crypto-assets, and
  
  
• Currencies (including investment gold).

Financial instruments include listed and unlisted equities, bonds, money market instruments, derivatives (e.g. futures, swaps, options, etc.), units in collective investment schemes, ETFs (trackers), emissions rights, etc.

Insurance products would include savings insurance policies (class 21, class 26) and investment insurance policies (class 23), provided that, at the time of surrender, they are not taxable as income from movable property or professional income. In return, the premium tax on these insurance policies, currently set at 2%, would be reduced to 0.7%. Similar foreign insurance policies would also be subject to capital gains tax.

Certain financial assets would be excluded from capital gains tax because they have already undergone their own specific tax regime. These would include, among others, pension funds and group insurance policies through which employers provide a supplementary pension for their employees, as well as pension savings funds through which Belgians can save individually for their retirement. Shares in start-ups or growth companies for which a tax reduction has been granted would also be excluded from financial assets subject to capital gains tax.

2.2 Transfer against consideration

Basic rule

The regime would only apply where a capital gain is realized on the occasion of a transfer against consideration outside the professional activity (draft article 90, first paragraph, 9° ITC92). The seller must receive a price in exchange for the financial assets sold.

Consequently, gifts, transfers upon death (by legal succession or will), exits from joint ownership or contributions to the matrimonial community or to a joint ownership with a specific purpose will not give rise to the realization of a capital gain subject to capital gains tax.

So what happens if the donee, after the donation, sells the shares that were given to him? At that point, the donee must pay capital gains tax calculated on the basis of the acquisition value for the original donor. In the case of a gift, the tax should therefore not be settled immediately, but deferred, until the capital gain is realized by the donee. This is already the case under current legislation (for the rare situations in which capital gains are taxable).

Equated transactions

In addition, three events appear to be treated as a transfer against consideration for the purposes of capital gains tax (draft article 92, §2 ITC92):

• (only) the distribution of the capital and surrender values from life insurance policies and capitalization operations during your lifetime. Distributions to beneficiaries in the event of death or in the event of a change of insurance investment fund does not give rise to capital gains tax.
  
  
• the transfer by a taxpayer of their tax residence or the seat of their assets abroad. This constitutes a (new) exit tax on the unrealized gain on a financial asset when the taxpayer emigrates, which likely exceeds the bounds European law.
  
  This principle is not isolated: other countries such as the Netherlands, France and Germany also have similar schemes. However, the legislator seems to assume that this exit tax imposed on individuals can be collected immediately and that offering the taxpayer the option to pay the tax in instalments is sufficient to comply with European requirements. However, this is not the case: the Court of Justice of the European Union has ruled on several occasions concerning the imposition of exit tax on individuals, notably in the De Lasteyrie du Saillant case (C-9/02) and in the N case (C470/04). The De Lasteyrie du Saillant case concerned the French exit tax, where the suspension of payment was subject to strict conditions (such as providing a guarantee to ensure payment of the tax). The Court ruled that the French regime infringed the freedom of establishment. In the N case, the Court also held that imposing a requirement to provide security was contrary to the freedom of establishment. If the Court already does not accept a security requirement to guarantee payment of tax, it will a fortiori not accept the staggered payment envisaged in the present draft.

• "any transfer to a non-resident taxpayer". This means that a gift to a non-resident would be considered as a transfer for valuable consideration and could therefore give rise to capital gains tax. Here again, it is questionable whether this difference in treatment between gifts to residents and gifts to non-residents is discriminatory or contrary to European law.

In the event of a taxpayer immigrating to Belgium and in the event of a gift from a non-resident to a Belgian resident, the draft provides for a step up (draft article 102, §3 ITC92), which is beneficial in terms of immigration, to avoid undesirable double taxation at the level of the immigrant taxpayer who comes from a state that also applies an exit tax

In addition, all capital gains realized in connection with a contribution are fully exempt (whether or not the conditions set out in the Mergers Directive are met; see draft article 95/1 ITC92). As before, a taxable capital reserve is created at the level of the holding company at the time of the contribution. In the event of a subsequent dividend distribution, income tax of 30% remains payable. This issue remains sensitive in the case of the contribution of shares in SMEs which have previously set up liquidation reserves and which - if they did not contribute - could continue to set up liquidation reserves on profits to be realized.

3. General regime of 10%, progressive regime for significant participations and specific regime of 33% for internal capital gains

The draft provides for (i) a general 10% regime, (ii) a specific regime for significant participations and (iii) an exceptional regime for internal capital gains (33%). These regimes appear to be mutually exclusive, so that a transfer can only fall under one of these three regimes:

• Under the general system, capital gains would be taxed at 10% (draft article 90, first paragraph, 9°, c ITC92). The tax would be levied via withholding tax. However, a general exemption of 10,000 EUR would be provided for (draft article 96/2, 2° ITC92). The balance of the unused portion would be carried forward for one year.
  
  The general regime provides an exemption for capital gains on financial assets held continuously for at least 10 years. This general exemption would somewhat limit the administrative burden and encourage normal, prudent individuals to invest for the long term. This exemption would not apply if the transaction falls under the specific regime for significant participation or the exceptional regime for internal capital gains.

• A specific regime would be introduced for taxpayers holding a "significant participation" (draft article 90, first paragraph, 9°, b ITC92). In concrete terms, this specific regime would apply if the taxpayer, at any time during the ten years preceding the transfer, directly or indirectly, alone or with their spouse, descendants, ascendants and collaterals relatives up to and including the fourth degree and those of their spouse, has held at least 20% of the shares or profit shares in the company whose shares or profit shares are being transferred.
  
  This specific regime for “significant participation” would provide for annual exemption of the first 1 million EUR in capital gains (indexed amount for assessment year 2027), after which progressive rates of 1.25%, 2.25%, 5% and 10% would be applied:

Examples:

• Two parents jointly own 50% of the shares in a company, while their two children each own 25% of the shares in the company. Collectively, the four of them therefore hold 100% of the company's shares. Given their family ties, they would fall under the specific regime for significant participation;
  
  
• A shareholder held more than 20% of a company's shares in 2020. At the time of the sale in 2027, his holding participation is below this threshold (e.g. 15%). As he has held at least 20% of the company's shares at any time during the last ten years, he would fall under the specific regime for significant participation;
  
  
• A shareholder holds 5% of the shares in company X directly and 95% indirectly through a holding company. Since both direct and indirect participations in company X are taken into account when calculating the 20% threshold, he would fall under the specific regime for significant participation for his 5% direct participation.

Under the exceptional regime, internal capital gains realized through sale would remain fully subject to a flat tax rate of 33% (draft article 90, first paragraph, 9°, a ITC92). See below for further explanations on this subject.

4. Taxable basis and determination of capital gains

The taxable base for capital gains tax would correspond to the positive difference between the price received for the transferred financial assets and the acquisition value of these assets (draft article 102, §1 ITC92). Costs or taxes would not be included when calculating the capital gain. Any capital losses on financial assets would be deductible within the same category and taxable period.

Specific rules would be imposed for determining the acquisition value of different types of financial assets:

• For unlisted financial assets, specific rules would apply for determining the acquisition value as of 31 December 2025, using the highest of the following values (draft article 102, §4, 2° ITC92):
  
  
  • Value used in a transfer for valuable consideration between entirely independent parties, or during incorporation or capital increase throughout 2025;
    
    
  • Value resulting from a valuation method already used in a contract or a contractual offer for a put option (effective from 1 January 2026) ;
    
    
  • Equity increased by an amount equal to 4x EBITDA, as defined in the ITC.

The taxpayer would, however, have the option to substantiate the value independently through a report prepared by an auditor or a certified accountant. The taxpayer would have until the end of 2026 to obtain such a valuation report.

• For listed financial assets, the acquisition value would be determined by the last closing price of the year 2025 (draft article 102, §4, 1° ITC92);
  
  
• Stock Option Law and price reduction (draft article 102, §1 ITC92)
  
  
  • For shares or equivalent instruments acquired under the Stock Option Law of 26 March 1999, the acquisition value of the share would be determined by its value at the time the option is exercised. For options under the Stock Option Law, the acquisition value of the option would be determined by its market value at the time of potential exercise.
    
    
  • For shares or equivalent instruments acquired with a price reduction under the Stock Option Law or otherwise, the acquisition value would be determined by the value of the share or equivalent instrument at the time of acquisition.

If the acquisition value is higher than the value on 31 December 2025, this higher value would be retained, provided the taxpayer can substantiate it. The tax would be limited to Belgium and would only apply to the capital gain realized while the taxpayer was a resident.

If the taxpayer holds several financial assets of the same nature, the weighted average would be used as the acquisition value.

A specific calculation method would be provided for capital gains from life insurance contracts (draft article 102, §2 ITC92). This would be based on the positive difference between the capital sums or the surrendered value distributed and the total premiums paid. Additionally, a separate calculation method would be provided for exit tax situations.

5. Internal capital gains taxed at 33%.

A specific regime would be implemented for internal capital gains realized through sales, to prevent such transactions from becoming more attractive due to the abolition of the notion of “normal management of private assets” for financial assets.

At the end of 2016, article 184, paragraph 4 ITC92 had already been amended by eliminating the step-up upon the contribution of shares. Generally, internal capital gains realized through the sale of shares were exempt, unless they exceeded the scope of normal management of private assets. In practice, there were instances of debate regarding potential abusive character. To address this, the draft legislation introduce for a special regime, consistent with the practices previously applied by the Ruling Commission.

Where a taxpayer realizes a capital gain on shares through the sale of his shares to a company over which he, either individually or together with his spouse or descendants, ascendants, collaterals relatives up to and including the second degree and those of his spouse, exercises direct or indirect control as defined in article 1:14 of the Companies and Associations Code, the entire capital gain will henceforth be automatically and fully subject to a separate tax rate of 33%.

Let's take the example of an individual X, who holds 100% of the shares in an operating company, and who sells these shares to a holding company in which X, either alone or with close relatives, holds the majority of the shares and (jointly) exercises control over the acquiring company. This does not necessarily require the sale of 100% of the shares, since the sole criterion used is the control exercised over the acquiring holding company.

6. Withholding tax – potential for discretion?

Under the general regime, the new capital gains tax would in principle be levied as a withholding tax by intermediaries established in Belgium (draft article 261, first paragraph, 5° ITC92 and draft article 269, §1, 5° ITC92). The basic exemption of 10,000 EUR or the exemption of capital gains on shares held for over 10 years can then be claimed via the tax return. This approach allows for a degree of discretion, but does that discretion comes with the loss of the exemptions.

At first sight, tax on capital gains from significant participation and internal capital gains would appear to be processed via the tax return.

7. Entry into force: 1 January 2026 with exemption for historical capital gains

The new regimes would apply to capital gains realized from 1 January 2026. Historically accrued capital gains would not be targeted by this new capital gains tax.

As indicated above, the capital gain realized on financial assets acquired before 1 January 2026 would be calculated using the value of these financial assets on 31 December 2025 as the acquisition value. If the acquisition value is higher than the value on 31 December 2025, the higher acquisition value would be retained, provided that the taxpayer can substantiate this.

8. Abolition of abnormal management discussion for financial assets, along with the 16.5% tax and the Reynders tax

• With the introduction of the new capital gains tax, the discussions regarding the notion of normal management of private assets, specifically for capital gains on financial assets, would be abolished. However, capital gains realized outside the scope of normal management of the taxpayer's private estate would remain subject to the 33% tax rate if they pertain to portfolio values or movable objects not considered as financial assets under the capital gains tax (e.g. works of art). The discussion surrounding abnormal management would not be entirely eliminated for all asset types.
  
  
• Similarly, the 5% tax on the sale of a significant participation to a non-EEA company would be repealed.
  
  
• To prevent double taxation on funds, the Reynders tax (article 19bis ITC92) – which applies to funds investing more than 10% in debt claims - would be abolished. This would be a welcome change.

9. What’s next?

The draft texts are expected to undergo further political discussions and practical elaboration. Definitely something to keep an eye on!