1. What?
In corporate income tax, an "exit tax" already exists today in which the company's emigration is fictitiously equated with its liquidation. Pursuant to this tax fiction, the deferred capital gains and the exempted reserves of the emigrating company are subject to corporate income tax. Based on the current ruling policy[1] and case law[2] , the emigration of a company today does not in principle give rise to the existence of a taxable dividend on behalf of its shareholder.
The text of the program law recently approved in committee (first reading) would put an end to this. Following the seat transfer, shareholders will henceforth be deemed to receive a liquidation dividend. This fiction is not only applicable to cross-border conversions or transfers of actual management abroad, but also to mergers and demergers (and assimilated transactions) as referred to in Article 210,§1, 1° and 1°bis of the ITC.
The anticipated effective date of this rule is July 1, 2025. Transactions from July 1, 2025 onwards will be covered by the scope of the charge.
2. Who?
The new exit tax applies to shareholders of the company that makes one of the aforementioned transactions. It is applicable in personal income tax, corporate income tax, legal entities tax and non-resident tax.
3. Taxable base
The aforementioned targeted transactions are only subject to exit tax to the extent that the notional dividend paid relates to assets that are no longer used or retained in Belgium as a result of the transaction.
According to the Explanatory Memorandum to the draft texts, the tax is limited to the growth of reserves during the Belgian period. Such limitation is not only logical, it is also required for the tax to be EU-compliant.[3] Also during the parliamentary debates on June 3, 2025, it was confirmed by the Minister of Finance that the tax only applies to reserves and profits accrued during the Belgian period. However, this cannot be read unambiguously in the effective draft texts. Legal uncertainty threatens: it would be appropriate to clarify this in the legal text itself.
4. Tariff and declaration requirement
In principle, the notional dividend distribution is subject to a 30% tax. However, to the extent that the notional dividend arises from previously created liquidation reserves, no additional tax is applicable, just as it would be in the case of effective liquidation. If the shareholder is subject to corporate income tax, the dividend received deduction can be applied.
Since no actual income is granted or made payable, no tax can be withheld through withholding tax.
The shareholders concerned are therefore required to declare the notional dividend in their income tax returns. In order for the shareholders to fulfill their obligation to declare, they obviously need to be aware of the taxable amount. In this context, the company is required to prepare individual sheets that it must provide to its shareholders.
5. In violation of European law
The opinion of the State Council on this regulation was downright critical, to avoid speaking of "destructive," which - if this regulation effectively passes - may be left to the Constitutional Court....
A first pain point, which has not escaped the attention of the Council of State either, is the conflict of this regulation with the European freedom of establishment. If a Belgian resident shareholder does not move his tax residence abroad, the emigration of the company does not lead to the loss of Belgium's taxing rights. Indeed, as the State of residence, Belgium remains competent to levy taxes on dividend payments to the Belgian resident shareholder. The exit tax thus unjustifiably constitutes an obstacle for companies to move across borders, and is thus an obstacle to the European freedom of establishment. Such an obstacle is permissible only if it is justified by certain grounds established by the ECJ, including (i) the balanced allocation of taxing powers and (ii) the fight against abuse and fraud. However, such justification does not apply when the exit state does not lose its taxing power. This is different for non-residents where Belgium does lose its taxing power. In reply to the (justified) criticism of the Council of State, the minister's authorized representative stated that a different treatment between residents and non-residents is not possible, referring to case law of the ECJ[4] . In the present case, however, such distinct treatment can be justified in view of the objective difference in situation. Belgium does not lose its taxing power over a resident who does not move his tax residence, whereas it does lose it over a non-resident following the exit of the Belgian company.
Furthermore, shareholders who are deemed to receive a notional dividend are given a choice between immediate payment of tax or a staggered payment over five years. However, it should not be forgotten that a distinction must be made between companies and individuals with regard to exit taxes. Following the case law of the European Court of Justice[5] , the ATAD 1 Directive established an exit tax rule with the possibility of spreading the payment of tax over five years. This rule only applies to companies. To date, the ECJ has never accepted that such a scheme of spread payment can also be applied to a tax applicable to individuals. Thus, providing for the possibility of staggered payment is not sufficient when it relates to individuals as taxpayers. It is thus established case law that an exit tax on latent unrealized income can only be effectively collected at the time of the realization of that income.[6] It should be noted that an appeal for annulment has been lodged with the Constitutional Court against article 413/1,§1,paragraph 1, 7° ITC, concerning the choice of immediate or deferred payment applicable to the exit tax on Cayman tax. 2 July 2025: to be monitored and, of course, also relevant for the proposed change to Article 413/1 ITC for application to the exit tax discussed in this article.
6. Treaty override
In addition to the tensions with European law, the impact of the fiction introduced by Belgium on the application of double taxation treaties deserves special attention.
In principle, such a fiction does not operate under double taxation treaties, unless it concerns a rule that was already foreseen at the time the treaty in question was concluded and thus expressly intended by the negotiating parties. This unilateral initiative by Belgium to grant itself an additional tax base may be contrary to good treaty faith. Incidentally, in an international context, such analysis has recently been discussed in the Netherlands and, for example, the Knowledge Group within the Dutch tax administration has confirmed that the introduction of a fiction by the Netherlands whereby there is a fictitious dividend in the event of excessive borrowing from one's own company does not apply to residents of Belgium under the Belgian-Dutch double tax treaty (KG:041:2025:4 Treaty NL-BEL, Wet excessief lenen bij eigen vennootschap | Kennisgroepen (belastingdienst.nl), position dated May 28, 2025) precisely because this is contrary to good treaty faith.
Finally, the risk of double taxation is also very real. If the country of arrival does not recognize the fictitious distribution of dividends, it may also not allow any exemption or credit for the tax already paid at the time of the actual distribution of this already (partially) taxed income. Moreover, this would lead to the absurd situation that the shareholder who would liquidate a company instead of transferring its seat would be in a more favorable tax position.
7. Future proof?
If this regulation is effectively introduced - and certainly in its current form - it remains to be seen whether it would pass a constitutionality test. After all, given the apparent inconsistencies with European law, there is a real chance that action will be taken against this regulation in the form of an annulment appeal before the Constitutional Court. Note, moreover, that such an annulment appeal, if successful, will in principle lead to an annulment with retroactive effect.[7] Indeed, in the case of violations of European law, the effects cannot be preserved in time, unless the Court of Justice expressly decides otherwise by way of exception and for imperative reasons of legal certainty.
In addition to the annulment appeal, there are other procedural options. For example, there is the option of filing a complaint with the European Commission (which, incidentally, can be filed simultaneously with any annulment appeal). Of course, post-taxation proceedings are also possible.
In a first reading in committee, a number of amendments were proposed with a view to the EU conformity of this regulation, among other things. Although a complete abolition of the entire regulation is still the most preferable option in terms of EU conformity, we hope to see at least some adjustments made. After all, a retroactive annulment of this regulation could also have budgetary consequences.
Conclusion
Whether the proposed exit tax in its current form will have a long life is doubtful. At least some adjustments will have to be made to remedy the manifest inconsistencies with European law. Even better, it would be best to scrap the regulation altogether. We are of course closely following the further discussion of the draft program law.
Better still, it would be preferable to simply abolish this regulation altogether, especially if Belgium, at the heart of the European Union, does not want to discourage the creation or transfer of new companies to Belgium, whether by individuals or large international groups, which would be completely at odds with Belgium's policy in the past, which has always been welcoming to the establishment of structures in Belgium, a policy that has led to the creation of numerous jobs.
[1] See, inter alia, VB No. 2023.0060 dated 28.02.2023.
[2] Rb. Walloon Brabant (tax) (14ek.) No. 21/96/A, Feb. 3, 2023 (Roll No.: 21/98/A).
[3] ECJ 7 September 2006, C-471/04, N, para. 46.
[4] ECJ 12 July 2012, C-269/09, Commission v. Spain, para. 59.
[5] ECJ Nov. 29, 2011, C-371/10, National Grid Indus and ECJ Jan. 23, 2014, C-164/12, DMC.
[6] ECJ 11 March 2004, C-9/02, Lasteyrie du Saillant (C-9/02); ECJ 7 September 2006, C-471/04, N, para. 46 and ECJ 26 February 2019, C-581/17, para. 68.
[7] ECJ October 5, 2023, C-355/22, Deco Proteste - Editores.
