Advocaten / Avocats / Lawyers

Tuesday, 19 April 2016

When do Luxembourg funds fall under the scope of the Belgian "Cayman Tax"?

Ch. Coudron
G.D. Goyvaerts

A Luxembourg “fonds dédié” Sicav-SIF that did not make any appeal on public savings and is not exclusively addressed to qualifying eligible investors does not fall under the scope of the Belgian Cayman Tax. This implies that transparent taxation (Cayman Tax) does not apply and that the shareholder in such “fonds dédié” Sicav-SIF does not have the duty to report his shareholding in his tax return.

What is “Cayman Tax”?

Cayman tax is the nick-name of a new look-through tax applicable to Belgian resident individuals and entities subject to the legal entities tax. Under this look-through approach, income collected by a “legal construction” (as of January 1st 2015) is taxed in the hands of the founders or third party beneficiaries as if they would have collected this income themselves (taxation by fiscal transparency).

In addition, individuals and entities subject to the legal entities tax have the obligation to report legal constructions in their tax return.

Two types of legal constructions

Cayman Tax applies to two types of legal constructions.

The first type of legal construction is defined as a legal relationship created by an act of the founder or by a court order, by which assets are placed under the control of a trustee in order to be administered in the interest of one or more beneficiaries or to a certain purpose. This legal relationship has the following characteristics: (i) the property title to the assets of the “legal construction” is drafted in the name of the trustee or in the name of another person on behalf of the trustee, (ii) the assets of the “legal construction” form a separate estate and are not part of the estate of the trustee, and (iii) the trustee has the authority and the duty, to manage, administer or dispose of the goods in accordance with the provisions of the legal construction and the special duties imposed by law on the trustee.

A second type of legal construction is any company or other legal entity with separate legal personality which, according to the tax rules of its State of residence, is either not subject to income tax or is subject to an income tax regime resulting in taxation below 15% with respect to its taxable income, determined according to the rules applicable as if it were subject to Belgian income tax.

Excluded entities

Importantly, a number of categories of entities are excluded from the scope of the Belgian Cayman tax (Article 2, §1, 13°/1, 1st paragraph of the Belgian ITC). Undertakings for collective investment (UCIs) are excluded, provided that, either there has been a public offering in Belgium or abroad, or the UCIs are only accessible for “eligible investors” (notion of Belgian financial law). In addition, UCIs with the form of a “company for investment in receivables” (“société pour investissement en créances”) are also excluded from the scope of the Belgian Cayman Tax. On the other hand, UCIs established “for private investment purposes” (no appeal on public savings and not exclusively addressed to qualifying eligible investors) are not excluded from the scope of the Belgian Cayman Tax. Moreover, companies listed according to the conditions provided by Directive 2001/34/EC of May 28, 2001 or listed in a non-EU State where local legislation provides for analogous conditions for admission to the Stock Exchange, as well as pension funds are also excluded from the scope.

The Act of 26 December 2015 added a second paragraph to Article 2, §1, 13°/1 ITC. (applicable as of January 1st 2015) in order to avoid abuses, by providing that the exclusions of Article 2, §1, 13°/1, 1st paragraph I.T.C. do not apply to “fonds dédié entities and compartments”, i.e. entities and compartments where the ownership rights are held by one investor, or by several investors who are related (e.g. family members until the fourth degree, spouses, people living at the same address, investors controlling another investor as defined by Article 5 of the Belgian Companies Code). The ownership test is to be assessed at the level of each compartment.

Second type legal constructions and the EEA Royal Decree

Two Royal decrees have listed the legal constructions of the second type. Unlike the non-EEA Royal Decree, the EEA Royal Decree has an exhaustive character. An entity located within the EEA that does not fall under any of the categories of the list of the EEA Royal Decree does not qualify as a “legal construction” of the second type.

A first “EEA list” was provided by Royal Decree of 23 August 2015, and only denominated the Luxembourg SPF, the Liechtenstein Stiftung and the Liechtenstein Anstalt as entities within the scope of the Cayman Tax. Consequently, Luxembourg funds such as Sicavs and Sicars were not within the scope of the Belgian Cayman Tax. However, a new Royal Decree was issued on 18 December 2015. The new Royal Decree provides that the entities covered by Article 2, §1, 13°/1, 2nd paragraph ITC also fall under the scope of the Belgian Cayman Tax. Hence, Luxembourg investment companies such as Sicavs can also fall under the scope of the Cayman Tax. The new Royal Decree applies with respect to income collected by legal constructions as of January 1st, 2015.

The reference in the Royal Decree of 18 December 2015 to the second paragraph of Article 2, §1, 13° /1 ITC, implies a reference to the first paragraph of that same Article 2, §1, 13° /1 ITC, which lists the exclusions. Consequently, EEA UCIs established “for private investment purposes”, which clearly do not fall under the “aforementioned exclusions” from the  first paragraph (see above), can therefore not fall under the scope of the Belgian Cayman Tax either. This follows from the current wording of the EEA Royal Decree. This implies that a shareholder in the “fonds dédié” Sicav-SIF is generally speaking not bound to report the “fonds dédié” Sicav-SIF as a legal construction in his tax return. 


For more information, please contact:
Christophe Coudron - Senior Associate (christophe.coudron@tiberghien.com)
Gerd D. Goyvaerts - Partner (gerdd.goyvaerts@tiberghien.com)

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