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The new double tax treaty Belgium - France: the consequences for the investor in French (real estate) shares

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In our previous publications we already mentioned that at the end of last year an agreement was reached between France and Belgium concerning a new double taxation treaty. In this article we further discuss the consequences that this treaty will have for investors in French (real estate) shares.


The consequences for the investor, natural person, in French shares

Suppose you are a Belgian resident who has invested in French shares and you receive a dividend of 100 EUR.

Under the current double taxation treaty (DTC) between Belgium and France, France is entitled to withhold a withholding tax of 15%. The taxable dividend in Belgium is thus EUR 85. This 85 EUR is then subject to 30% withholding tax in Belgium (or 25.50 EUR). As a result, of the EUR 100, only EUR 59.50 remains net. But since this leads to double taxation, the current DTC provides for an offsetting system (the "FBB" - Foreign Tax Base), which makes a correction for the withholding tax already withheld in France. As an investor, you will therefore still receive a dividend of 72.25 EUR instead of the 59.50 EUR.

Under the new DTC, while this clearing system is eliminated, a reduction in the withholding tax is provided for. The latter drops from 15% to 12.8%. A comparative example for clarification:

  Current DBV New DBV
Gross Dividend 100.00 EUR 100.00 EUR
- French withholding tax (15% / 12.8%) - 15.00 EUR -12.80 EUR
Dividend taxable in Belgium 85.00 EUR 87,20 EUR
- Belgian withholding tax (30%). - 25.50 EUR - 26.16 EUR
Net dividend before offsetting FBB EUR 59.50 61.04 EUR
+ FBB (15% from 85.00 EUR). +12.75 EUR /
Net dividend 72,25 EUR 61.04 EUR

Note that this reduced withholding tax also applies in the reverse situation where a French resident receives dividends from a Belgian company. Also in this situation, Belgium will in the future only be able to withhold a withholding tax of 12.8% where previously 15% could be withheld.


The consequences for the investor, legal person, in French shares

The tax rules also change for the Belgian company investing in French shares. Here too, France will in principle be entitled to withhold a withholding tax of 12.8%. However, if the Belgian receiving company holds at least 10% of the French subsidiary's shares for 365 days, France may not withhold any withholding tax. Subsequently, these dividends can also be exempted in Belgium if certain conditions are met (i.e. holding of at least 10% or 2.5 million and 1 year in full ownership) are satisfied.


The implications for the investor in French real estate shares

The new treaty also affects capital gains on shares of real estate companies. Under the current treaty, capital gains on shares are only taxable in the state where the taxpayer is domiciled. Belgium in turn exempts these capital gains if they are part of the normal management of private assets.

However, the new DTC states that capital gains on shares of real estate companies (more than 50% of the asset consists of real estate) will henceforth be taxed in the state where the real estate is located. Belgians who thus realize a capital gain on their French real estate company will soon be subject to a French capital gains tax. For natural persons, this French capital gains tax amounts to 19% + 7.5%. For companies, the French capital gains tax is equal to the French corporation tax and thus taxable at 25%.

Double tax treaties are always concluded between two states and must therefore be approved by both. The final texts of the DTC are now available; they only need to be formally ratified in legislation by both member states. Once the assent procedures have been completed, it can enter into force, which will probably be on January 1, 2023.


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