Until recently, individuals investing through a normally taxed company did not have to worry about the Cayman tax. However, in our previous contribution, we already pointed out that since 1 January 2024, interposing a normally taxed company no longer suffices as a means of escaping the Cayman tax. Individuals investing through a normally taxed company (e.g. a Family Office) should take this into account in the context of their personal income tax return, which is due to be filed shortly.
Until recently : an interposed normally taxed company prevented application of the Cayman tax
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 relation to their personal income tax. The purpose of this is to allow the taxation of non-taxed or low-taxed income from certain foreign structures on behalf of their founder.
Until the end of 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 the 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 to the existing Cayman tax. The act of 22 December 2023 addresses this by also making founders who hold an indirect participation in a legal structure through a (chain of) intermediate structure(s) subject 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 that legal structure is located.
The practical consequences of this new reality should not be underestimated. Indeed, in principle, an individual investing through a normally taxed Belgian company will have to analyse the entire underlying chain in order to determine 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, seat and, where appropriate, identification number of the legal structure ;
- in the case of a trust-like structure, 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” ; consequently, their investors cannot be considered as a founder of any underlying legal structures, and thus no analysis of the entire underlying investment structure is required. This was also recently confirmed by the Ruling Commission (see rulings nr. 2024.0113 and nr. 2024.0203). 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). Given the tightening of the rules for the Cayman tax, many taxpayers will have to report the existence of a legal structure in their tax return for the first time this year. For these cases, 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, among other things, the legal structure will have to be declared in the personal income tax return. However, an exception applies for investments in regulated funds and listed companies, for which, in principle, an analysis of the underlying investment structure will not be required.
