No communal tax on foreign movable income from EU member states

The European Court of Justice ruled that the additional communal tax levied on foreign movable income from EU member states is contrary to the free circulation of capital and goods.

As known in principle Belgian movable income (interest or dividends) and foreign movable income paid through a Belgian (financial) intermediary  to individuals resident in Belgium, are subject to a withholding tax of 15% (sometimes 25%).  This withholding tax is considered as final, in this sense that the Belgian resident beneficiary does no longer need to report the income in his personal income tax return afterwards.When the interest or dividends of foreign source are however directly cashed or received abroad (thus without intervention of a Belgian intermediary), the Belgian beneficiary needs to report this movable income in his personal income tax return.

Automatically, the tax authorities will then compute an additional communal tax on top of the 15% or 25% foreseen for such income, thus resulting in an effective tax rate amounting to maximum 16,5% respectively 27,5%. When important movable income is reported, this additional tax can be rather significant on behalf of the beneficiary of foreign interest or dividends.

The European Court of Justice ruled in a Court Case of 1st of July 2010 that the additional communal tax levied on such income is contrary to the free circulation of capital and goods. Indeed, Belgian movable income (or foreign movable income paid through a Belgian intermediary) is not subject to the additional communal tax (Court Of Justice, 1st July 2010, N° C-233/09 re Gerard Dijkman and Maria Dijkman-Lavaleije contra Belgian State).

Please note that interest or dividends directly received from non EU Member States in principle remain subject to the Belgian communal tax upon reporting in the tax return.