Table of Contents
The Belgian circular 2024/C/79
Tax Treaties vs. National Laws: Which Takes Precedence?
When a tax treaty clashes with a country’s national laws, which prevails? Belgium’s Circular 2024/C/79, published December 11, 2024, provides a controversial answer. This circular clarifies how Belgium applies its “Cayman Tax” to combat tax avoidance, even when taxpayers use legal structures in countries that have signed double taxation agreements (DTAs) with Belgium.
Key Issue: Bypassing Tax Treaties
The circular targets Belgian residents who establish foreign legal structures, such as:
- US LLCs holding real estate
- Luxembourg SOPARFIs
- Cypriot holding companies
- French SCIs (real estate investment firms)
- Jersey-based trusts
Belgian tax authorities argue that DTAs do not protect these structures if they generate passive income (rents, dividends, capital gains), even if the entity has economic substance abroad.
How Belgium Circumvents DTAs
The tricky wording used by the circular
The circular hinges on a semantic distinction:
Double Legal Taxation: When the same taxpayer is taxed twice on the same income. DTAs typically prevent this.
Double Economic Taxation: When two different taxpayers (e.g., a Belgian resident and a foreign entity) are taxed on the same income. Belgium claims DTAs do not apply here.
By framing the Cayman Tax as addressing “economic” double taxation, Belgium asserts the right to tax income from foreign structures, regardless of DTAs.
Implications of Circular 2024/C/79
- Sweeping Taxation Power: Belgian authorities can tax income from foreign legal structures, even if the structure operates in a DTA partner country.
Passive Income Focus: Structures limited to passive income (rents, dividends) face the highest risk, regardless of local substance.
Retroactive Enforcement: Belgium may audit past structures, leveraging the circular’s guidelines.
Why This Matters for Taxpayers
DTAs Offer Limited Protection: Tax treaties may not shield structures deemed “passive” by Belgian standards.
Substance Requirements: Entities must demonstrate active business operations (not just passive holdings) to avoid Cayman Tax.
Global Trend: Belgium’s approach mirrors broader OECD efforts to curb treaty abuse and profit shifting.
Case study - Example of tax calculation
Belgian founder: Belgian tax resident, 100% owner of a US LLC, classified as an ETBUS company (tax liable in the USA).
US LLC assets: Building in Florida generating annual rental income of USD100,000.
Tax treatment in the United States: The LLC is transparent → income taxed at US income tax (effective rate: 30%).
Tax treatment in Belgium: Application of the Cayman tax → transparent taxation of income in the name of the Belgian founder (100% of the revenue bill be taxed as personal tax at progressive rates 25-50%).
Without going into the specific details of each case, which would take into account the family situation, dependents and the percentage exempted, we can nevertheless highlight the following result (considering one single revenue of 100k€ equivalent) :
| Revenue | USA (LLC) | Belgium (Founder) |
|---|---|---|
| Rental revenue | 100 000 € | 100 000 € (transparence) |
| Foreign tax | 30 000 € (30%) | – |
| Belgian tax | – | 43 815 € ** |
| Tax credit | – | n/a |
| Tax in Belgium | – | 43 815 € |
| Total taxes | 30 000 € | 43 815 € |
Result: 73 815 € total tax that the Belgian resident will have to pay to cover both American tax and Belgian tax!
Progressive tax rates in Belgium (2025)
| Bracket | Tax rate | Tax |
|---|---|---|
| 0 – 15 820 € | 25 % | 3 955 € |
| 215 820 – 27 920 € | 40 % | 4 840 € |
| 327 920 – 48 320 € | 45 % | 9 180 € |
| 48 320 – 100 000 € | 50 % | 25 840 € |
- Tax to pay in Belgum: 3 955 + 4 840 + 9 180 + 25 840 = 43 815 €
- Total tax USA + Belgium (double taxation!):73 815 €
Additional implications of circular 2024/C/79
- Mandatory declaration: the Belgian resident must declare his LLC as a ‘legal structure’ in his Belgian PIT (personal income tax) declaration –>risk of a fine of €6,250/year in the event of omission.
- Exit tax: If the founder transfers the LLC or moves outside Belgium, undistributed profits will have an immediate taxation.
- Property income: No exemption is granted via the DTA Belgium/USA for the property income.
Conclusions
Circular 2024/C/79 confirms the position of the Belgian tax authorities that the Cayman tax remains applicable.
This is by virtue of articles 5/1 and 220/1 of the CIR/92. And this, even in the presence of a DTA, unless the founder can prove the existence of a substantial economic activity within the legal structure.
As a result, the Belgian founder pays Belgian tax on this income, in addition to the tax paid abroad by the company, resulting in double economic taxation.
Simply renting out a property via a foreign structure is considered to be a passive activity, which is not enough to avoid Cayman tax.
However, this ‘passive activity’ is taxed as ordinary income at progressive rates of up to 50%.
The Cayman tax is a real trap for those who remain Belgian tax residents.
The solution
It would be useful for you to consider two options: either maintain your foreign legal structure but not be a Belgian resident; or place your foreign company in a jurisdiction that does not tax the income covered by the Cayman tax. In that case, you would only be taxed in Belgium.
If you are looking for the most tax-efficient options, you can make an appointment with us.
We will look at the most advantageous legal means of relieving your tax burden.