The ‘Law introducing an annual tax on custody accounts’ was published in the Belgian Official Gazette on 25 February 2021.
Below you will find a summary of this new tax, which comes into force on 26 February 2021.
1. Who is subject to the tax?
The first tax on custody accounts (TER 1.0) only affected natural persons. The new tax goes much further, with legal entities (companies, non-profit organisations, foundations, etc.), incorporators of legal constructions, partnerships and communities of property also all being subject to the tax. In principle, it makes no difference whether the taxpayer is resident in Belgium or elsewhere.
Belgian residents are subject to the tax both in respect of custody accounts held with Belgian intermediaries and custody accounts held with foreign intermediaries. For non-residents, only custody accounts held with Belgian intermediaries are subject to the tax.
An exception is made for non-residents who are able to claim relief under a double taxation treaty in which the authority to levy taxes on assets has been assigned to the country of residence.
Certain companies are excluded for custody accounts held exclusively for their own account. These are ‘financial entities’ such as banks, listed companies, asset managers, funds and insurers.
2. To which securities does the tax apply?
TER 1.0 was limited in its scope. The new legislation means that all financial instruments held in a custody account will be subject to the tax. This means that instruments such as turbos and trackers also fall within the scope of the tax.
Cash held in a custody account will also be subject to the new tax. This does not include current accounts or other bank or payment accounts, but only cash amounts that are held temporarily in a custody account.
The tax does not apply to investment-type insurance products. However, the intention of the legislator is also to tax custody accounts which are held by insurance companies in the context of Class 23 unit-linked insurance contracts. This is because the legislator argues that these custody accounts are not held ‘for own account’.
3. How is the tax calculated?
Only custody accounts with an average value of more than 1 million euros fall within the scope of the tax. It no longer matters how many account-holders there are for the custody account.
To calculate the average value of the custody account, therefore, the total value is no longer divided by the number of account-holders. For example, a custody account with a value of 1.2 million euros and three account-holders will be subject to the tax.
To calculate the average value, ‘snapshots’ of the account will be taken every three months. For the first reference period, these snapshots will take place on 31 March, 30 June and 30 September.
The first reference period runs from the day that the new law comes into force (26 February 2021) and ends on 30 September 2021. The second reference period begins on 1 October 2021.
In a small number of cases, however, the reference period will end earlier. This will happen, for example, when a custody account is closed or if the sole or last remaining holder of the custody account relocates to a country with which Belgium has concluded a double taxation treaty and the authority to levy tax on the assets is assigned to the country of residence.
X is holder of a custody account throughout the entire year 2021. On the reference dates, the following values are calculated:
- 31 March 2021: 2.3 million euros
- 30 June 2021: 1.7 million euros
- 30 September 2021: 1.9 million euros
The average value is: (2.3 + 1.7 + 1.9) / 3 = 1.966.666,67 million euros.
Under the new law, if the value is more than 1 million euros, a rate of 0.15% is applied to the average value of the custody account. In our example, therefore, tax of 2.950 euros is payable.
If, in our example, X closed their custody account on 5 July 2021, e.g., because they sold their securities portfolio in order to invest in real estate, then there would be only two reference moments for that custody account:
- 31 March 2021: 2.3 million euros
- 30 June 2021: 1.7 million euros
The average value is therefore (2.3 + 1.7) / 2 = 2.000.000. The tax due in that case amounts to 3.000 euros. In our example, the tax is due on 6 July 2021 (the day after the custody account is closed).
Custody accounts with a value not exceeding 1 015 228.43 euros
For custody accounts with a value not exceeding 1 015 228.43 euros, the tax is set at a maximum of 10% of the difference between the taxable base and 1 million euros.
A custody account with a value of 1 001 000 euros is subject to a tax of 100 euros rather than 1 501.50 euros.
4. Who is responsible for collecting the tax?
For custody accounts held with Belgian intermediaries (such as banks), the intermediary will calculate and deduct the tax. In cases where the tax is not deducted by an intermediary, the account-holder(s) must themselves submit a tax return and pay the tax to the tax authorities.
An ‘opt-in procedure’ like the one which applied under TER 1.0, is no longer relevant. It is the custody account itself which is taxed, and no longer the account-holder; this also means that the account-holder no longer needs to combine the average values of different custody accounts to check whether the threshold of 1 million euros has been exceeded.
5. Anti-abuse provision
A statement was published in the Belgian Official Gazette on 4 November 2020 announcing the introduction of the tax on custody accounts. The statement also made reference to the general anti-abuse provision that is being introduced.
This provision stipulates that certain legal acts carried out by a taxpayer with a view to avoiding the tax are subject to rebuttable presumption and non-invocable vis-à-vis the tax authorities. The taxpayer must then provide counter-evidence in order to avoid this anti-abuse provision.
The statement provides a number of examples:
- The splitting of custody accounts
- The transfer of securities from one custody account to another
- The registering of certain securities.
The Explanatory Memorandum to the new law provides further examples of acts which the legislator will assume are intended solely for the purpose of avoiding the tax. If the tax authorities invoke this anti-abuse provision, the taxpayer can attempt to rebut the presumption.
The Minister has confirmed that it is not up to the financial intermediary to judge the intentions of its clients. The intermediary must however inform the client of this anti-abuse provisions and the fact that certain acts are not invocable vis-à-vis the tax authorities.
The anti-abuse provision comes into effect with retroactive force from 30 October 2020.
In addition to a general anti-abuse provisions, two specific situations are envisaged with a ‘non-rebuttable’ presumption of non-invocability. Specifically, these are as follows:
- The splitting of a custody account into several custody accounts held with the same intermediary
- The conversion of taxable financial instruments held in a custody account into registered financial instruments.
These are thus cases where the intention of the taxpayer is no longer relevant. As soon as these situations arise, they are deemed not to have taken place.
This means that the intermediary where the custody account(s) is held must calculate the tax as if these transactions had not taken place.
The Minister has declared that, with regard to the conversion of registered securities which falls within the scope of the specific anti-abuse provision, the value of the converted securities must be permanently added to the custody account for the purpose of the application of the tax. In practice, this means that in order to calculate the average value of the custody account, the intermediary must add the value of the registered securities to the value of the custody account at each reference moment. The tax amount is then calculated based on this total value.
Under certain conditions, when custody accounts with the same intermediary are split, the value of the securities transferred will continue to be added to the value of the initial custody account in order to calculate the average value of the custody account. The tax administration has yet to clarify these conditions.
This page contains no legal or tax advice, is without obligation and is purely for information purposes. The examples are indicative. Published on 1 March 2021.