Inheritance tax on foreign assets and its compensation
September 2021 – When a Belgian resident dies, inheritance tax (in the Flemish Region) or inheritance tax (in the other two Regions) is due on all the deceased's assets, whether they are in Belgium or abroad. However, the Constitutional Court has observed a discrimination between foreign movable property and foreign immovable property when it comes to the compensation of inheritance tax outside Belgium.
Belgian or foreign inheritance tax
Belgian inheritance tax is due when the domicile or the seat of the deceased's assets is in Belgium. "Domicile" here does not mean legal domicile, but de facto domicile, i.e. the place where the deceased had his real and permanent place of residence. The seat of the estate is the place from which the estate is managed.
Vlabel, the Flemish tax administration, has already made it known that it assumes that if the deceased was registered in the population registers in Belgium, he is presumed to be a Belgian resident.
The tax due (Flemish, Brussels or Walloon) depends on the last tax domicile of the deceased. If the deceased lived in more than one place in Belgium during the last five years of his or her life, the place where he or she lived the longest during those five years is taken into account.
The facts
In 2007, Mr A died in Spain. Mr A was a Belgian resident, but he owned both movable and immovable property in Spain. Inheritance tax is levied on these assets in Spain.
These assets are then still taxable in Belgium. However, it is not permitted to offset the foreign inheritance tax against the inheritance tax due in Belgium.
Article 17 of the Inheritance Tax Code, as it applied in 2007, does allow for such offsetting, but only for foreign inheritance tax levied on real estate situated abroad. Taxpayers who inherit movable property held abroad that belonged to a resident of the Kingdom do not benefit from the set-off of this foreign inheritance tax.
Old distinction
This difference in treatment between movable and immovable property is a deliberate choice that dates back to... 1923! During the preparatory work carried out at that time, the MEPs wondered whether the offsetting of inheritance tax should not be allowed, for both movable and immovable property. But the rapporteur replied that 'It has not been possible [...] to ascertain whether and to what extent foreign countries levy inheritance tax on securities that are dependent on the estate of a resident of our country. ... Therefore, it can be argued that it is fair to apply the Belgian inheritance tax rate in full to all movable assets left behind by an inhabitant of the Kingdom.
The Constitutional Court
The Constitutional Court states that a lot has changed since 1923 (judgment 80/2021). Many countries now also levy an inheritance tax. The mobility of goods and capital has increased considerably. Many more Belgians have movable property abroad than a hundred years ago. This can sometimes involve large amounts of money.
The Flemish Region argued before the Court that the possibility of offsetting foreign inheritance tax against Belgian inheritance tax would encourage heirs, after the death of the deceased, to move movable property abroad in order to avoid Belgian inheritance tax. However, the Court considers that the risk of tax evasion cannot justify that taxpayers who are in good faith are excluded from the compensation.
The Court therefore ruled that the distinction between real estate and movable property in the context of foreign inheritance tax compensation is not based on a relevant distinction criterion and that the difference in treatment is not reasonably justified.
Foreign assets
If the deceased had financial investments abroad, the heirs can now deduct the foreign inheritance tax (if any) from the Belgian inheritance tax. The specific case concerned an inhabitant of the Flemish Region, but the conclusion also applies to the Brussels-Capital Region and the Walloon Region.
