Non-profit associations and private foundations are subject to an annual wealth tax called “compensation tax for inheritance tax” (hereafter: “compensation tax”) from the 1st January that follows the date of their constitution onwards.
I Taxable entities
Generally speaking, compensation tax is due by (international) non-profit associations and private foundations (hereafter: “NPOs”) constituted under Belgian law. This remains the case when the aforementioned legal entities are dissolved, up until the moment they are fully liquidated.
Certain entities are excluded from the scope of application of the compensation tax. These include, among others, foundations of public utility, de facto associations, foreign non-profit associations or foundations as well as taxable entities whose taxable basis is lower than € 25.000. This means that an entity which is in principle taxable according to the general principle could be exempted from the compensation tax if its taxable basis is inferior to € 25.000,00.
II Taxable basis
The general principle provides that the tax is levied on all of the assets owned by the taxable entity on the 1st January of the relevant tax year, irrespective of their location (in Belgium or abroad), their nature (movable or immovable, tangible or intangible) or the right in rem (full ownership, bare ownership, usufruct, long hold lease or building lease) held by the entity. This means that all assets acquired prior to 1st January of the relevant tax year but retained at that date are included in the taxable basis.
This general rule suffers many exceptions as many assets are explicitly excluded from the compensation tax’s taxable basis. That is the case of not-capitalised income, natural fruits, annual contributions and subscription fees, that are still due, foreign real estate and company shares that have been certified by the taxable NPO.
Cash and working capital intended to ensure the proper working and the taxable entity’s and its ordinary activities throughout the year are also excluded from the compensation tax’s taxable basis. In order to fall under this exclusion, cash on hand and in short-term deposits owned on 1st January of the relevant tax year need to qualify as working capital, i.e. the amount required by the taxable entity to cover its recurrent costs and which cannot be covered by the income it generates. Any cash on hand or in short-term deposits which exceeds this notion is thus subject to tax.
Debts can in principle not be deducted from the taxable basis. The legal text provides for two exceptions where deduction from the taxable basis is authorised: (i) the unpaid balance of mortgage loans provided the mortgage is on a property owned by the taxable entity and guarantees at least 50% of the principal amount of the loan, and (ii) bequests of sums made to the taxable entity as a universal legatee of the deceased’s estate and which the entity has yet to execute.
III Tax rate
The applicable tax rate for the compensation tax is set at a flat rate of 0,17%.
IV Liquidation and payment
The tax rate is applicable to the total amount of taxable basis (not rounded up) and the result obtained is rounded up to the nearest hundredth. The tax is levied on the basis of a compensation tax return, to be filed with the registration office in whose jurisdiction the seat of the taxable entity is located.
The filing of a compensation tax return is compulsory for all legal entities subject to the tax and should occur at the latest within the first 3 months of the relevant tax year, i.e. at the latest on the 31st March. Payment of the tax should also occur at the latest on the 31st March of the relevant tax year.
No extensions of the filing and payment deadlines are awarded at the request of the taxable legal entity although the filing deadline is automatically extended to the next working day when the 31st March happens to be a Saturday, a Sunday or a bank holiday.
Legal entities which are exempted from the tax are also exempted from the obligation to file a compensation tax return.
When the tax due for a relevant tax year does not exceed € 500, the taxable entity may choose to file a unique tax return for three consecutive tax years. This allows the taxable entity to be exempted from the obligation to file a compensation tax return for the two following tax years. This exemptions only applies provided there is not, on the 1st January of the following two tax years, an increase in assets and in their value which would result in an increase in more than € 25 of tax due (i.e. an increase in assets or in their value of minimum € 14.706).
If you have any questions or concerns related to non-profit law or tax law, EY Law’s lawyers will gladly assist your organisation.