Permanent establishment vs. Belgian establishment: Not all establishments are created equal

Planning on expanding your business into Belgium? Many foreign companies are unaware of the tax obligations that can accompany their activities.

If your foreign company holds a Belgian company registration number - perhaps because you own property in Belgium or employ local staff - you may soon find yourself on the radar of the Belgian tax authorities. They are likely to reach out to understand the exact nature of your presence in our country.

Over the past few years, Belgian tax authorities have significantly ramped up efforts to identify foreign companies with a Belgian registration number, regardless of the reason. Ignoring their inquiries is not advisable as it can lead to serious consequences.

In practice, we have observed that in the absence of filed non-resident tax returns, the authorities might issue assessments ex officio, based on arbitrary calculations. Multiple foreign entities have been taxed on such an assumed income of approximately €40.000 due to overlooked obligations …

"But I’ve carefully reviewed the double taxation treaty between my country and Belgium. I don’t have a permanent establishment in Belgium. Why should I take action?"

This is a common misconception. Under Belgian domestic tax law, the concept of a “Belgian establishment” (Article 229 of the Belgian Income Tax Code) contains a broader definition than the “permanent establishment” defined in most double tax treaties. This means a foreign company might avoid classification as a permanent establishment under treaty terms but still qualify as a Belgian establishment under local tax law. E.g. a Belgian establishment is already deemed to exist for a construction or building project with a duration exceeding an uninterrupted period of 30 days.

In this situation, while no profits may be subject to Belgian taxation, your company is still obligated to file non-resident tax returns - even if only to report nil income. Neglecting this responsibility can lead to fines or ex officio assessments.

Closing remark:
We observe that many foreign companies are unaware of their obligation to register with a social insurance fund to pay their annual social contribution. Exceptions exist, such as obtaining a certificate of non-activity, but in principle the following companies are required to comply with this obligation:

• Foreign companies as defined in Article 2, § 1, 5, c), of the Belgian Income Tax Code
  • Have a Belgian establishment as per Article 229, § 1 to 3, BITC92;
  • Own real estate located in Belgium;
  • Hold property rights on real estate located in Belgium.

Conclusion:
If your firm plans to engage in any activities in Belgium, it is advisable to seek professional advice in advance to fully understand your specific obligations.

Do not hesitate to contact our team of HLB experts to analyse, advise and guide you on your Belgian business activities.