If you inherit foreign real estate from a Belgian, you will pay tax on it both abroad and in Belgium. In order to avoid this double taxation, the law provides for an offset. This did not apply to movable assets, however. Unconstitutional, said the Constitutional Court. The offset is therefore now applied more widely.
If you inherit a property abroad from a Belgian resident, you may have to pay inheritance tax in that country on the value of the property. Most states impose some form of inheritance tax on property located in their state.
Taxation in Belgium
But you will also have to pay inheritance tax in Belgium on this foreign property. Inheritance tax in Belgium is levied on the entire estate of the deceased, wherever in the world that estate may be.
Settlement for immovable assets
In order to mitigate the consequences of this double taxation, a set-off was introduced in 1923, and was included in Article 17 of the Inheritance Tax Code (for Flanders, now Article 188.8.131.52.4 VCF).
It states that if the assets of the estate of a resident of the Kingdom (of Belgium) include immovable assets located abroad and these give rise to the levy of an inheritance tax in that country, the inheritance tax due, to the extent that it affects the taxable value of such property, shall be reduced by the amount of the tax levied in that country, converted into euro, on the date of payment of such tax.
This offset of the inheritance tax paid abroad is limited to the tax on immovable assets, however. If you paid inheritance tax abroad on movable assets such as shares in a company with its registered office abroad or a bank account abroad, then you cannot, by law, offset this against Belgian inheritance tax. So you pay double!
Violation of the principle of equality
This issue was recently submitted to the Constitutional Court. In a judgment of 3 June 2021, the Court ruled that the difference in treatment is not compatible with the principle of equality. The reason why the rule was introduced was just to avoid double inheritance tax. The Court does not see why this should only be possible for immovable assets.
The Court allows the courts to apply the statutory provision while respecting the principle of equality. In concrete terms, this means that, from now on, an offset is also permitted for inheritance tax paid abroad on foreign movable assets. Hopefully, the tax administrations will also take an official and clear position on this as soon as possible.
Things are not so clear for the past. The Flemish government had requested that the effects of the unconstitutional rule on the past should be maintained. The request was rejected by the Constitutional Court. This means that rectifications for the past are possible. The various regional rules on restitution or exemption will have to be examined for this.
Do you have any questions about this issue, or are you dealing with this unconstitutional double inheritance tax? Our team will be happy to help you.