Small increase of the NPO’s tax rate, one giant impact on the long term

Updated: Jun 24

The ‘wealth tax’, also known as ‘taxe compensatoire des droits de succession’ in French and ‘taks tot vergoeding der successierechten’ in Dutch, imposes an annual tax of 0.17% on specific assets of (international) Non-Profit Associations and private foundations (hereafter: “NPOs”) in accordance with article 147 of the Belgian inheritance tax code. Recently, a new draft bill on various tax provisions of 28 November 2023, has been filed by the Government proposing to increase this tax rate, with an impact not to be underestimated. In this context, our partners at EY Law’s Non-Profit and Trade Associations team offer you a concise overview of what is currently on the table and the potential impact it could have on your NPO.

The current legislation

The ratio behind the wealth tax dates already since 1921. It was noted that there was a need for some kind of compensation given the fact that NPOs are not often dissolved and thus avoid paying inheritance taxes. However, on the contrary, natural persons inevitably do have to pay such taxes.

NPOs are annually taxed at a 0.17% flat rate on specific tangible assets (such as real estate owned by NPOs and cash investments) but also on intangible assets (such as trademarks and copyrights). At the same time, this only applies once the NPO holds more than 25,000 EUR in assets.

What does the draft bill vision?

The draft bill aims to replace the flat rate of 0.17% with progressive brackets, which look as follows:

As it is clear from the table above, this mainly leads to two conclusions:

The group of NPOs that remains under the surface becomes bigger: the exemption threshold would be doubled (currently 25,000 EUR). The fact that an NPO is exempted from the wealth tax does not exempt the NPO from filing a tax return each year; and
The ‘wealthier’ or ‘richer’ NPOs will face almost triple the amount of wealth tax that will have to be paid. For instance, an NPO with 3 million euros in assets will have to pay 12,300 euros, whereas, under the current rules, it only pays 5,100 euros.

The below table gives you other examples of how the tax rate applies:

Exceptions

The child allowance compensation, funds organising authorities for community education, pension funds and nature conservation associations, amongst others, are exempt from the wealth tax. Foundations of public utility (in French: “Fondations d’utilité publique” / in Dutch “Stichtingen van openbaar nut”) are also exempted from this annual tax. Healthcare institutions have also been included in the exemptions. As a result, even now, some of the larger NPOs decided to shelter their (real estate) assets in a foundation of public utility in order to avoid the wealth tax. There is no doubt that private foundations whose purpose falls within one of the seven categories defined by the Companies and Associations Code for the purposes of foundations of public utility, could transform into foundations of public utility.

Entry into force

The draft bill is expected to be adopted before 31 December 2023. The draft bill provides for an entry into force of the new rules on 1 January 2024. To be able to calculate the tax, an account will be taken of the total assets on 1 January of the fiscal year. This implies that the progressive system will already apply to the tax returns that must be submitted by 31 March 2024.

Conclusion – NPOs, be on your guard!

It can be concluded that although the rate for the ‘wealthier’ NPOs (i.e., with more than 500,000 euros in assets) within the new progressive system ‘only’ increases from 0.17 % to 0.45 %, this brings with it almost triple the taxes to be paid. This is undoubtedly a significant legislative change.