Stricter Participation Requirement for Withholding Tax Exemption on Dividends to Foreign Shareholders

Since 29 July 2025, new conditions apply to the exemption from withholding tax on dividends distributed by Belgian companies to foreign companies. The Programme Law of 18 July 2025 has tightened the participation requirement, aligning it with the recent reforms to the DRD-regime (definitively taxed income deduction).

This adjustment aims to ensure tax equality between Belgian and foreign shareholders but imposes stricter requirements on large companies without a 10% participation. What exactly has changed?

Withholding Tax and Foreign Shareholders

As a rule, dividends distributed by a Belgian company are subject to a 30% withholding tax. Under Article 264/1 of the Belgian Income Tax Code 1992 (WIB 1992), an exemption may apply when the recipient is a foreign company established in the European Economic Area or in a treaty country.

This provision was introduced following the Tate & Lyle judgment (ECJ, C-384/11, Tate & Lyle Investments Ltd), in which the Court of Justice required Member States to treat foreign shareholders equally with domestic ones. Until July 2025, it sufficed to hold either a participation of at least 10% or a shareholding with an acquisition value of at least €2,500,000 to qualify for the exemption.

Stricter Requirements for Large Foreign Companies with Less than 10% Participation

Following the legislative amendment, the second condition is no longer sufficient on its own. Foreign companies holding a participation of less than 10% but with a value of at least €2,500,000 must now meet additional conditions.

Specifically, the foreign acquiring company must demonstrate that:

• the shares qualify as fixed financial assets at the time of the dividend distribution or payment, and;
• the shares are held in full ownership for an uninterrupted period of at least one year.

Small or Large Company?

The new obligation only applies to companies that do not qualify as a “small company” for tax purposes. Qualification is based on Article 1:24 of the Belgian Companies and Associations Code (CAC). A company remains small as long as it does not exceed more than one of the following thresholds: turnover (€9,000,000), balance sheet total (€4,500,000), or number of employees (50 FTEs). Once more than one of these thresholds is exceeded, the company is considered large.

Small companies retain the previous regime and are therefore not subject to the additional requirements

Link with the DRD Deduction

The legislature aimed primarily for coherence with this reform. The DRD deduction (definitively taxed income) — a mechanism that avoids double taxation on dividends received by Belgian companies — has also been tightened.

As of assessment year 2026, a participation of less than 10% but with a value of at least €2,500,000 only qualifies if the shares are fixed financial assets and held in full ownership for at least one year.

To avoid discrimination, the same logic was immediately applied to the regime for foreign shareholders seeking a withholding tax exemption.

What are “Fixed Financial Assets”?

The definition of “fixed financial assets” is not without controversy.

According to Belgian accounting law, these are shares intended to contribute permanently to the shareholder’s business operations. There are three categories:

• Affiliated enterprises: control is present (Article 1:20 CAC);
• Participating interests: influence on policy (Article 1:23 CAC);
• Other fixed financial assets: durable and specific connection (e.g. supplier, customer, competitor)..

In the European context, the definition is more flexible than under Belgian accounting rules: it suffices that the assets are intended for long-term use within the undertaking (Directive 2013/34/EU).

In its explanatory memorandum, the legislature explicitly states that foreign companies may apply this more flexible European definition, or even accounting standards under IFRS 10. This provides more leeway for foreign shareholders, but simultaneously introduces legal uncertainty: will the tax authorities accept such qualifications?

Potential Consequence: More Favourable Treatment than for Belgian Companies?

In practice, a foreign shareholder could potentially obtain a dividend exemption based on an accounting qualification that a Belgian company cannot invoke for applying the DRD deduction or the capital gains exemption. This could undermine the equality the reform sought to restore.

New Certificate and Entry into Force

To apply the exemption, the Belgian distributing company must possess a certificate from the foreign shareholder. This certificate must not only contain the usual information but must also confirm that the shares qualify as fixed financial assets.

The stricter regime applies to withholding tax from 29 July 2025. For the DRD deduction and capital gains exemption in corporate tax, the amendment applies from assessment year 2026 onward.

Conclusion

Due to the stricter participation requirement, the exemption from withholding tax is now clearly linked to the long-term nature of the investment.

The new participation condition tightens the rules for large foreign shareholders with a participation below 10% but with a value of at least €2,500,000: the Belgian shares must qualify as fixed financial assets and be held in full ownership for at least one continuous year.

Precisely due to the broader interpretation allowed in the preparatory works, foreign shareholders that are not small companies may apply a different understanding of “fixed financial assets” than Belgian companies. The question remains: will the Belgian tax authorities accept this?

For foreign companies holding shares in Belgian companies, it is essential to timely provide the required certificate and consider the obligation of a minimum one-year holding period.

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