Inheriting property abroad: double taxation?

In case of death, which countries will tax these assets? Do the heirs have to pay inheritance tax abroad and in Belgium?

Double taxation

When a Belgian resident dies, Belgium levies inheritance tax on his worldwide assets. In other words, inheritance tax is due in Belgium on the deceased’s movable and immovable assets, regardless of whether they are located in Belgium or abroad.

However, when a Belgian resident dies, his heirs are not immune from inheritance tax in other countries. Each country has its own criteria for taxation. Spain, for example, taxes inheritances when the heirs are Spanish residents, regardless of the deceased’s place of residence. Moreover, most countries levy inheritance tax on immovable property located on their territory, while only certain countries tax movable property located on their territory (France, Spain, Germany, UK, etc.). The application of these different rules to the same estate can lead to double or even triple taxation.

Solutions

To avoid double taxation in the area of inheritance tax, different countries have the option of concluding bilateral treaties determining who may tax which assets of an estate. Unfortunately for Belgian citizens, Belgium has only concluded two double taxation treaties: one with France and one with Sweden.

If Belgium has not concluded a double taxation treaty with the foreign country where an asset is located, it is necessary to check whether a mechanism exists in Belgian and foreign law to avoid double taxation.

From the point of view of Belgian legislation, when the estate of a resident of the Kingdom includes real estate located abroad, a reduction of the tax due in Belgium can be obtained up to the amount of inheritance tax paid in the country where the real estate is located.

To benefit from this reduction, the heirs must make an express request and provide a duly dated proof of payment, a copy of the inheritance declaration certified by the competent foreign authority and the calculation of the foreign inheritance tax.

However, until recently, Belgian tax legislation only provided for the application of this reduction to immovable property. The Belgian Constitutional Court deemed this difference in treatment between immovable and immovable property discriminatory, requiring each region to amend its legislation on this point.

Flemish and Brussels legislators have already adapted the Inheritance Tax Code accordingly. The Flemish Region has gone even further by providing that it is now possible to obtain a credit for inheritance taxes paid in any country, and thus no longer only for inheritance taxes levied in the foreign state where the movable or immovable property is located.

However, other situations still pose a problem

In future, Belgian taxpayers will be able to avoid double taxation in inheritance tax if they own movable or immovable assets abroad. Other elements may still lead to a double taxation situation, for example if the deceased has a nationality other than Belgian or if his heirs live abroad.

Moreover, to reduce the amount of inheritance tax due on property located abroad, the most obvious option is to gift the property in question. But as far as gift taxes are concerned, situations of double taxation are common. Especially since Belgium has not signed a double taxation treaty in this area and Belgian law does not allow the deduction of gift taxes paid abroad.

Thomas Roelands – Lawyer & tax specialist at Pareto SA