The so-called “Cayman Tax” is a Belgian fiscal measure (also referred to as a “look-through tax”) that has been in force since 2015 and aims to tax certain foreign legal constructions held by Belgian residents.
The measure is specifically intended to combat tax avoidance by creating transparency over assets held through foreign entities. The scope of this tax has already been amended several times, most recently on December 22nd, 2023, and is likely to change again soon.
A frequently recurring discussion point is whether French real estate structures such as the Société Civile Immobilière (SCI) falls within the scope of this Cayman Tax for Belgian taxpayers, for example, those with French roots (who moved from France to Belgium for various reasons, such as tax optimization or as a stopover en route to Monaco) or traditional Belgian residents with a holiday home in France.
Although an SCI is a common and legitimate structure in France for managing real estate, it can sometimes pose tax risks when used by Belgian taxpayers.
What is an SCI?
An SCI is a French company with legal personality (often) without real commercial activity, mainly used to hold or manage real estate. In principle, it is fiscally transparent in France, meaning that its income is directly attributed to its shareholders in proportion to their shareholding.
Applicability of the Cayman Tax
The Cayman Tax is based on the principle that certain “legal constructions” are deemed fiscally transparent, which results in the Belgian ultimate beneficiary being taxed directly on the entity’s income as if they had received it themselves. According to the law, this includes trusts, certain foreign companies and foundations, as well as other entities without legal personality or those benefiting from favourable tax regimes.
According to the Belgian Minister of Finance, SCIs will also fall under this regime starting from January 1st, 2024 (thus relevant for the 2025 tax return), although little explanation has been provided as to the rationale or implementation. This position cannot simply be accepted without nuance: an SCI can only (sometimes) qualify as a legal construction if it fails to meet the minimum tax condition (the so-called “1% test”), calculated according to Belgian tax principles. Without going into detail, this could mean that if the real estate is not rented out and is, for example, made available free of charge to shareholders or their relatives, the tax authorities may try to qualify the SCI as a transparent legal construction.
Risks for Belgian Taxpayers
The greatest risk is that Belgian shareholders of an SCI, despite existing double tax treaties that often provide for exemption (in Belgium) of capital gains realized in France on shares or real estate, may suddenly become subject to a 30% dividend tax.
The new Cayman Tax proposal also includes an “exit tax”, which simply put, means that the founder of a legal construction will be taxed when relocating their tax domicile abroad: the tax authorities will assume that such a move triggers a deemed distribution of the (latent) capital gains of the legal construction—even if nothing is actually sold or paid out!
Attention and Proactivity Required
The legislation surrounding the Cayman Tax is complex and constantly evolving, with unclear administrative positions and disagreements in case law and literature. Not all texts are final at this time, and it is therefore crucial to closely monitor developments so that existing or future structures or family situations can be adjusted or aligned as needed.
This is not only relevant for individuals who hold property in France through an SCI but also for a range of other popular structures that may now fall under the Cayman Tax, such as the Dutch STAK (foundation administration office) or so-called “fonds dédiés” (e.g., Luxembourg SICAVs or their sub-funds).
There are often new or local alternatives to these traditional structures that are not subject to Cayman scrutiny and which therefore deserve serious consideration going forward.
Legal and tax advice is essential when setting up and managing such structures. Failure to comply with reporting obligations or misjudging the tax consequences can lead to unpleasant surprises and financial penalties. At Vanbelle Law Boutique, we have all the experience you need to find the right solution for you.
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