November 19, 2018
Under the Companies Code Reform Act of 15 April 2018, civil partnership companies become simple partnerships, and new administrative and accounting obligations apply to them. Formerly praised for its discretion and simplicity, is it still viable as an essential and indispensable asset-planning tool?
1. The advantages of a life insurance corporate structure
Before setting to work enumerating the list of legislative changes made to company law for the Belgian arena, we must first situate how this code applies to the special area of asset planning.
One of the special structures mentioned in this context is certainly the civil partnership. Such a company is referred to as “a contract under which two or more persons agree to bring something into a community with the objective of carrying out one or more specifically determined activities and for the purpose of giving the partners a direct or indirect capital benefit” (i.e. distributing the benefits to the partners).[1] A civil partnership (now a simple partnership) has no legal personality, meaning that it is fiscally transparent. [2] Thus, the partners of a simple partnership are taxed directly on their share of the taxable income. Since the purpose of a simple partnership is the normal management of private assets, it is appropriate for them to not be subject to corporation tax, benefit from withholding tax, and not be taxed on capital gains or life insurance income.
There are several advantages to combining a company under ordinary law with a life insurance policy, such as avoiding income tax, avoiding the application of inheritance tax by means of prior donation, and (not least for the donor) maintaining control over the assets, all within a legal framework of discretion with respect to third parties.
2. The law of 15 April 2018… A minor reform?
The law of 15 April 2018 has profoundly changed the notion of an undertaking, for the purpose, according to the Belgian government, of achieving better uniformity and greater simplicity.[3] A company under ordinary law becomes an undertaking within the meaning of the Code on Economic Law, and is henceforth called a simple partnership.[4] This has several direct implications:
- Obligation of transparency, information, and non-discrimination: now required to register with the Banque‑Carrefour des Entreprises (the Belgian register for legal entities), simple partnerships will be assigned a business number, which must be mentioned on every document they issue.[5] The simple partnership’s bank account number must also be mentioned on these documents.[6] As a direct result of this new disclosure of information, all kinds of information about simple partnerships will henceforth be publicly accessible via the Internet. This information will include, of course, the full names of the founders. Violating this registration obligation (and that of disclosure) will be punishable by a fine of up to €10,000.00.
- Accounting obligation: simple partnerships are required to keep “(…) accounting books appropriate to the nature and extent of its activities (…)”. However, the accounts are simplified for simple partnerships with a turnover of less than €500,000 (amount set by Royal Decree).[7] Simple partnerships created from 1 November 2018 will be immediately subject to this obligation, and existing simple partnerships will not be subject to it until the next full financial year, starting on 1 May 2019.
At this point, it seems important to note that tax transparency and the automatic exchange of information have been gaining more and more ground every day. Under these new administrative obligations, Belgian taxpayers are now subject to a new disclosure requirement. But this disclosure is not absolute. In the current state of affairs, simple partnerships are not required to file annual accounts as determined by the Companies Code.[8] Discretion is thus always possible. But for how long?
That being said, effective asset structuring does not necessarily imply the use of a simple partnership with more complicated administration. The desired goals of exemption from income tax, avoiding inheritance tax, control and flexibility can be achieved via simple life insurance, combining foresight, civil expertise and fiscal knowledge.
For more information about this, contact OneLife’s experts.
Nicolas MILOS – Senior Wealth Planner
[1] Article 1 of the former Companies Code.
[2] Article 2 § 1 as amended by the Companies Code Reform Act of 15 April 2018, Moniteur Belge of 27 April 2018, to be taken together with Article 46 of the Companies Code.
[3] The entry into force of the provisions of this law was postponed to 1 November 2018.
[4] As proposed by Article 35 of the Companies Code Reform Act of 15 April 2018, Moniteur Belge of 27 April 2018
[5] Article 56 of the Companies Code Reform Act of 15 April 2018.
[6] Article 58 of the Companies Code Reform Act of 15 April 2018.
[7] Article III.85 of the Code on Economic Law as amended by the Companies Code Reform Act of 15 April 2018.
[8] See the new Article III.90, § 2 of the Code on Economic Law, taken together with Article 98 of the Companies Code.