There is currently no specific tax regime for carried interest, leading to legal uncertainty and tax disputes. One of the key issue is whether the return derived by the fund managers qualifies as movable or professional income.

In the draft bill which is currently on the table of the government, the return would be qualified as a movable income taxable at a rate of 20%. This tax regime -which is still subject to changes ! – would be more than welcome as it would undisputably stimulate the activity of investment funds in Belgium!

 1️. Qualification as movable income

– The return (carried interest) would be taxable as a movable income at the competitive rate of 20% (this rate could however be increased in the course of the negotiations!). The qualification as “professional income” would be specifically excluded.
– The carried interest return (taxable at 20%) would be defined in a broad manner. It would catch the excess / disproportionate return (compared to what a passive investor would obtain) received by an individual in connection with its professional activity (for the carried interest vehicle or its manager).
– The legal form of such return is not relevant (dividend, interest, capital gain, income derived upon a redemption of shares/liquidation,…).
– The regime applies to return derived from a carried interest vehicle qualifying as an AIF (Alternative Investment Funds – Law of 19 April 2014)
– Capital gains realised upon a transfer of the rights in the carried interest vehicle would also be subject to this specific tax regime.

2️. Interaction with other specific tax regimes

– The new regime for carried interest would not apply to shares acquired upon exercise of stock options (SOP under the law of 26 March 1999).
– A new exception would be added within the specific exemption regime applicable in case of redemption of shares / liquidation of an investment fund
↪️ this exemption would not come into play if the carried interest return is attributed by an investment fund (enjoying a derogatory tax regime) upon a redemption of own shares/liquidation
– A new exemption would be added in the case of a distribution made by a legal construction to a Belgian tax resident, in the event that the carried interest return is paid to the legal construction.

Denis-Emmanuel Philippe