When do you have a “permanent establishment” in Belgium?
If you are a foreign company operating in Belgium, you do not necessarily have to set up a company in Belgium right away. You simply start your activity here, and in time you will see whether it is worth formalizing your presence here through a Belgian subsidiary. However, your activity in Belgium may already have certain consequences. What should you pay attention to?
Tax implications?
As soon as you are deemed to have a permanent establishment in Belgium, you are subject to Belgian VAT, accounting and tax legislation and you must also file a tax return in Belgium (for non-resident taxes), among other things. In doing so, you must respect a number of rules and deadlines to avoid problems with the Belgian tax authorities.
International tax rules
Most countries have so-called “double tax treaties” with each other. For example, Belgium has a double tax treaty with the Netherlands, France, Germany, the U.S., China, ... (you can find the complete list here). These treaties determine which of the two countries may charge taxes in a cross-border situation.
So for example, if you are a Dutch company that also operates in Belgium, the double tax treaty between Belgium and the Netherlands will determine which income you earn here will also be taxable here.
The main criterion determining whether your business profits earned in Belgium are also taxable here is whether or not you have a “permanent establishment” in Belgium. If it turns out that you have a permanent establishment here, the profits attributable to it will be taxable in Belgium. Those profits will then obviously not be taxed in the Netherlands as well.
What is a “permanent establishment”?
Whether you have a permanent establishment in Belgium is a so-called ‘facts issue’. In other words, it must be proven by certain concrete circumstances.
A permanent establishment of a foreign company in Belgium can be defined as a fixed place of business where all or part of the activities of the company are carried out.
There are some important criteria to determine whether there is a permanent establishment:
- Physical presence: there must be a physical location where business activities take place. This could include an office, factory, workspace or even a construction site lasting more than 12 months.
- Sustainability: the location must have some degree of permanency, and thus not be merely temporary or occasional.
- Business activities: the activities carried out at this location must be an essential and substantial part of the company's business activities.
In addition, the presence of personnel authorized to conclude contracts or perform other binding acts on behalf of the company (a so-called ‘dependent representative’), or even the presence of persons without authority to sign, can lead to the qualification of a ‘personnel’ permanent establishment.
Vice versa, you do not have a permanent establishment in Belgium if you merely serve Belgian customers on Belgian territory from your company in the Netherlands, without having a physical place of business or personnel in Belgium.
Tip. Activities of a purely preparatory or auxiliary nature do not give rise to a taxable activity in Belgium under the double taxation treaty. For example, if you have a simple warehouse in Belgium, or if you have a stock of goods here that is solely intended for processing by another company, this does not cause you to have a permanent establishment in Belgium (but possibly a “Belgian establishment”; see below).
Good to know. Internal Belgian law also contains a definition of a permanent establishment, called a "Belgian establishment. That definition is broader than the one in the double tax treaties. However, a double tax treaty always takes precedence over a country's internal legislation. If there is a Belgian permanent establishment according to Belgian law but not a permanent establishment according to the double tax treaty, your profits are not taxable in Belgium. That Belgian internal legislation therefore only applies when no double tax treaty is applicable.
Please note
- As soon as you have a Belgian establishment, you must meet a number of tax obligations in Belgium (even if your profits are not taxable here on the basis of the double taxation treaty). Among other things, you must file a non-resident tax return, in which you must indicate that your profits are exempt based on the double taxation treaty.
- A permanent establishment is also subject to Belgian accounting laws.
- VAT uses yet another definition of a permanent establishment. VAT rules are separate from taxes. Your Belgian VAT obligations must therefore also be considered separately (applying for a company number, filing VAT returns ...).
Want to know more?
If you would like concrete advice regarding the tax implications of your activity in Belgium, do not hesitate to contact your SBB advisor.
