What exactly does the new Belgian tax reform entail? And what consequences will it have for investors? Nicolas Bertrand and Erdem Yüksel from Loyens & Loeff explained it clearly during the Private Equity Summit 2025.
While the large audience at the Private Equity Summit 2025 – organized by the M&A Community Belgium – looked for a free seat in the auditorium of the Loyens & Loeff law firm in Brussels, we look out over a foggy capital city. Somewhere out there, politicians are feverishly searching for ways to make substantial savings. At the same time, the Federal Government is implementing a major tax reform. How does it work? And what impact will it have on Belgian investors? Nicolas Bertrand and Erdem Yüksel, respectively partner and senior associate at Loyens & Loeff, explain.
"There are two certainties in life", Nicolas Bertrand began. "We will all die one day, and we will all pay taxes. But we urgently need to talk about the second topic: the radical tax reform being implemented by the Federal Government. This reform has a direct impact on investors, fund managers and investment companies. What we are sharing today is what we already know about it. There is good news and bad news. Where shall we start?"
What impact will the tax reform have on corporate LPs?
Let's start with the good news. "The sun is hidden behind the clouds today", Erdem Yüksel continued, "but for corporate limited partners, there is nothing new under the Arizona sun. Or almost nothing. The tax regime for private privaks, qualified investment companies and corporate LPs is not changing (really)."
"If a private privak invests in shares of taxable companies, other private privaks or assimilated funds, and only holds cash and liquid investments for a limited period and in limited amounts, the private privak does not pay tax on its income. The same applies to corporate LPs. If they meet certain conditions, they are subject to the DBI deduction regime and do not pay tax on dividends and capital gains obtained through the private privak. However, these must be dividends and capital gains that the fund transfers from taxable companies. In addition, you must, in principle, maintain a minimum participation of at least 10 percent or an investment value of at least 2.5 million euros. You must also hold the participation for at least one year.
“If corporate LPs meet the right conditions, they fall under the DBI deduction regime and do not pay tax on dividends and capital gains obtained through the private privak.”
The good news is that corporate LPs continue to benefit from the participation exemption regime if they meet the conditions. Erdem Yüksel: "This is even possible without the corporate LP reaching the thresholds for minimum participation, if the corporate LP invests in a qualifying investment company. Interest income from cash and liquid investments is not covered by this favourable tax regime in any case."
A previously abolished condition is making a comeback. "If you invest in a qualifying investment company and are a large company (not an SME), you must also record your participation as financial fixed assets in order to fall under the participation exemption regime", Nicolas Bertrand said.
"This is only possible if, as a shareholder, you have a 'sustainable and specific link' with the participation in the subsidiary. According to some old rulings state that a participation is sustainable if you hold it for three years. Others say five years. And what does 'specific' mean? It requires the shareholder to be actively involved in the management of their participation."
This new condition does not generally apply to corporate LPs. So why are we discussing it? “Because not all funds qualify as investment companies under Belgian tax law”, explained Erdem Yüksel. "This is not always the case with continuation funds, for example, if they only contain one asset. If you invest in a continuation fund as a corporate LP, you still have to meet the minimum thresholds for the participation exemption regime. As a result, you still have to record your participation as financial fixed assets, which, as mentioned, is not possible if you are not actively involved in the management of the fund. In short, if you invest in a continuation fund as a corporate LP, you may lose the tax exemption." So that's not such good news...
"If you invest in a continuation fund as a corporate LP, you may lose your tax exemption."
Now a word about withholding tax. "Today, distributions from private equity funds are subject to 30 percent withholding tax. But there are exceptions to this. For example, a corporate LP may be exempt from withholding tax if its participation exceeds 10 percent. If it is smaller, the private equity fund will withhold the withholding tax. In that case, the corporate LP can still offset the amount of tax against corporation tax the following year or have it refunded. To be eligible for this, the director of the fund must receive remuneration of at least 45,000 euros from 2025 onwards."
What are the consequences of the reform for individual LPs?
For individual LPs, capital gains tax is particularly important. This will come into effect on 1 January 2026. "Capital gains tax is a new 10 percent levy on the capital gains realized on the sale of financial assets", Nicolas Bertrand continued. "But to what extent do you risk having to pay this as an individual LP? It is not very common for individual LPs to sell their interest in a private equity fund to another LP."
"As you are no doubt aware, a private privak enjoys a very favourable tax regime. For example, dividends paid by a private equity fund are exempt from withholding tax to a certain extent, if it can be demonstrated that the dividends originate from capital gains on shares. Redemptions and partial liquidations are also exempt in principle, if they take place at the level of an investment company. At the time, this was intended to make it attractive for investors to invest through a private equity fund."
Less good news: that basic idea is now being tampered with. "From 1 January 2026, capital gains tax will in principle also be payable if the private privak repurchases shares. This will most likely also be the case for distributed dividends. The hope was that the Reynders tax would be scrapped, but it will remain payable."
"From 1 January 2026, capital gains tax will in principle also be payable if the private privak repurchases shares. This will most likely also be the case for dividends paid out."
It is important to note that capital gains tax only applies to increases in value from 1 January 2026 onwards. On 31 December 2025, as an individual LP, you must therefore record a valuation for your private equity holdings. Naturally, you will want to set this valuation as high as possible in order to keep the added value as low as possible afterwards. "But if a transaction involving shares in a PE fund took place in 2025, the valuation would be binding", explained Nicolas Bertrand.
"If no transaction takes place in 2025, the government will determine the valuation by multiplying the net equity of the company in which you invest by four times the EBITDA. You will have the opportunity to prove that your interest was worth more, based on a valuation report prepared by a certified accountant or auditor. This report must be drawn up by 31 December 2026 at the latest. The tax authorities, in turn, may question the valuation in that report. It is therefore best to have two reports drawn up by well-established certified accountants or auditors."
Capital gains tax is collected at source, for example by the private privak. "It is not allowed to take exemptions or higher valuations into account. The fund must start from the initial commitment of each individual LP. This is not fair, because you will then be taxed on the capital gains of 2025. That is why you can opt out, in which case you do not pay at source, but declare the correct taxable capital gains later. This gives the tax authorities much more information about investors' holdings and portfolios.
And finally, what is the impact for fund managers?
Finally, Nicolas tackled the new regime for carried interest. It only applies to fund managers who are private individuals, not to companies. Moreover, the carried interest vehicle that distributes the carried interest must be an Alternative Investment Fund or AIF. Or at least the underlying fund must be an AIF.
If the vehicle or underlying fund is an AIF, the carried interest is subject to a very attractive flat tax of 25 percent. At least, that is how we currently interpret the draft legislation. Furthermore, no social security contributions are payable on it. Any form of distribution from a carried interest vehicle may be eligible. This applies regardless of whether the carried interest is structured through, for example, fiscally transparent entities or a private privak, and regardless of whether you receive the carried interest as capital gains, dividends or shares.
However, the tax regime only applies to the excess return. The question then, of course, is: how much is that? In fact, you can only determine that exactly at the end of the fund's term. There is still some uncertainty about how to calculate the excess return during the term. What is clear is that you cannot combine the carried interest regime with the 1999 share option plan. You have to choose between one of the two favorable regimes.
What if a Belgian fund has managers abroad who obtain carried interest through a Belgian carried interest vehicle? Do they have to pay tax on it in their own country, in Belgium or in both countries? "Belgium has concluded a large number of double taxation treaties. Since carried interest is neither a dividend nor interest under Belgian law, it falls under the residual category of those treaties. In most cases, the country where the beneficiary resides has the authority to levy tax."
The new carried interest regime is good news to end on. "To such an extent that quite a few fund managers are asking us whether it would be better for them to receive their carried interest as private individuals from now on, rather than through their management company", noted Nicolas Bertrand.
"Let me give you a real lawyer's answer (laughs): it depends on your situation. A management company may remain fiscally attractive for investment purposes, as you may benefit from the DBI deduction we mentioned at the beginning. And if it is a small company that falls under the VVPR bis regime, it can pay dividends to the manager (natural person) at a withholding tax rate of 15 percent. Combine that with the DBI exemption and you end up with a final rate of 15 percent. That is significantly more advantageous than the flat tax of 25 percent. Companies that accumulate carried interest are no longer allowed to accumulate liquidation reserves. This gives the audience plenty to think about, whether aloud or not, during a final delightful break on this fascinating day!”
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