C. HOLDING COMPANIES
I. NATIONAL HOLDING COMPANY CONTROLLING ONE OR MORE FOREIGN SUBSIDIARY
Holding companies, like companies with their head office or principal administrative establishment in Belgium and separate establishments abroad, have to keep accounts of the income they derive from both Belgian and foreign sources. Dividends and interest paid in Belgium are liable to deduction of personal property income tax at the source at full or reduced rate, according as the income is of Belgian or foreign origin. In the case of foreign income paid abroad, the holding company has to declare it and pay personal property income tax on it at reduced rate.
Since such income, both Belgian and foreign, must not be taxed twice, the profits of these companies corresponding to the net dividends they receive may be used to build up or add to their reserves, or may be distributed to the shareholders of the company, without payment of any further tax.
The same rule applies to debenture interest and coupons on bonds or to other interests. If this income has paid personal property income tax, its net amount is not liable to further tax when included among profits placed to reserve or distributed.
II. LOCAL SUBSIDIARY CONTROLLED BY A FOREIGN HOLDING COMPANY
In conformity with the principles explained in Part I, local subsidiary companies are taxed on their total profits both Belgian and foreign, those earned in Belgium being taxed at full rate, those made abroad at a reduced rate. The local company pays the personal property income tax for which it is liable when it pays its dividend, so that the foreign holding company receives income on which Belgian tax has been duly paid. At the same time, the holding company itself is not regarded as liable to tax in Belgium, since it has neither its head office nor its chief administrative establishment in the country.