Belgium introduces specific carried interest tax regime for fund managers

With the recent official publication of the Program Law, Belgium introduces a specific carried interest tax regime, taxing fund managers’ disproportionate yield compared to passive investors at a 25% flat rate.

Carried interest tax regime till date

Before the introduction of the specific carried interest tax regime. Belgium lacked a specific tax framework for carried interest, often causing uncertainty and disputes with the tax authorities on whether it concerned tax exempt capital gains, speculative income (appr. 35% taxation) or remuneration (appr. 54% taxation).

The new regime aims to attract fund activities by providing legal certainty on the tax treatment of carried interest, also considering carried interest tax regimes in neighbouring countries (e.g. 32% in the UK). This is a new regime, as the proposed tax on “excess returns” on shares as included in the 2023 tax reform under the lead of Minister Van Peteghem was abandoned.

New regime in summary

Income and funds in scope

Only “carried interest” paid by a “carried interest vehicle” is in scope of the new regime.

“Carried interest” refers to income received by a fund manager or via a fund, so-called “carried interest vehicle”, to the extent the yield of the investment exceeds what a passive investor receives (being someone who does not perform professional activities for the fund). This applies regardless of how the income is distributed (e.g. dividend or capital gain). 

Considering the typical waterfall structures with different classes of shares, determining the taxable base can become a challenging exercise.

This regime only applies to “carried interest vehicles”, being Alternative Investment Funds (AIFs) established in Belgium or in the EU or similar foreign non-EU vehicles. This would for example mean that carried interest arrangements provided by EU non-AIF funds and management incentive schemes including sweet equity for the portfolio company managers, are excluded and will remain subject to the general rules, depending on the type of income.

Tax qualification and rate

Carried interest will be taxed as movable income, at a flat rate of 25%. In a Belgian context, the tax will be paid via a final withholding tax. Consequently, no social security contributions or communal tax will be due.

Taxpayers in scope

The new regime will only apply to individuals.

Carried interest received by (management) companies will remain taxable in accordance with the current regime, which in a best-case scenario could lead to a 15% final taxation after distribution to the individual shareholder. On the other hand, companies holding carried interest instruments would not be allowed to establish a liquidation reserve.

Entry into force

This new tax regime is effective as from the date of its publication in the Belgian State Gazette, being 29 July 2025. In other words, the new carried interest regime is immediately applicable to carried interest income paid or allocated from this data onwards. Contrary to initial announcements, existing plans will thus also be in scope (unless the fund is already in liquidation when the law takes effect).

Future challenges?

The Council of State expressed several concerns on the law proposal, such as compliance with the legal foreseeability and equality principle.

The government however felt extending the motivation in the Memorandum sufficed to address the concerns, and hence did not make significant changes. To be continued whether the new regime will be legally challenged.