Regulated savings accounts in danger?

The future of Belgium’s beneficial tax regime for regulated savings accounts held by Belgian resident individuals is in doubt, following the issuance on 14 July 2023 of a reasoned opinion by the European Commission that the regime may discriminate against foreign service providers wishing to enter the domestic banking market.

This is the latest in a series of infringement procedures initiated by the Commission concerning the regime and there have also been unfavourable judgements of the Court of Justice of the European Union (CJEU). It now seems inevitable that further modifications to the Belgian system must be made in the near future to ensure the continuation of the regulated savings accounts regime.

Overview of the Belgian regulated savings accounts regime

Belgian tax law provides for a withholding tax (WHT) exemption on annual interest not exceeding a defined threshold (EUR 980 for income year 2023) derived from savings accounts with an indefinite term, and which satisfy all of the requirements specified by the relevant royal decree. Interest in excess of the threshold should be subject to a reduced WHT rate of 15%, compared to the default Belgian domestic rate of 30%.

The criteria that must be met to benefit from the WHT exemption are contained in article 2 of the royal decree implementing the Income Tax Code 1992 (RD/ITC). The legislation specifies the conditions that must be fulfilled for savings accounts to be categorised as regulated products, the interest on which qualifies for the WHT exemption.

Notwithstanding previous amendments to incorporate foreign credit institutions in accordance with EU law, article 2 of the RD/ITC includes several conditions that continue to hinder the accessibility of such savings accounts for foreign service providers. These include currency denomination requirements, account transfer stipulations, withdrawal conditions, and the requirement for split remuneration comprising a base interest rate and a loyalty premium. Some of these conditions were discussed by the tax authorities in administrative circulars, but may still be perceived as unduly complex by account holders and market participants.

Action by the European Commission

In its latest reasoned opinion, the Commission questions the discriminatory conditions associated with the WHT exemption for interest earned from regulated savings accounts. In the Commission’s opinion, the conditions laid down in article 2 of the RD/ITC hinder the ability of foreign service providers established in other EU or European Economic Area member states to access the Belgian banking market and violate article 56 (freedom of services) of the Treaty on the Functioning of the European Union.

Belgium now has two months to respond to the reasoned opinion. In the absence of an adequate response, the Commission may decide to escalate the dispute to the CJEU.

Potential outcomes

Potential future scenarios include further amendments to the current framework for regulated savings accounts to incorporate the flexibility required by the Commission, or in the most extreme case, albeit unlikely, the abolition of the Belgian regulated savings accounts regime.

A more liberal legislative framework would be favourably received by foreign credit institutions, enabling them to offer savings accounts to Belgian residents. On the other hand, in the context of the current environment of high and increasing interest rates, the elimination of the Belgian WHT exemption on regulated savings accounts would have adverse implications for Belgian savers who would lose a significant tax incentive in a deposit-friendly environment.

The Belgian government is expected to give its response within the two-month period specified in the reasoned opinion. Belgian and foreign credit institutions should closely monitor the situation to enable them to take swift and appropriate action.