Flemish government to introduce zero tax rate on donations & bequests

The Flemish government is reforming tax rules on bequests and donations in Flanders by reducing the tax rate to zero for both from July 2021.

An autonomous region in Belgium with its own government, the tax changes for Flanders were announced by Nieuw-Vlaamse Alliantie (N-VA) Minister Matthias Diependaele in September after the Flemish Government gave its approval in principle to the preliminary draft decree that changes the Flemish Codex Taxation.

Currently in Flanders, a tax rate of 5.5% applies to a donation to charity, while for a bequest, the rate is 8.5%. As of 1 July 2021, this will reduce to 0% with the aim of making donating or leaving a bequest to charity a more attractive option. The ‘zero rate’ has not yet been introduced in the Walloon and Brussels regions.

The changes follow the Flemish government’s announcement last October that the duo legacy system was to lose its tax benefit. This system was first introduced in Belgium some 200 years ago as a way of helping farmers – who predominately passed land onto their children rather than cash – pay the necessary inheritance taxes. Under the system, which charities have also been able to benefit from, charities left a legacy pay the inheritance tax for the Will’s other beneficiary.

However, with the system frequently abused by individuals for tax optimisation purposes, the introduction of a zero tax rate as a more transparent system for incentivising legacies had been proposed for all of Belgium as far back as 2008 by the Association for Ethics in Fundraising, VEF-AERF. However, despite widespread support for such a scheme from the Flemish third sector, few believed it would gain approval.

Finally, this year however, the Covid crisis saw the new Flemish government announce the duo legacy change as a way for it to raise additional income.

Following this announcement, VEF-AERF again approached the Flemish government about introducing the zero tax rate as a viable alternative that would also incentivise people to leave a charitable legacy. The approval of the zero tax rate makes Flanders the first region of Belgium to introduce it.

Commenting on the move, Ilja De Coster, Vice President of Fundraisers Alliance Belgium, said:

“This was a proposal that had been suggested many years ago and that most in the sector were in favour of. However, it was never strongly campaigned for due to the belief that it was unlikely to meet with government approval. But with Covid, the Flanders government needed to make changes, so it’s a great example of why, if you believe in something, you should continue to fight for it.

“It will be interesting to see now what the other Belgian governments do. Not only is there the moral pressure to follow suit but there is also the issue of practicality: donors in one region may wish to give to a charity operating in another region, which becomes complicated when they have different laws.”