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Your contact person for this topic:
Sofie Jacobs
Tax lawyer
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Contact:
- +32 11 29 47 01
- s.jacobs@euregio.law
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Further publications on this topic:
- Company contribution for foreign companies in Belgium
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More on this topic:
- International taxation
- Permanent establishment
When a foreign company carries out activities in Belgium, it must always be mindful of the risk of creating a permanent establishment. The concept of a “permanent establishment” refers to a situation where a company participates in the economy of another state in a sufficiently sustained manner, giving that state the right to tax the income attributable to the permanent establishment.
1. Introduction
In this article, we discuss the different types of permanent establishments your company may encounter. These include the fixed place of business, the agent permanent establishment and the construction permanent establishment. We also briefly cover the general exception for activities of a preparatory or auxiliary nature, where a permanent establishment may not arise even if the conditions are met. Finally, we touch on the “Belgian permanent establishment”.
2. Fixed place of business
A fixed place of business exists if three cumulative conditions are met: the company must have (i) a business establishment, (ii) which is fixed, and (iii) through which the company’s activities are carried out, either in whole or in part.
The most common examples of a fixed place of business include a place of management, a branch, an office, a factory, a workshop, or a mine, oil or gas well.
3. Agent permanent establishment
A company may also have a permanent establishment in Belgium if it has an agent or representative in the country. For an agent permanent establishment to exist, three conditions must be met: (i) the person must not qualify as an independent agent, (ii) the person must have the authority to conclude agreements on behalf of the company, and (iii) the person must normally exercise this authority.
The assessment of an agent permanent establishment is subordinate to that of a fixed place of business. In practice, this means it is only necessary to consider whether an agent permanent establishment exists if the establishment from which the activity is carried out does not itself qualify as a fixed place of business.
4. Construction permanent establishment
If your company undertakes construction work in Belgium, the concept of a construction permanent establishment becomes relevant. Construction work in Belgium is considered a permanent establishment even if there is no physical establishment, such as an office or branch.
A construction permanent establishment exists if two conditions are met: (i) the company carries out work in Belgium, consisting of building, construction, or installation activities, and (ii) the execution of this work lasts longer than 12 months.
5. Exception: preparatory or ancillary work
If fixed place of business or an agent is used solely for activities of a preparatory or auxiliary nature, no permanent establishment arises – unless these activities are identical to the core activities of the company. The key question is whether the activities performed constitute an essential and substantial part of the company’s overall business.
This requires a factual assessment, as preparatory or auxiliary activities must genuinely serve a supporting or preparatory role relative to the company’s core operations. The interpretation may therefore vary between companies depending on the type of activities they carry out.
One example of a preparatory or auxiliary activity would be the maintenance of an establishment used for the storage, display or processing of goods.
6. Belgian permanent establishment
The national definition of a “Belgian permanent establishment” differs from the definition included in double taxation treaties and is considerably broader. However, those treaties always take precedence over national law, meaning that they determine which country is entitled to levy tax.
If a Belgian permanent establishment exists but, according to the relevant double taxation treaty, no permanent establishment arises, Belgium’s national rules are overridden, and Belgium cannot tax the related income. Nevertheless, Belgian legislation requires compliance with certain administrative obligations, such as filing a “nil tax return” for non-resident tax purposes or, in some cases, withholding Belgian tax. These obligations might not apply in other countries.
Do you have any questions?
Do you have questions about a permanent establishment in Belgium? Feel free to contact our tax lawyer Sofie Jacobs. By email to s.jacobs@euregio.law or by phone on +32 11 29 47 00.
