Dividend Tax Rate Between India and Belgium Under DTAA

Dividend Tax Rate Between India and Belgium

The Double Taxation Avoidance Agreement (DTAA) between India and Belgium provides important tax relief for cross-border dividend payments between the two countries. Originally signed at Brussels on April 26, 1993, and effective from October 1, 1997, the treaty limits the withholding tax on dividends to 15% of the gross amount, compared to the domestic rate of 20% under Indian tax law.

The India-Belgium DTAA has been updated through an amending protocol signed on January 19, 2001, and a further protocol signed on March 9, 2017 (effective June 26, 2025), bringing the treaty in line with modern international tax standards. This article provides a detailed analysis of the dividend tax provisions, eligibility requirements, and practical compliance guidance.

Treaty Rate vs Domestic Rate: Detailed Comparison

Under Article 10(2) of the India-Belgium DTAA, dividends paid by a company resident in one Contracting State to a resident of the other Contracting State may be taxed in both states. However, the source country tax is limited to 15% of the gross amount of dividends.

Under Indian domestic law, dividends paid to non-residents are subject to TDS under Section 195 at 20% plus applicable surcharge (ranging from 2% to 5% depending on the amount) and 4% health & education cess. The effective domestic rate can range from approximately 20.8% to 22.88%. The DTAA rate of 15% is a flat rate with no additional surcharge or cess.

It is important to note a unique condition under the India-Belgium DTAA: the reduced 15% rate applies only to dividends arising from investments made after January 23, 1988. For investments made before this date, the domestic withholding rates apply. This date corresponds to the exchange of notes between India and Belgium that preceded the formal treaty signing.

Who Qualifies for the Reduced Rate

The following conditions must be satisfied to claim the 15% reduced rate on dividends under the India-Belgium DTAA:

Beneficial Ownership Requirement

The recipient must be the beneficial owner of the dividends. Under Indian and international tax law, beneficial ownership requires that the recipient has the right to use and enjoy the dividend income and is not obligated to pass it on to another person. Conduit arrangements where a Belgian entity receives dividends only to transfer them to a third-country entity will not qualify for treaty benefits.

Tax Residency in Belgium

The recipient must be a tax resident of Belgium under Article 4 of the treaty. A Tax Residency Certificate (TRC) issued by the Belgian tax authorities (Service Public Federal Finances / FOD Financien) is required. The Belgian tax office must confirm that the beneficial owner is a resident of Belgium under Article 4 of the Agreement.

Investment Date Requirement

The dividends must arise from investments made after January 23, 1988. This is a unique condition specific to the India-Belgium DTAA. For investments made before this date, the reduced treaty rate does not apply, and the domestic withholding rate governs.

No PE Connection

The shareholding giving rise to the dividends must not be effectively connected with a permanent establishment (PE) or fixed base that the Belgian resident maintains in India. If the shares are held through or connected with an Indian PE, the income is taxed as business profits under Article 7.

Anti-Avoidance Provisions

India's General Anti-Avoidance Rules (GAAR) and the Principal Purpose Test (PPT) under the MLI can deny treaty benefits if the arrangement lacks commercial substance or was primarily designed to obtain treaty benefits.

Dividend-Specific Treaty Provisions

Article 10 of the India-Belgium DTAA contains specific provisions governing dividend taxation:

Definition of Dividends

Under Article 10(3), "dividends" means income from shares, jouissance shares or jouissance rights, mining shares, founders' shares, or other rights not being debt-claims participating in profits. It also includes income from other corporate rights subjected to the same taxation treatment as income from shares under the laws of the source state. The inclusion of Belgian-specific terms like jouissance shares reflects the Belgian legal tradition in the treaty drafting.

Taxation Rights and Credit Method

Both India and Belgium have the right to tax dividends. The source state (India, for dividends from Indian companies) can tax at a maximum of 15%. Belgium, as the residence state, must provide relief through the credit method under Article 23. Belgian residents can credit the Indian tax paid (15%) against their Belgian tax liability on the same dividend income.

Most Favoured Nation (MFN) Clause

The India-Belgium DTAA contains an MFN clause in its Protocol. If India, after January 1, 1990, enters into a convention with a third OECD member state that provides for a lower rate of tax on royalties or fees for technical services, the same lower rate applies under the India-Belgium treaty. While this MFN clause specifically mentions royalties and FTS, it is worth noting for the overall treaty framework.

2017 Amending Protocol

India and Belgium signed a Protocol on March 9, 2017, amending the DTAA. This protocol modernizes the treaty by updating provisions related to exchange of information, assistance in tax collection, and anti-abuse measures. Notified by the Ministry of Finance in 2025, the protocol brings the treaty in line with BEPS recommendations and contemporary international tax standards.

Documentation Required

To apply the reduced 15% DTAA rate on dividend payments to Belgian residents, the following documentation is essential:

Tax Residency Certificate (TRC)

A valid TRC from the Belgian tax authorities (Service Public Federal Finances) confirming that the recipient is a tax resident of Belgium under Article 4 of the DTAA. Under Section 90(4) of the Indian Income Tax Act, this is the mandatory prerequisite for claiming treaty benefits.

Form 10F

The non-resident must submit Form 10F containing prescribed details including tax identification number, residential status, nationality, and address. If the Belgian TRC does not contain all required details, a separate Form 10F must be filed.

Proof of Investment Date

Given the unique January 23, 1988 investment date condition, the Belgian investor should maintain documentation proving that the shares or investment from which dividends arise were acquired after this date. Share certificates, demat account statements, or contract notes can serve as evidence.

Self-Declaration / Beneficial Ownership Confirmation

A self-declaration confirming beneficial ownership of the dividends and that the shareholding is not connected with a PE in India.

Withholding Procedure for Indian Payers

Indian companies paying dividends to Belgian shareholders must comply with the following procedures:

Section 195 TDS

Tax must be deducted at source under Section 195 at the time of credit or payment, whichever is earlier. The rate is 15% (DTAA) if all conditions and documentation are satisfied, or the higher domestic rate if they are not.

Form 15CA and Form 15CB

Prior to remitting dividend payments to Belgium:

• Obtain Form 15CB from a Chartered Accountant certifying the nature of payment, applicable treaty provisions, rate of tax, and investment date compliance
• File Form 15CA online as a remittance declaration with the Income Tax Department

The authorized dealer bank requires the Form 15CA acknowledgment before processing the outward remittance under FEMA regulations.

TDS Returns

File quarterly TDS returns in Form 27Q reflecting tax deducted on payments to non-residents.

Common Disputes and Judicial Precedents

The India-Belgium DTAA has generated notable judicial precedents, particularly around capital gains and treaty interpretation:

Sofina S.A. vs. ACIT (ITAT Mumbai)

In the landmark case of Sofina S.A. vs. ACIT (ITA No. 7241/Mum/2018), the ITAT Mumbai ruled in favor of the Belgian taxpayer, upholding their entitlement to benefits under the India-Belgium DTAA. This case affirmed the principle that treaty benefits cannot be denied without establishing that the taxpayer is a mere conduit or lacks beneficial ownership.

Article 13(6) and Indirect Transfers

Indian courts have examined Article 13(6) of the India-Belgium DTAA in the context of capital gains on indirect share transfers. The ITAT has held that gains arising on indirect transfer of shares of an Indian company are not taxable in India under Article 13(6), which provides that gains from alienation of any property other than those specifically covered by earlier paragraphs are taxable only in the residence state.

GAAR vs. DTAA

With GAAR in effect from April 2017, there is ongoing uncertainty about how GAAR interacts with DTAA provisions. While GAAR can override treaty benefits for impermissible avoidance arrangements, the CBDT has clarified that GAAR will not be invoked where the taxpayer has a legitimate commercial rationale for the investment structure.

Dividend Distribution Tax (DDT) History

Prior to April 2020, India levied DDT on companies distributing dividends, making dividends tax-free in the hands of recipients. Since the abolition of DDT from FY 2020-21, dividends are taxed in the hands of the recipient at applicable rates, making DTAA relief directly relevant for Belgian shareholders for the first time.

Practical Examples and Calculations

The following examples demonstrate how the India-Belgium DTAA dividend provisions work in practice:

Example 1: Belgian Individual Shareholder

A Belgian tax resident individual holds shares in an Indian listed company and receives a dividend of INR 15,00,000 (approximately EUR 16,500).

• Without DTAA: TDS at 20% + surcharge + 4% cess. Effective rate approximately 20.8%. Tax: INR 3,12,000
• With DTAA: TDS at 15% flat. Tax: INR 2,25,000
• Savings: INR 87,000 per INR 15 lakh of dividends

Example 2: Belgian Corporate Investor

A Belgian multinational holds a 40% stake in an Indian subsidiary. The Indian subsidiary declares a dividend of INR 10,00,00,000 (INR 10 crore). The Belgian company's share: INR 4,00,00,000.

• Without DTAA: TDS at 20% + 2% surcharge + 4% cess = 21.63%. Tax: INR 86,52,000
• With DTAA: TDS at 15% flat. Tax: INR 60,00,000
• Savings: INR 26,52,000 on a single dividend distribution

The Belgian company can then claim a foreign tax credit in Belgium for the 15% Indian tax under Article 23 of the DTAA.

Example 3: Investment Date Impact

A Belgian family trust holds shares in an Indian company acquired in 1985 (before January 23, 1988) and receives dividends of INR 5,00,000.

• The reduced 15% DTAA rate does not apply because the investment was made before January 23, 1988
• The domestic rate of 20% + surcharge + cess applies
• The trust should consider whether restructuring the holding (e.g., selling and repurchasing shares) would make the new investment eligible for the treaty rate, weighing capital gains tax implications

Frequently Asked Questions

What is the dividend tax rate between India and Belgium under the DTAA?

The India-Belgium DTAA limits the withholding tax on dividends to 15% of the gross dividend amount under Article 10(2). This applies only to dividends arising from investments made after January 23, 1988. The domestic rate without the treaty would be 20% plus surcharge and cess, making the treaty rate more favorable.

Why is the January 23, 1988 date important for Belgium DTAA dividends?

The reduced 15% treaty rate on dividends applies only to dividends arising from investments made after January 23, 1988. This date corresponds to the exchange of notes between India and Belgium. For shares acquired before this date, the treaty rate does not apply, and the full domestic withholding rate is charged. This is a unique condition specific to the India-Belgium DTAA.

How does the 2017 Amending Protocol affect dividend taxation?

The 2017 Protocol, signed on March 9, 2017 and effective from June 26, 2025, does not change the 15% dividend rate itself. However, it modernizes the treaty with enhanced exchange of information, assistance in tax collection, and updated anti-abuse provisions aligned with BEPS recommendations. These changes strengthen compliance and enforcement mechanisms.

Can a Belgian holding company claim the 15% DTAA rate?

Yes, provided the Belgian holding company is the beneficial owner of the dividends, is genuinely tax resident in Belgium, and the shareholding is not connected with a PE in India. However, if the holding company is a shell entity with no economic substance, Indian tax authorities may deny treaty benefits under GAAR or the beneficial ownership doctrine.

Does Belgium's participation exemption affect the DTAA benefit?

Belgium has a generous participation exemption (DBI deduction) under which 100% of qualifying dividends received by Belgian companies from foreign subsidiaries are effectively exempt from Belgian tax. Combined with the 15% Indian withholding under the DTAA, the effective tax on repatriated dividends from India is only 15%, making Belgium a tax-efficient holding location for Indian investments.

How does a Belgian investor file for a refund of excess TDS on dividends?

If the Indian payer deducted tax at the domestic rate instead of the 15% treaty rate, the Belgian investor can file an income tax return in India claiming a refund. The return should be filed within the prescribed time limit under Section 139. Alternatively, the investor can proactively apply for a lower withholding certificate under Section 197 before the dividend payment date.

Are dividends from Indian REITs and InvITs covered under the DTAA?

Distributions from Indian REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) to Belgian residents may be covered under Article 10, depending on the characterization of the distribution under Indian tax law. Interest distributions from InvITs may fall under Article 11 (interest) rather than Article 10 (dividends). Belgian investors should verify the nature of each distribution component.