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Belgian Fixed Income

Regulatory Framework

In principle, Belgian tax law subjects all interest, including issue and redemption premiums, to a statutory interest withholding tax at the rate of 25%. However, similar to the tax regimes of Italy and Portugal, domestic laws exempt certain interest payments made to non-resident investors from this withholding tax.

However, in order for investors to benefit from this exemption, the Belgian debt securities must be issued in registered form and all investors must be recorded on a daily basis during the entire coupon period. In the past, in order to circumvent this requirement, many Belgian issuers used Special Purpose Vehicles established in a country that has no interest withholding tax such as Luxembourg that would act as a conduit. This option however, posed a substantial risk to the issuer since it had to prove to the Belgian tax authorities that such vehicle had enough substance and that the arrangements were in accord with arm’s length principles.

The Belgian regulator bridged this gap by making available an easy, transparent and secure way to issue debt targeted to foreign markets whilst preserving the pro rata temporis principle: the X/N system, which was originally created to deal with public debt securities only.

This X/N system

This X/N system is a withholding tax relief and tax collection regime based on the pro rata temporis principle, meaning that tax is only levied and tax relief only granted in respect of the interest that has accrued during the period that the beneficial owner held the securities. The name X/N stems from a separation of the securities in separate accounts:

  • “X”-accounts for holdings that are exempt from withholding tax, and
  • “N”-accounts for holdings that are not exempt from withholding tax.

Securities may only be deposited in an X-account if the eligible investor holding these securities has been duly certified. In the case of a non-resident (non-Belgian) beneficial owner – which would often be the case in an issuance into a foreign market, the tax certifications must be provided to either the Belgian participant through which the securities are held in the X/N system or to the National Bank of Belgium (NBB). These tax certificates must be made available for inspection by the Belgian tax authorities.

Acupay’s Belgian fixed income tax compliance solution

Acupay’s Belgian fixed income tax compliance solution provides for the collection of these tax certifications from the investors’ custodian banks, and ensures validity and correctness of the self-certification form as well as the related mandatory KYC confirmation form that is authenticated by the beneficial owner’s custodian bank. The Acupay System utilizes smart transmission methods to help the foreign intermediaries navigate through the Belgian tax requirements and automatically produces all required tax certifications for the beneficial owners and their intermediaries to sign. Acupay receives and validates the required tax certifications and sends them together with daily reports of beneficial ownership to the NBB participant custodian who is responsible for tax reporting to the Belgian tax authorities.

The Acupay System also stores images of tax certifications in its CORE Library so that the NBB participant, the custodian bank of the investor, as well as the issuer have 24/7 access to all necessary tax compliance information and documentation about the holders of the securities for the entire coupon period.

The Acupay Belgian fixed income tax compliance solution can be used for debt issuances in various markets including the Yankee market, the Kangaroo market, the Maple market, the Samurai market, the Bulldog market, the Panda market, and the Dim sum market. It is currently being used by a Belgian issuer for a Belgian U.S. $2,000,000,000 US Commercial Paper program.