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Liability of Company Directors for Non-Payment of Company Taxes

January 2008 - Corporate & Commercial. Legal Developments by Cruyplants Eloy Wagemans & Partners .

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In Belgium companies and other entities are obliged to withhold at source and pay over to the Tax Administration income taxes on the salaries paid to their employees. With effect from 28 July 2006 new rules have been introduced which provide, in certain circumstances, for a personal liability of the directors of the company in the event that that the company fails to satisfy this obligation. The first line liability lies with the director or manager in charge of the day to day operations of the company but other directors may also be liable if they can be shown to have been negligent or co-negligent.

   

In Belgium companies and other entities are obliged to withhold at source and pay over to the Tax Administration income taxes on the salaries paid to their employees. With effect from 28 July 2006 new rules have been introduced which provide, in certain circumstances, for a personal liability of the directors of the company in the event that that the company fails to satisfy this obligation. The first line liability lies with the director or manager in charge of the day to day operations of the company but other directors may also be liable if they can be shown to have been negligent or co-negligent. The personal liability is not automatic and requires the Tax Administration to introduce legal proceedings and demonstrate negligence on the part of the director concerned.  Negligence will be established, for instance, where the company becomes insolvent but continues to trade or where the non-payment of taxes is used to finance the company. Negligence is however also presumed to be established where the non-payment of the monthly withholding taxes occurs at least three times in the course of the same year for taxes that are paid monthly and twice in the same year for taxes that are paid quarterly.

New provisions, which are identical to those described above for withholding taxes, have also been introduced in respect of the payment of VAT by the company.

Foreign resident directors of Belgian companies need to be aware of these provisions. In most cases the primary liability will lie with the person in charge of the day to day management of the Belgian company but, in certain circumstances, the liability may extend to other directors of the company, including those resident abroad. This will particularly be the case where the Belgian company continues to trade despite being insolvent or where the non-payment of taxes is used to finance a company that would be other wise insolvent.

Contact : Maurice.Eloy@cew-law.be