It should be remembered that if a seller extracts cash via a dividend distribution prior to the sale, they will be subject to a withholding tax (précompte mobilier), which has stood at 30% since January 1, 2017. Consequently, sellers are often tempted to incorporate the cash balance into the asking price for the company, leaving the buyer to extract the funds post-closing.

A buyer who acquires a cash-rich target company actually has several structural options at their disposal:

  • Financial assistance: A target company with sufficient distributable reserves may lend its cash to its parent company (the buyer's HoldCo) to "assist" in financing its own acquisition, subject to strict compliance with the procedure set out in Article 629 of the Companies Code. However, this approach—commonly referred to as "financial assistance"—presents several drawbacks. It is inherently a temporary fix, as any loan must eventually be repaid. Furthermore, the loan must carry an arm's-length interest rate paid by the borrower (the parent company), reversing the normal direction of financial flows (from target to parent). In addition, directors incur personal liability under the financial assistance regime, which carries significant implications in the event of subsequent financial distress.

  • Participation Exemption regime (RDT): If the buyer uses an acquisition holding company—as is standard practice—they can distribute an extraordinary dividend (or "super-dividend") at a favorable tax rate. Designed to minimize double taxation on dividend flows between group entities, this mechanism is known in Belgium as the Revenus Définitivement Taxés (RDT) or Participation Exemption regime (Articles 202–205 CIR 92 / WIB 92). The RDT regime requires a minimum 10% equity stake, an uninterrupted one-year holding period, and for the subsidiary to be subject to a normal tax regime (at least 15%). The dividend is then exempt from withholding tax at the subsidiary level, while the holding company receives a 95% tax deduction on the income. In practice, this currently results in an effective tax burden of 1.7% on the distributed dividend (5% × CIT rate of 33.99%).

Anti-Abuse Rules & Tax Implications

A specific anti-abuse provision directly targeting the RDT mechanism was introduced recently during the transposition of the EU Parent-Subsidiary Directive into Belgian law (Law of Dec 1, 2016, Art. 3). This provision allows the tax administration to disregard an arrangement or series of arrangements if it determines that it is "not genuine and has been put in place for the main purpose, or one of the main purposes, of obtaining the income deduction referred to" (i.e., the RDT exemption).

Does this imply that tax authorities could challenge corporate transactions followed by a dividend distribution or a financial assistance arrangement? Although long-term precedent under this specific clause remains limited, it is worth recalling that a "general" anti-abuse provision has existed since 2012 (Art. 344, § 1 CIR 92 / WIB 92). While rarely enforced, it frequently serves as a deterrent. According to parliamentary preparatory works and statements from the Minister of Finance, the new anti-abuse measure is not intended to classify all holding structures as abusive, but targets artificial arrangements specifically—such as passive holding companies lacking genuine economic substance and "conduit companies" (Parl. Doc., House 2015-2016, No. 54-2052/002, p. 12).

It appears clear that a bona fide buyer who relies on statutory provisions to extract excess cash from an operational company they have just acquired should not face penalties. Conversely, structures devised solely to secure the tax savings granted by the RDT regime are explicitly targeted by tax authorities.

The disposal of cash shells (sociétés de liquidités) and internal capital gains (plus-values internes) have long been subject to tax. It is worth reiterating that capital gains exemption on share transfers in Belgium applies only if the transaction falls within the scope of the "normal management of private assets" (Art. 90, 9°, 1st indent CIR 92 / WIB 92).

More borderline cases involve companies that liquidated certain assets prior to the transaction. Extracting cash before or after a transaction remains a debated topic and must be handled with care and discernment. As every transaction is unique, seeking advice from a tax specialist is strongly recommended.