The permanent representative is considered as a director for tax purposes

A 'permanent representative' is the person who acts on behalf of a company which itself is a director in another company. According to the Court of Cassation, such a permanent representative can also be considered as a director for tax purposes. A judgment that has important consequences.

Directors and similar functions

The Income Tax Code provides for different types of professional income. Salary of employees, the profits of the self-employed, the benefits of the liberal professions. Remuneration of company directors is a separate category, since the tax authorities are rather suspicious of the interaction that exists between that director and the concerned company.

It is no coincidence that the term 'company director' was chosen. The legislator wants to avoid that only 'real' directors would fall under this separate category. Employees, which are no formal directors, but in reality are in charge, also fall within the scope of company directors. It concerns 'any physical person who performs an assignment as director, manager, liquidator or similar functions'.

What is the difference?

Business leaders do not have a completely different tax system than, for example, the self-employed or salaried employees. But there are some differences.

First difference: if a director rents real estate to his own company, the rent - if it exceeds a certain threshold - will be considered as 'taxable salary'. For real estate income, a higher deductible lump sum expenses amount applies. Due to the requalification in salary, that lump sum deduction is lost.

Second, if the director gives a loan to the company, the law requalifies the received interest in dividends if either the interest rate is higher than a reference interest rate of the NBB or if the loan amount is higher than the sum of the taxed reserves at the beginning of the taxable period and paid-up capital at the end of it. This requalification was more important when the rate of the withholding tax on dividends was higher than the withholding tax on interest. But even now that the withholding tax is the same for interest and dividends, the requalification remains important because interest is deductible for the distributing company, while dividends are not.

A third peculiarity in the tax status of a company director is the so-called attraction principle, whereby all compensation that a company director receives from the company must be regarded as wages of the company director, even if the compensation was qualified differently (for example, the director who is also a salaried employee in the company).

Case law

Mr X, married to Mrs Y, works for company A. A is a director of company B and the position is held by mr. X. He is therefore a permanent representative. Mrs Y lends money to company B. Will these interests be requalified in dividends?

If X were a director at B and he would have provided that loan himself, there would be no doubt: a requalification is then possible.
However, such requalification is also possible if X were a director of B and X's wife provided the loan to B: after all, the law extends this requalification to loans granted by 'their spouse, legally cohabiting partner or their minor children'.

The only point of discussion here is that B is not a director, but a permanent representative of another company. The question then is whether such a permanent representative can be regarded as a director since he performs 'similar functions'. It seems quite logical that he performs similar functions because he is the physical representation of a company director. That is his job. But he does that for his own company, not for the managed company.

But the tax authorities, the Court of Appeal of Ghent and on 23 January 2020 also the Court of Cassation, see this differently. They are of the opinion that while the physical person who performs activities of board of directors performs this function legally in his capacity as permanent representative of the companies/directors, this does not exclude the application of the tax status of company director.
The Court of Cassation also adds that the permanent representative must meet the same conditions as a director and is liable under civil and criminal law as if he himself was carrying out the assignment in his own name and for his own account.


The judgment does have some important consequences. In this specific case, the interest on the loan that the permanent representative's wife provided to the company was requalified into dividends.

But the fact that a permanent representative can be a company director also means that rent is converted into salary (the minister had already confirmed this in a parliamentary question earlier) and that all other payments that the permanent representative receives from the managed company as company remuneration should be considered as such.
The position of the person concerned in the director company is irrelevant in this respect.

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