November 15, 2021
Belgium implements new tax regime for inbound taxpayers and researchers
As from 1 January 2022, a new tax regime for inbound taxpayers and researchers will come into force in Belgium. As part of the 2022 federal budget measures, the Belgian Government announced that they will reform the current expatriate tax regime governed by the Circular Letter of 8 August 1983. A more simplified and transparent new system should provide more legal certainty to employers and qualifying employees/directors. The new regime will be incorporated in the Income Tax Code, providing a stronger legal basis than a Circular Letter where standard tax residency rules will apply.
This Alert summarizes the highlights of the newly proposed tax regime.
Absence of “connection” to Belgium for 60 months: During a period of 60 months prior to the assignment to or employment in Belgium, a qualifying employee or director should:
Qualifying employers, besides for the below mentioned exemption, should be part of a “multinational” group, and the individual should be recruited by or assigned to a Belgian company or branch.
Minimum remuneration threshold of €75.000: In order to qualify for, and maintain, the new tax regime an employee or director should earn a minimum annual gross remuneration of €75,000.
Regular gross salary as well as variable remuneration and benefits in kind may be taken into account to determine whether the €75,000 threshold is met.
Exemption for researchers: The remuneration threshold will not apply to researchers, but they have to be in the possession of a master’s degree in specified expertise areas (natural sciences, applied sciences, medical sciences, agricultural sciences and engineering) or prove at least 10 years of relevant experience in these fields. This exemption is only available to taxpayers working under an employment relationship, not to directors; and only to the extent that the eligible degree effectively forms the base of the individual’s employment in Belgium. Furthermore, at least 80% of the total professional time should be directly related to these research and development activities.
The foreign duty relief will disappear, but an employer can reimburse or compensate the employee on a tax-free basis for the recurring additional costs (e.g., cost of living and housing, home leave,…) resulting from the assignment or recruitment from abroad.
The tax-free character of the reimbursement is limited to 30% of the employee’s gross remuneration (excluding the cost reimbursements itself). Furthermore, the exemption is limited to a maximum amount of €90,000 per year.
On top of these recurring costs, not covered by the 30% rule nor by the €90,000 cap, the following costs will also be considered as a tax-free reimbursement of employer’s business expenses:
Social security authorities are as a matter of principle not bound by the qualification as costs proper to the employer provided in the Income Tax Code. As is the case under the current regime, it is expected that the social security authorities will align their position with the tax treatment via a formal instruction or administrative letter.
Legal certainty - predictability
An objective of the new regime is to remove the challenges and complexities resulting from the “deemed” nonresident status of the current regime, and to provide also more clarity as to the duration an employee can benefit from the regime.
Tax residency: The regular tax residency rules from the Belgian Income Tax Code will apply. In the case that a qualifying individual will not be considered a tax resident under Belgian domestic tax rules, the taxpayer will need to provide annually a certificate of tax residency in another country.
Expatriates who have established their tax residency in Belgium will therefore have to report worldwide income in Belgium, and have to comply with all administrative and information requirements imposed on Belgian resident taxpayers, e.g., foreign bank account and real estate reporting.
Limitation in time of eight years: The new regime and its benefits will be available for a fixed period of five years as of the start of the employment in Belgium. A possibility is provided to apply for a three-year extension through the filing of a new request within six months following the end of the five-year period by demonstrating that the qualifying conditions are still met.
In order to benefit from the new tax regime, the employee/director and employer will have to file a joint application within three months after the start of the Belgian employment. The authorities have to revert within three months with their decision on the electronic application.
Employers will have to provide tax authorities on an annual basis before 31 January of the year with a listing of all qualifying employees for the preceding year. A change of employer in Belgium will not automatically imply the end of the special tax regime, provided all qualifying conditions are still met under the new employment relationship.
The new regime will be applicable for all employments or assignments starting as of 1 January 2022.
Opt-in for current new regime: Employees/directors benefitting from the current regime for a period less than five years on 1 January 2022 have the possibility to opt into the new regime, provided that the afore-mentioned qualifying requirements of the new regime are met. The confirmation of this opting in should be filed before 30 June 2022 and it should be noted that this opt-in decision is considered as final.
The years under the current regime will be deducted from the five/eight years period the taxpayer can benefit from the new regime.
Phasing out of current regime: The Government’s intention is to promptly phase out the current regime and limit any grandfathering period to two years. These grandfathering rules are not part of the proposed draft legislation, but will likely be set out in an addendum to the current Circular Letter to be issued shortly.
Tax return assistance
The Government seized the opportunity to reconfirm their position, which was set out earlier via two parliamentary questions, that the assistance provided by an employer for the filing of an employee’s tax return is considered as a taxable benefit in kind in the hands of the employee and have embedded this position in the law.
With the proposed initiative the Government will put an end to a tax regime that has existed for almost four decades. As with any change, this represents both challenges and opportunities. In the short term a number of questions still needs to be answered and might lead to a period of relative uncertainty. In the longer run, the new tax regime will result in a more simplified and transparent system providing more legal certainty to companies and their international workforce.
It is equally clear that the new regime is significantly more restrictive in terms of access to the regime and duration of the benefits. For high income earners the benefits are capped, but for a significant other section of executives the new regime could be more beneficial.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), Belgian Tax Desk, New York