Qualifying executives and researchers can benefit from a favorable income tax treatment in Belgium. This results in a reduction of the personal income tax, which is due by them. The deductions of the special tax regime may also have an impact on the calculation of social security contributions in the case of employees, who are working in Belgium under the Belgian employee social security system.
At the end of 2012, the Belgian social security authorities have changed their interpretation of the rules and now accept a more favorable calculation of the basis on which employee social security contributions are to be determined. This is not only important on an ongoing basis, but also has a retro-active impact, as the change in calculation rules can be applied as of January 1, 2012.
Benefits of the special tax status
The two most important benefits of the special tax status are the exemption of expatriate expense allowances on the one hand and the foreign business travel exclusion on the other hand.
Exempt expatriate allowances
Expenses, which are incurred by the employer, and which relate to the assignment to Belgium (for example a cost of living allowance, housing allowance, international school fees….) are excluded from the taxable basis.
For those expenses, which have a recurring nature, the exemption is limited to a maximum amount of 11.250 Eur per year. For certain expatriates (employed by a coordinating or controlling office or working as researchers), the annual exemption limit is increased to 29.750 Eur.
The social security authorities will now follow the opinion of the income tax authorities and apply some kind of travel exclusion for the calculation of the employee social security contributions by means of an increase of the amount of exempt expatriate allowances (see calculation examples below).
The expatriates, who can benefit from the special taxation regime are not taxed on their income, which corresponds to work days, spent outside Belgium. To this purpose, they have to keep a detailed day by day schedule of their work days and keep supporting evidence on the foreign business travel. There is no limit as to the travel percentage, for which exemption can be claimed.
In the past, the business travel exclusion had only an impact on the income taxes, which were due, and not on the social security contributions.
The Belgian social security authorities have now decided to also accept the foreign business travel exclusion for the calculation of social security contributions for those employees, who can claim the above mentioned exemption of 11.250 Eur.
In order to calculate the exemption, the following formula is applied:
11.250 divided by % work days in Belgium x 100
This calculation will result in a higher exclusion of expatriate allowances (this can now exceed the limit of 11.250 Eur) for the calculation of the social security contributions.
Contrary to the income tax authorities, the social security authorities impose a limit to the combined travel and cost exclusion of 29.750 Euro per year.
The employee works 80% in Belgium and 20% abroad.
Exemption: 11.250/80 x 100 = 14.062,50 Eur
The employee works 60% in Belgium and 40% abroad.
Exemption: 11.250/60 x 100 = 18.750 Eur
The employee works 40% in Belgium and 60% abroad.
Exemption: 11.250/40 x 100 = 28.125 Eur
The employee works 20% in Belgium and 80% abroad.
Exemption: 11.250/20 x 100 = 29.750 Eur (maximum exempt amount).
In case the exempt expatriate allowances are lower than the limit of 11.250 Eur per year, the same formula is applied, but on the actual (lower) amount of allowances.
Employees, who benefit from the exemption limit of 29.750 Eur do not benefit from the travel exclusion. Self employed persons have in the past always benefited from the travel exclusion because the social security contributions for self employed persons are calculated on the taxable income amount. As the calculation base for the contributions for self employed persons is limited to a maximum amount, the travel exclusion not always has an actual impact for them.
The travel exclusion percentage, which can be used, is determined by the income tax authorities. For income year 2012, it is easy to make a correction of the social security contributions as the travel exclusion can be accurately determined for that year. For the current and future years, the problem arises that during the year an estimate is to be applied as the actual travel percentage can only be calculated by year-end. In addition, problems can arise in case of a tax audit in a future year, which in principle then can have a retro-active impact on the calculation of the social security contributions.