Belgium has recently amended tax legislation relating to non resident individuals, who are providing services in Belgium.

A new section was added to the law relating to a service-related place of business in Belgium (so-called service permanent establishment). In case a foreign enterprise has a presence in Belgium through individuals, who are rendering services in this country, a service permanent establishment will quickly come into existence.  This already is the case when the Belgian presence (for the performance of a project or a number of related projects) exceeds 30 days during any 12 month period.

If the individual is a resident of a country with a tax treaty with Belgium (reference is for example made to the treaty between Belgium and China, which holds such a clause on service permanent establishments), it is possible that Belgium may tax the income, generated through the project based on the treaty. With the change of internal tax legislation, an effective taxation now also becomes possible (in the past this was not the case due to the absence of proper internal Belgian tax rules).

The Belgian taxation is still conditional on the actual physical presence of individuals on Belgian territory for the performance of the services. If these are rendered from abroad, no taxation in Belgium should arise.

The rules not only impact the employer (usually a foreign company), but also the individuals, who perform the work. Their salary (the portion relating to the work in Belgium) is deemed to be related to the Belgian service establishment and therefore also become taxable in Belgium. The foreign company (with a Belgian service establishment) is further obliged to calculate Belgian salary withholding tax on these wages and to pay the PAYE tax to the Belgian revenue. In addition, the employees will also have to file an annual Belgian income tax return (even if PAYE was duly paid).

The new rules are not only relevant for non residents of Belgium, but also to Belgian residents, who are employed by a foreign company, and for their employers.

If we take the example of a Belgian resident, who is employed by a French company, and who works one day a week in Belgium (for example in a home office), he has to pay Belgian income taxes on the salary for the Belgian work days. In the past, this principle already was applicable, but now there will also be an obligation for the employer to calculate and pay salary withholding tax in case the employment in Belgium exceeds 30 days (in a 12 month period). This will lead to a significant administrative burden for the foreign employer and to a risk of penalties and interest charges in case the withholding tax is not correctly calculated and paid.