Belgium has a long tradition of applying a special tax regime to foreign executives and researchers, who are assigned to Belgium to work for a Belgian entity for an international company.
The current rules were introduced in 1983 (tax circular letter Ci.RH.624/325.294 dd. 08.08.1983).
The main reason behind the special tax regime is a reduction of the tax cost for expatriate staff. This directly impacts the salary cost for the employer in case expatriates are remunerated on a net income basis (the net salary level is guaranteed, and the company pays the actual tax cost). Also for employees without a net salary guarantee, the special tax regime has always proven to be very important. Employees will always look at their net after tax income and in this way, the special tax regime has for many years enabled companies to offer competitive wages at an acceptable cost.
Companies not only employ expatriates in Belgium. The special tax regime significantly contributes to foreign investment into Belgium. Expatriates and their activities attract local colleagues, who do not have a special tax status. Local staff members are hired and the regime indirectly makes Belgium more attractive for investment in Belgian projects, that benefit the whole economy. It is hard to calculate this positive impact on the Belgian economy, but it was always believed to be significant.
Notwithstanding the fact that changes to the tax legislation in Belgium are numerous and often unpredictable, the special tax system has been in place for over 38 years without any major changes. This can be seen as an exceptional achievement and is clear proof of the fact that the regime was well thought out and well balanced. Although during the years, criticism was always given on the system, it actually proved to be an exceptionally stable and useful set of rules. Discussions on the special tax status in general were rather limited and this made it possible for international assignees to come and work in Belgium without major tax concerns.
In recent years, plans repeatedly came up to make important changes to the special tax concessions and most recently, the Belgian government has announced that a legal reform is about to be effected.
One of the criticisms on the system was the fact that it is not written in detail in the tax code, and is mostly based on a tax circular letter. The legal basis of the special tax regime therefore is not very solid. This will be addressed now as the new rules would be added to the tax code.
Little has up to now been published on the full details of the new system, but some general ideas were already announced. Below, we give our initial considerations, but one should bear in mind that all of these elements are still uncertain.
A major change concerns the fiscal residency of expatriates. They would no longer always be treated as non-residents. Instead, their tax residency would in the future only be based on the normal residence rules of the tax code. This is a major change, because the majority of expatriates will now become Belgian tax residents, subject to world-wide tax filing obligations. This not only impacts the taxes on their salary, but also induces a host of other tax obligations. Foreign bank accounts will have to be registered with the National Bank, foreign investment income becomes taxable in Belgium, foreign life insurances and certain legal structures must be disclosed, foreign real estate is to be reported in the Belgian tax return, etc….
This will not only increase the tax cost, but will greatly complicate their Belgian tax matters (the resident tax return is often more complex as compared to a non-resident tax return). For employees with a guaranteed net income, the grossing-up of the taxes will become more expensive and the splitting of taxes between employment income and other income will become more complex.
The current system is not limited in time, but is automatically extended from year to year unless in case major changes occur (for example a change of employer or a change of nationality).
The new tax concessions would be limited in time, although the actual time limits are not yet clear (some sources mention a base time limit of 5 years, that can under certain conditions be extended with another 3 years).
To qualify for the current concessions, the salary should at least be equal to the minimum salary to obtain a work/residence permit for Belgium. This opened the access to the system to young executives or researchers, who are expected to grow their career during the assignment to Belgium. It also enabled employers to hire staff with specific skills from countries with lower salary levels than the Belgian ones, to be engaged to work on projects in Belgium.
It is expected that a new minimum salary level will be imposed that will be significantly higher than the current one.
Under the current concession a qualifying expatriate is entitled to a tax exemption of part of the remuneration up to an annual limit (for annually recurring expenses, there is a base limit of 11.250 Euro and in exceptional cases (research and coordination tasks) the limit is increased to 29.750 Euro). We were always surprised by the fact that the exemption limits were never adjusted since 1983. For almost 40 years, the actual tax exemption therefore has gradually reduced…
The new system for calculating the exemption would be much simpler and seems to be inspired by the Dutch 30% ruling (where 30% of the gross remuneration is tax exempt). It is unclear whether there would still be an annual cap to the exemption.
The exclusion from taxable income of the salary for working days outside Belgium would only continue to be applied for those expatriates, who can prove that they are tax residents of another country. The travel exemption would thus be based on the international tax treaties. Expatriates, who move with their families to Belgium for several years, would completely lose the travel exemption. For frequent business travelers, this is likely to give rise to a major upshift of the Belgian taxes.
What will come next?
Much remains uncertain and all elements listed above are still subject to changes. Parliament has its own unpredictable roads for generating new legislation and much can happen in the coming months. Provided that the law is voted in the coming months, it is expected that the new rules would already come into force at the beginning of 2022. It remains to be seen how the transition into the new system would be organized for those persons, who can benefit from the existing tax concessions.
We will closely follow the details as they come out.