Most countries, including Belgium, ensure that their tax system has a broad scope of application.

When working abroad, a major attention item is the fiscal residency situation of the individual and his close family members. In case the family is treated as ‘resident’ for Belgian income tax purposes, this implies that the world wide income of any family members will be taxable in Belgium except. This will be the case except if exemption from such taxes is applicable under an international tax treaty and/or a national tax rule.

Belgium has signed tax treaties with a large number of countries. Consequently most Belgian residents with professional activities abroad have to rely on such treaties in order to determine whether they can claim a tax exemption in Belgium. Considering the fact that the Belgian tax authorities are increasing their audits on the foreign income exemption, good knowledge of the international tax rules becomes very important.This becomes even more important when one can observe that the Belgian taxes will in most cases be higher than any possible foreign taxes.

A specific situation is the one of individuals, who are working in an international traffic scenario, such as on board of an airplane or ship. Many tax treaties will in such case allocate the right to levy the income taxes to the country, where the enterprise which is operating the airplane or ship is located.

This rule can, however, lead to a surprising situation. A Belgian resident, working on a ship that is present in the Far East for a company, operated out of The Netherlands will be taxable in the Netherlands and exempt in Belgium, even if no professional activity at all is performed in The Netherlands.

The concept of ‘international traffic’ at first look is straightforward, but in international tax law, nothing appears to be logical or easy to apply. It is interesting to look at the court decision of the Court of Appeal of  Liège of 4 September 2013. The case concerned a Belgian tax resident, who was working on an oil drilling ship, operated by a Luxembourg enterprise in international water of the shore of Angola.

The tax payer argued that his salary was taxable in Luxembourg (where the enterprise, operating the vessel was located), but the court refused to grant exemption from tax in Belgium due to the fact that the ship was not engaged in international transportation activities and had no function for moving people or goods around. A significant (Belgian) tax bill therefore was to be paid by this employee.

The court decision is in line with recent OECD interpretations of the tax treaties, which indeed require that a ship is to be used in ‘international traffic’ in order to obtain an allocation of the tax rights to the country where the enterprise, which is operating the vessel. Ships with a static function, industrial maritime equipment or ships which are operated solely in one state do not meet this requirement. Employees, working on such ships remain fully taxable in Belgium, provided that they (and/or their close family members) are treated as Belgian tax residents.