It is possible for Belgium for certain foreign executives, researchers and specialists to apply for a special tax status in Belgium (tax circular of 8.8.1983). An application must be filed (through the employer) with the Belgian Finance Department in order to qualify for this special tax status, and subject to approval of the status by the tax authorities, use can be made of a number of specific deductions to reduce the amount of Belgian taxable income.

Given the limited number of individuals, who can benefit from the special tax status, the details about the special taxation regime are only known by a number of specialists with the Finance Department and with specialised tax advisors.  From time to time questions are raised with the Minister of Finance about specific features of the special taxation regime and some months ago, a number of interesting issues came up.

One of the features of the special taxation regime is the fact that the tax payer is always treated as a non resident of Belgium for Belgian income tax purposes. This not only applies to the individual executive, researcher or specialist, but also to his close family members (spouse, legal cohabitant, dependent children and other dependent individuals, who are part of the family). This is due to the fact that in most cases these individuals are subject to joint tax filing in Belgium.

The non resident status is obvious for individuals, who ask for the special tax status, while they continue to live with their family outside Belgium, and who are taxable in Belgium due to the Belgian source of their income. For most expatriates, however, the non resident status is somewhat artificial as they may live with their family in Belgium for a number of consecutive years. In the latter situation, they will be treated as Belgian residents for most civil matters, but for income tax purposes only, they are treated as non residents. Experience from the past years has indicated that this is a highly confusing scenario for the vast majority of individuals, as it is a clear case where “taxation logic” is in conflict with basic human logic and intuition.

The non residency status has a number of important consequences, as it enables the individual to claim a number of tax benefits, which are not available to Belgian tax residents. Most expatriates to not seem to have a problem with the benefit side of the special tax status. A difficult and very technical issue, however, is the question of access to international taxation treaties, which Belgium has signed with other countries. In situations, where all income of the expatriate and his family is of Belgian source, taxation treaties will mostly be irrelevant.

The situation will be different in case the family also has non Belgian source income, which may come under the scope of a foreign taxation authority. Treates indeed are relevant in situations where other countries may want to tax parts of the income of the expatriate unless in cases where use can be made of the taxation treaty between such country and Belgium.

According to the taxation treaties, an individual has only access to a tax treaty, provided that he is a resident (as defined in the local tax law of the countries involved) in at least one of the treaty states. This means that in case an expatriate lives with his family in Belgium in circumstances, where he is not a tax resident of any other country, he will be a world-wide tax non resident. The Minister was questioned about such “tax apatride” status.

As is common, the Belgian Minister of Finance appears also this time to be quite agile in avoiding a number of the questions, which were raised. In his (incomplete) reply,  he indicates that the expatriate has to make a choice. He can always opt not to request the special tax status or to cease applying the status and to move to the normal resident tax system. By doing that, he will become a Belgian tax resident, and consequently will have access to tax treaty protection . He can also have treaty protection if he is a tax resident of another country (which often is not the case).

This leaves the majority of expatriates in a status of risk towards foreign tax authorities as the answers of the Minister imply that expatriates, with special tax status but without tax residency in another country, will not have access to tax treaty protection.

Jan Lambrechts            ICHIBAN Consult