During recent years, the Belgian tax authorities are stepping up their efforts in order to ensure that employers properly report all taxable income of their employees and executives on individual annual tax documents and that the salary withholding taxes are calculated and paid in a correct way. This makes it easier for the authorities to determine the correct amount of taxable income, to audit tax returns of employees, and also to ensure that they can most quickly collect the Belgian taxes.
For local Belgian employers, who have a regular payroll administration, the annual tax document (i.e. the so-called fiche 281) in most cases is automatically generated at the end of the year and the withholding taxes are properly calculated each month. They will not be affected by the new approach by the authorities.
Employers, who are established outside Belgium, and who do not keep a Belgian payroll administration (most often as they pay out the salaries through a payroll system abroad), will often fail to generate 281 documents. They may also fail to calculate and pay the monthly Belgian payroll withholding taxes.
Until recently, this was not a major issues, but now things have suddenly changed. As numerous errors and underwithholding of taxes were detected during recent tax audits, the tax authorities now start with a system of penalties. From November 2015 onwards, they will impose a fine of 50 EUR up to 1.250 EUR in case 281 documents were
This system of penalties is likely to hit a substantial number of foreign employers, who assign staff to Belgium to work on Belgian projects for a limited period of time. With this new focus on the fiscal formalities, important challenges comes up for them.
1. How to identify the employees to be included in the reporting?
Non Belgian staff members, assigned to Belgium, often do not immediately meet all conditions to be taxable here. One has indeed to consider the application of international tax treaties, and most importantly the 183-day rule, based on which many short term assignees are not taxable in Belgium during an initial period of employment in Belgium.
In the past, the analsysis of the tax treaty situation (that often can become quite complex) was made after the end of each year of income. Taxable employees could then simply report their Belgian taxable income in an individual income tax return, for which there was plenty of time available.
Employers will now have to monitor the 183 day rule on an ongoing basis. As soon as the tresholds are exceeded, they may have to start the calculation of salary withholding taxes and they will also have to file the 281 document, a short time after the end of the year.
2. How to determine taxable income?
For foreign assignees, it may be quite difficult to calculate the correct amount of taxable income. Parts of the income may be exempt from income tax based on tax treaties (such as salary for work days outside Belgium). Tax treaties differ from country to country, so there is no easy, transparant set of rules for the employer.
Foreign assignees also often receive special allowances (for example per diem allowance, cost of living allowance, rental allowance). It requires analysis and proper knowledge to determine the exact amount of the taxable income versus non taxable elements of the overall remuneration package.
In the past, such analysis was done after the end of the year in view of the filing of the tax return by the employee. Now this work is to be accelerated to the beginning of the year, following the income year.
For many assignees, there are dual payroll, with part of the payroll in the home country of the employee (or of the employer) and part of the payments in Belgium. This makes it even more difficult to determine the correct amounts to be reported in Belgium.
3. How to complete the forms 281?
If no Belgian payroll is kept, one will still have to properly identify the employee in order to be able to make up and file the 281 document. If the individual has registered with a Belgian commune, there will be a national number assigned to him/her. This number can be used on the 281. If no such registration took place, the BIS number will be applicable. This number is based on the LIMOSA registration, that in any case needs to be done by the employer.
Also all other relevant information must be mentioned on the 281 documents, resulting in additional administration for the employer.
4. Withholding tax challenges
Employees of foreign employers may be taxable in Belgium on (part of) their salary and/or local benefits. The employer first must check whether or not withholding taxes are to be calculated and paid. This will not be the case when the employee is exempt under a tax treaty. This will also not be the case if the salary is paid out abroad by an employer without a permanent establishment in Belgium.
Although withholding taxes may not be required, an employer is always allowed to voluntarily calculate and pay such taxes.
Withholding taxes must be calculated on the amount of taxable income, based on defined tax tables. The employer is not allowed to reduce the tax withholdings, even if he knows in advance that the employee will be overpaying Belgian taxes and will be in a refund position after the fling of the annual tax return. If withholding taxes are underpaid, the employer will still be subject to penalties, even when there is later on a refund of taxes to the employee.
Employees, who are in a refund position, and who do not have a Belgian bank account or who have alreadty left Belgium after their assignment, will usually encounter severe difficulties when the refund is to be paid out to them. The Belgian tax authorities are notoriously inefficient when it comes to ensuring quick and efficient processing of tax refunds. It is not unknown for employees to have been unable to successfully recover Belgian tax refunds while they were abroad, and who ended up overpaying Belgian taxes.
As mentioned above, not all payments/benefits of expatriate employees are fully taxable in Belgium. Determining the correct amount of taxable income is normally done when they file their Belgian tax return. Now the employer will be forced to determine Belgian taxable income much earlier and much more accurately.
5. What about the law?
Historically, the obligation to make up 281 documents and to calculate salary withholding taxes was in some way related to the deduction of salary expenditure from Belgian taxable income (of the employer).
In case of foreign employers, who do not have a taxable permanent establishment in Belgium or who cross charge employment costs to a Belgian group company, there is usually no direct link between their salary expenditure and the deduction of this cost from profits, that are taxable in Belgium on behalf of this foreign company.
The current penalties, imposed by the Belgian tax authorities, are likely to be challenged on the basis of the absence of such link. In their instructions, the Belgian tax authorities impose the obligation to make up 281 documents to employers, even in case they are not required by law to calculate and withhold salary withholding taxes and/or in case the salary is never going to be deducted from any profits that are taxable on their behalf in Belgium.
When reading Belgian tax law, it is not clear at all whether the point of view of the Belgian tax authorities is sufficiently covered by the law. In any case, tax law is unclear on this matter and leaves room for interpretation.
Employers, who are faced with large penalties, are likely to challenge the penalties, based on the weak legal basis of the administrative instructions.
Apart from internal Belgian tax law, one can wonder whether the new penalties and strict formalities are in line with European law on the free movement of labour and services. Foreign employers, who have a fully regular payroll administration in their home country, may now be faced with expensive extra formalities in Belgium and a risk of high penalties. Employers, who become subject to high penalties will be induced to challenge the Belgian rules, based on European law.
Foreign companies are now faced with an important competitive disadvantage as compared to local Belgian employers. Belgian and foreign employers are at a disadvantage when employing foreign staff.
In any case, Belgian and foreign employers should carefully study the rules and check whether their policies, practices and administration need to be adjusted in order to ensure that they would not be subject to discussions and penalties in Belgium.