Belgium has a long tradition of special tax treatment for executives and researchers who come to work in Belgium. Such a system mitigates the higher tax burden in Belgium compared to most other countries and ensures that these taxes are less of an obstacle to pursuing professional activities in Belgium.
At the end of 2021, the system, which was introduced in 1983 by means of circular letter nr. Ci.RH.624/325.294 of 08.08.1983, will finally come to an end. Although this system was only based on a limited legal basis (the rules are described in an administrative circular and not in the law as such), this system has been remarkably stable and successful. Few Belgian tax regimes have such a long duration of up to 40 years.
The existing regime is now replaced by a new one, which is more in line with contemporary tax concepts and which has now been firmly rooted in the law. In this text, we look into the new regime, following the recent publication of the new legislation in the Belgian State Gazette. The basic idea behind the new regime remains the same:
The new regime also tries to remedy a number of problem areas of the old regime, including
In the new system, which is introduced as of 1 January 2022, there are two different, but nonetheless very similar tax benefit regimes. On the one hand, there is the special tax regime for incoming taxpayers, abbreviated as BBIB, and on the other hand, there is a special tax regime for incoming researchers, abbreviated as BBIO.
The special scheme for incoming taxpayers can apply to both employees and company directors. The special regime for incoming researchers applies only to employees.
The introduction of the new schemes goes hand in hand with the phasing out of the current special tax system. For persons, who meet the conditions for the new system, the possibility to opt into the new system is offered, but they can only do this if they have not yet been employed in Belgium for more than 5 years. For those, who cannot or do not want to switch, the old system continues for a limited period of time and will in any case end after two years (so by 31 December 2023 at the latest).
Basic conditions for the new regime
In order to be able to fall under one of the two new schemes, three cumulative base conditions must in any case first be met during the five years (60 months) preceding the start of the activities in Belgium:
The new rules should make it easier to submit a second or even third application, as long as there is at least 60 months between each successive assignment in Belgium. In case of an immediate switch to a new employer it is possible to file a request to continue the system for the remaining part of the 5 to 8-year maximum period.
The former condition of having a foreign nationality is abolished under the new system. This puts an end to this form of discrimination on the basis of nationality and the favorable regime is now also open to Belgian nationals, provided, of course, that they can meet all other conditions for eligibility. This means, among other things, that they must have lived outside Belgium for a sufficiently long time (at least 60 months) before being employed in Belgium.
The new system does not impose any conditions regarding the level of education for incoming taxpayers. For researchers, there is a diploma requirement or relevant experience of 10 years in certain fields is to be shown. Researchers must in addition be engaged for at least 80% of their time in research activities of a scientific, fundamental, industrial or technical nature in a laboratory or company.
Incoming taxpayers may qualify for the scheme in the following situations:
a) Directly recruited from abroad:
– by a Belgian company that is part of an international group of companies
– by a Belgian establishment of a foreign company
– by a non-profit organization; the latter is new and opens the possibility of the special tax regime to a new group of potential beneficiaries. Moreover, for such organisations, it is not required that they are part of an international group.
b) Posted to Belgium by a foreign company that is part of an international group:
– to one or more Belgian companies
– to one or more Belgian establishments of a foreign company that is part of the same international group
– to a non-profit organization
An international group is defined as a group with 2 or more companies, established in different jurisdictions. It can also be a company, established in a certain country, that has a Belgian or foreign establishment. This condition is therefore quickly met.
For incoming researchers, the conditions are similar, but slightly different. They can benefit from the scheme in the following situations:
a) Directly recruited from abroad:
– by a Belgian company (even if it is not part of an international group)
– by one or more Belgian branches of a foreign company
– by a non-profit organization
b) Posted to Belgium by a foreign company that is part of an international group:
– to one or more Belgian companies
– to a Belgian branch of a foreign company that is part of the same international group
– to a non-profit organization
An international group is defined here in the same way as for inbound taxpayers.
New salary level requirement
An important new condition is that of a minimum wage limit for incoming taxpayers in order for the system to be applied. There is no such salary threshold for incoming researchers. The incoming taxpayer must receive at least a taxable gross remuneration of 75.000 Euro per calendar year in order to qualify for the special tax regime. This amount is subject to revision every three years, starting in 2024.
To assess the salary threshold, one looks at the annual remuneration per calendar year for professional activities in Belgium. This is the gross remuneration before deduction of the social security contributions. Included are things like holiday pay and end-of-year bonuses, benefits in kind, bonus payments and other taxable benefits.
However, the following are not taken into account: replacement income (e.g. parental leave, temporary unemployment, etc.) and severance payments. Also certain exempted benefits (such as meal vouchers or eco vouchers) are not taken into account.
The limit is assessed on a pro rata basis for the year of arrival in Belgium or departure from Belgium and also for the year in which the special tax regime ends.
The salary limit is applied excluding the tax-free reimbursement of expenses, which is provided for in the regime.
The salary threshold of €75.000 is considerably higher than under the old system, where it coincided with the threshold for obtaining a work permit. It can be expected that this condition in particular will lead to a significant reduction in the number of people who are eligible for the special tax regime.
This condition also has an impact on the group of younger executives and specialists, who used to be eligible for the old regime but now may not meet the salary requirement. The salary threshold is also likely to be a major obstacle for expatriates to make use of the transitional scheme and enter the new regime.
Expatriate cost exemptions
The main benefit of the new regime is granted in the form of a tax-free annually recurring expense allowance. This amounts to a maximum of 30% of the gross salary with a maximum of EUR 90.000. It can be a specific cost reimbursement in addition to the salary or a standard 30% amount. This exemption is considerably higher than the one under the old system (limited, depending on the case, to EUR 11.250 per year or EUR 29.750 – amounts that, moreover, have never been indexed since 1983).
Because it is a lump sum, the former complexity of working based on the guidelines of the so-called ‘technical note’, which was difficult to understand for the uninitiated, is eliminated. In this respect, the new system has become much simpler and more accessible.
The expense allowance is deemed to include all recurring expatriation expenses incurred by the taxpayer resulting from his/her recruitment or posting to Belgium. The lump-sum allowance covers, among other things, additional costs related to accommodation, cost of living, home leave to the country of origin, emergency leave (return to the country of origin because of birth, marriage or death of a close relative).
In addition to the annual 30% exemption, the following costs are accepted as non-taxable costs proper to the employer without limitation, but only on the basis of supporting documents
Examples of the application of the salary threshold and of the 30% cost exemption
This example shows that the special tax regime can be more advantageous than the old one. After all, the old limit for the reimbursement of expenses was only 11.250 Euros (except for researchers or executives with control or coordination functions, who could exceptionally benefit from a limit of 29.750 Euros). These limits were never adjusted during the 40-year life span of the old regime
One can note that a person with a total gross package of 300.000 does not yet reach the maximum limit for the tax exemption
– Employee with a gross package of 390.000
The example shows that from a total gross package of 390.000 onwards the maximum limit for the tax exemption is reached
Although the exemption for the reimbursement of expenses will often be higher than under the old system, it must be taken into account that the travel exemption will lapse. Employees, who mostly work in Belgium, will in many cases enjoy a tax advantage under the new system. Employees with a high travel exemption, however, risk to end up with a lower overall exemption than under the old system.
Directors of a company
Directors can be eligible for the special regime for incoming taxpayers, but (not really for obvious reasons) not as an incoming researcher. Moreover, the director must come to Belgium to carry out day to day activities. Thus, the scheme is not open to company directors who are only members of the board of directors or the supervisory board.
Also directors of the so-called “second subcategory” of the Belgian tax legislation can benefit from the status. This refers to persons who fulfil a leading function or a leading activity of daily management, of a commercial, financial, or technical nature in a company outside the scope of an employment contract.
In addition, for company directors, their shareholding in the company is always taken into account: as soon as this shareholding exceeds 30%, they are no longer eligible for special tax benefits. This condition is in line with the already existing practice to exclude such persons because, based on their control in the company, they would otherwise be able to post themselves (or have them posted) to Belgium for the sole purpose of international tax planning. It is assumed that such shareholder company directors are also willing to come to Belgium without tax benefits if they see a professional need for this.
Additional taxes and complexity
An extremely important change concerns the tax residency of the employee/director.
Under the old regime, expatriates were always treated as non-residents of Belgium in all possible scenarios. As a result, they were not taxed on their worldwide income in Belgium. On the one hand, this was usually advantageous to them, but on other hand, they could not invoke the double taxation treaties in their capacity of residents of Belgium and from time to time could not benefit from certain tax deductible items.
The application of non-resident tax rules under the old regime in general simplified their Belgian tax file because, among other things, the following items did not have to be declared or disclosed in Belgium:
Under the new system, expatriates, who meet the Belgian tax rules to be taxed as residents of Belgium, will be subject to taxes on their worldwide income. This does not only lead to additional taxes, but also to a significant increase of the overall complexity of their tax file. We therefore fear that this aspect will to a large extent undermine or even cancel out the intended simplification and transparency of the new system.
As tax residents of the country, they will now also have to declare the following
Furthermore, they have to comply with the following additional obligations
As mentioned above, the abolition of the fictitious non-resident tax status therefore largely or entirely cancels out the simplification, which is sought by the new system. In this respect, the new system is certainly not an improvement. Many expatriates will now have to deal with complex Belgian tax matters, that in the past were not applicable to them.
Under the new system, each employee will have to undergo a thorough tax residency investigation to determine whether their Belgian taxes will be treated under the resident income tax system (taxable on worldwide income) or under non-resident tax rules (only taxable on income from activities in Belgium and/or from Belgian sources).
If tax returns are to be filed under resident tax rules, this will lead to the advantage that the taxpayer will always be entitled to the personal allowances and deductions or at least to a pro rata part of them (for the year of arrival or departure). The complex 75% rule, as a result of which many non-residents are denied the application of these important reductions, does no longer apply to them. Moreover, they can now benefit from all federal and regional tax deductions without discussion. This discrimination under the old expatriate regime has at last been abolished.
Only persons, who qualify as non-residents because they maintain their family’s permanent residence abroad, will need to continue to take into account the limitations of the 75% rule. These employees/directors, however, may benefit from a tax exemption on working days spent outside Belgium in application of the international tax treaties.
In addition, non-residents who want to make use of the new special tax regime will be required to submit an annual certificate of tax residence from another country, confirming that the person concerned is taxed as a resident in that country. The intention of this requirement is apparently to prevent a person, who may benefit from the special tax regime, from not being treated as a tax resident in any country.
This condition seems to us to be overly formalistic (the additional annual formalities offer little or no added value and only eat away time and resources). Moreover, it is perfectly possible that a person is considered as non-resident under domestic Belgian law (e.g. person employed in Belgium for a very short period of time), even in cases where foreign tax residency would not be maintained during the same period. In our view, this is not very fair towards them. As for the reason why such persons should be denied to benefit from the special tax regime is hard to understand.
Application procedure and duration of the new regime
The new scheme is applicable to incoming taxpayers and researchers, who enter into service in Belgium as from 1 January 2022 onwards. As from then, no more applications can be made for the old scheme. As was the case under the old scheme, it is required that a formal application is first submitted to the competent service and that the file is accepted by the Administration.
The application has to be made by the employer or the company via electronic means and this in the way described above and within a period of only three months from the start of employment of the taxpayer in Belgium. This period of three months is very short (maybe even too short?), so one runs the risk of being excluded from the scheme because of its expiry.
The Administration promises to be able to make a decision on the submitted applications within 3 months after receipt of the application. This should put an end to a great deal of ambiguity and legal uncertainty that existed under the old system, where the authorities could not properly follow up on all new applications within a reasonable time frame.
In case of a positive answer from the Administration, the scheme can be applied as from the start date of the expatriate’s activities in Belgium. The scheme is valid for five years, after which it can be extended for another three years. An additional application is required for the extension.
In addition to the application for the regime and a possible request for extension (end of the first 5-year period), the employer or company must also submit each year, before the end of January, a nominative list of all persons to whom the special tax regime is applied for the past year. This list should facilitate the control of the files, but it seems to us that here too, this results in unnecessary additional formalism (there seems to be a large degree of distrust towards the taxpayers and companies) without offering much additional value. Again the simplification of the system is threatened by overkill in the rules and formalities.
Under the new system, it will be much easier to change employer in Belgium without this giving rise to major legal uncertainty as to the continuation of the expat status. This is an important improvement. Now, the system can simply be applied for the remaining duration (of 5 or 8 years). Nevertheless, this still requires a formal application from the new employer.
The law provides for a transitional scheme. The old system, based on the Circular of 1983, can still be continued for a maximum period of 2 years by those who do not wish to switch to the new scheme, or who do not meet the conditions for one of the new schemes. After this period (on 1/1/2024) all old expatriation benefits cease to apply for them.
Persons, who fall under the old scheme on 31 December 2021, can possibly apply to transfer to the new scheme. This is only possible if they have worked less than 5 years in Belgium (on 31 December 2021) and in addition meet all the new conditions. The period already used under the old scheme is deducted from the maximum period (of 5 + 3 years) for which the new scheme can be applied.