As a result of the COVID-19 pandemic, working at home has become the standard scenario for employees in Belgium.

The Belgian tax and social security authorities from time to time issue instructions on the treatment of expense allowances, paid by an employer, to cover the cost for the employee to work at home (working space, furniture, equipment, utilities, etc….).

The most recent update of the instructions from the tax office was issued on 26 February 2021 (Tax Circular letter2021 / C / 20 – to be found on the website of the tax authorities).

The authorities accept a monthly tax exempt payment of 129,48 Euro without further evidence (temporarily increased to 144,31 for the months April, May and June 2021), provided that all conditions, indicated in the circular letter can be met.

One clause in the circular letter has caught our attention. It is mentioned that
the scheme described in the circular letter can not be applied to employees who fall under special regimes such as, for example, salary splits and foreign executives (we assume they refer to the executives, who can benefit from the special tax regime of 8/8/1983).

For these special regimes, the authorities refer to the base rule that the granting of tax exempt lump sum reimbursements of costs is to be based on serious and consistent elements, and must further be evaluated on a case-by-case basis. This would then mean that employers can not simply pay aforementioned allowances to expatriates without a risk that the exemption would later on be challenged by the tax authorities.

In this way, expatriate staff is treated in a different and less favorable way as compared to local Belgian employees, where such risk of discussions with the authorities is covered by the recent tax circular letter.

It seems that the Belgian tax authorities do not really like their special tax regime and are searching for possible methods to reduce the tax benefits from the special tax regime. The seem to want to make the special tax regime less attractive for employees and international employers.

This evolution can clearly be noted. We have the recent clause relating to home office expenses, and in addition, we have seen that the authorities have used COVID-19 to reduce the business travel exemption for expatriates. Very recently, they also started to reduce the exemption for temporary housing expenses (when moving into Belgium) and intend to tax a benefit in kind for tax support services, provided to expatriates by their employers.

Coming back to the office at home, the authorities do not conclude that a tax exempt allowance is not possible for expatriates, but they state that the situation is to be reviewed on a case-by-case basis. In this respect, it is obvious that also expatriates are likely to incur expenses in case they work from home. The issue then only remains whether the amounts can also be applied for expatriates or whether they should be somewhat reduced for them. The concern of the authorities is probably based on the consideration that there exists an exemption for a cost of housing differential under the special tax regime. They may want to avoid any possibility of a (small) double tax benefit (first a tax exempt home office allowance and in addition a tax exempt housing cost differential exemption).

There are certainly many cases where there will be no risk of any double use. This can happen when the employee has already reached the maximum exemption limit (11.250 Euro in general or 29.750 Euro in exceptional cases), so that the home office would not give rise to a double benefit. The same occurs in case there is no housing differential exemption at all (for example, if the employee only pays a limited amount of rent as compared to his or her salary level).

In our opinion, there should even not really be an issue in case a housing cost differential is exempt in the tax return of an expatriate. The exemption does not cover the full rental expense, but only the rental difference between the housing cost in the home country and the housing cost in Belgium. Only the difference is covered and not the total rent expense. The risk of double use of a tax exemption is therefore already significantly reduced in this way. It is likely that the clause in the recent tax circular letter will not have a real impact on most taxpayers.

In the circular letter, the authorities indicate that an application for a ruling is always possible in case of further doubt on the matter in certain cases. Whether it will be worth all the time and effort to go through this procedure for individual cases is questionable, especially since the tax exempt amounts for a home office are limited anyhow.