From 1 January 2022 onwards, a new special tax regime was introduced in Belgium for incoming taxpayers (BBIB) on the one hand and incoming researchers (BBIO) on the other. The system replaces the previous circular dated August 8, 1983, which will gradually be phased out in the coming years.

The special tax regime aims to preserve Belgium’s international competitiveness by allowing companies and organizations to attract qualified personnel from abroad to work in Belgium in a tax-friendly manner.

The new system applies to two categories of taxpayers

• Employees and managers, arriving in Belgium, who earn an annual taxable gross salary of at least EUR 75,000
• Employees arriving in Belgium, who work at least 80% of their time employed as researchers, and who have a specific diploma or relevant professional experience of at least 10 years.

Only persons, who lived with their family more than 150 kilometers from the Belgian border in the period of 60 months prior to taking up employment in Belgium, and who were not taxable here on their professional income, can qualify.

Furthermore, the persons concerned must either be recruited directly abroad or transferred to Belgium by a foreign company/organization to carry out their professional activity here.

Although it was stated in the preparatory work that the new special tax regime should be simpler than the old system and that it should also provide greater legal certainty, important issues already come up after only a few months. The objective of increasing legal certainty is for sure not met because a first court discussion has been initiated with the Constitutional Court.

The discussion revolves around the way in which the scope of the new regime has been defined in the law, and the potential discrimination in the law between organizations, whereby some of them are excluded from the new regime without proper justification.

 At the employer/company level, it is required that it concerns:

• a “domestic company” (subject to corporate income tax)
• a Belgian establishment of a foreign company (subject to the tax of non-resident companies)
• an association with legal personality referred to in Article 1:6, § 2 of the Code of Companies and Associations (“CCA”).

It is at the level of the qualifying company/association that the problem arises. The original proposed law stated that only resident companies, Belgian establishments of foreign companies and non-profit organizations could be eligible. After amendment, international non-profit associations (Ivzw), were also added to the scope of the system.

However, this extension of the scope was incomplete, and part of the non-profit sector remains outside the scope of the scheme. This is the case, for example, for foundations and institutions of public interest. This probably results from a lack of care on the part of the legislator, when inserting a specific reference to the code of companies and associations in the tax law.

Non-profit associations and non-profit associations, referred to in Article 1:6, § 2 CCA can benefit from the system. This is not the case for public benefit foundations, which are covered in another section of the CCA (Article 1:7 CCA). In the preparatory works of the law, however, no motivation whatsoever can be found as to why reference is only made to Article 1:6, §2 CCA, while entities, mentioned in article 1:7 CCA can carry out the same activities.

Public benefit foundations must also be able to attract personnel with the necessary competences from abroad to maintain and strengthen their position in their sector.

Cancellation appeal Constitutional Court

Several Belgian public benefit institutions with educational and research activities have recently lodged an appeal for cancellation of the law with the Constitutional Court. According to them, there is a violation of the Constitution because their organizational form does not fall within the scope of the new special tax regime.

In their view, by excluding them from this system, the law has introduced a distinction, for which no reasons are given and for which there is no justification. The appeal does not aim to undermine the entire new system, but rather aims to ensure that the law is amended to broaden the scope of the regulation to include organizations such as foundations/public interest bodies.

And what about the other bottlenecks?

It is doubtful whether this will be the last topic of discussion that will land with the courts in Belgium.

In recent months we noted that the central services of the tax administration intend to interpret and implement the legal texts in a most restrictive and in our view unreasonable way.

A first discussion item is the 75,000 Euro gross wage limit of the BBIB. Several anomalies are discovered here, including:

• The limit must be met every year; failure to comply with this for just a single year immediately leads to a loss of entitlement to the BBIB, not only for the year in question, but also for future years. The consequence of this rule on the taxpayer’s tax burden can reach spectacular proportions and shows little common sense and reasonableness for the application of what is called a ‘favorable tax regime’.
• In the year of arrival in Belgium, the salary package is often still incomplete. For example, the rights to holiday pay are not yet complete that year and the payment of bonuses (earned in the year) has not yet taken place (this usually happens the following year). This shift of the payment of accrued rights to wages to the next year(s) is not considered at all, which means that the BBIB can easily be lost, even if the normal annual wage exceeds the wage limit.
• In the event of a transition from the old to the new regime, the Administration applies the wage limit retroactively from the start of the activities in Belgium onwards. The question is whether it is reasonable to refuse the BBIB to someone who clearly earns more than the wage limit in 2022 because the person concerned was still working at a lower wage a few years earlier before the new system was introduced. The retroactive effect of the new law can be questioned.

If an incoming taxpayer in Belgium is taxable as a non-resident, the Administration requires the presentation of a residence certificate, issued by a foreign tax authority, together with the application for the BBIB/BBIO. Such a certificate must furthermore be submitted annually. It is a mystery to us what tax residency (resident or non-resident) has to do with the essence of the BBIB/BBIO. Residency is only a modality for the tax return, more specifically to determine which exact type of return the taxpayer must submit.

Residence in Belgium is defined in Article 2 of the Belgian Income Tax Code. In the law there is no mention at all of a certificate of residence in another country as a factor that would in any way be relevant for Belgian tax residency. Such a certificate does not appear anywhere in the code (other than in the articles on the new BBIB/BBIO) and is only relevant for the application of international tax treaties. It is difficult to understand why this formality has been written in the new law. It is even more difficult to comprehend why the lack of a certificate should give rise to the forfeiture of the right to the special tax regime.

Here too, there is a good chance that taxpayers will go to court on this issue. One can only regret that the legislator and the Administration have, from the outset, paid so little attention to the need for  legal certainty for taxpayers.