Reform of the Belgian expat tax regime
Since 1983, Belgium has had a favourable tax regime in place for expatriates (expats) who are temporarily assigned to Belgium by a foreign employer or recruited from abroad by a Belgian employer. Under this regime, expats can benefit from a reduction of Belgian income tax and social security contributions, provided that certain conditions are met. The Belgian Parliament has recently approved a bill which reforms the existing tax regime and incorporates this special tax regime in the Belgian Income Tax Code, whereas the current system was governed by a Circular Letter issued by the Belgian tax administration. The reform aims to:
- provide more legal certainty for the taxpayers;
- simplify the regime; and
- tackle possible abuse of the current rules.
The bill entered into effect on 1 January 2022 and the changes will, in principle, become effective as from that day.
Changes to the scope and the conditions of the existing system
Abolition of the non-resident fiction
First of all, under the current regime, qualifying expats are deemed to be non-resident taxpayers in Belgium, even if they reside in Belgium with their family. This fiction resulted in certain cases of fiscal “statelessness,” when also the home country of the expat no longer considered the expat to be a resident taxpayer. Due to the status of non-resident taxpayer, only the Belgian source income is subject to income tax in Belgium. Consequently, the salary that expats received from their employer in Belgium and that corresponded to the working days spent outside Belgium, was not taxable in Belgium (foreign travel exclusion). Often this income was also not taxable in the foreign state(s).
Under the new rules, expats benefitting from the special regime will be regarded as either resident or non-resident taxpayers in Belgium in accordance with the ordinary tax rules. Individuals are considered to be a tax resident in Belgium if they have their domicile or centre of personal and economic interests in Belgium. Expats qualifying as a Belgian resident taxpayer will be subject to personal income tax in Belgium on their worldwide income, which could potentially result in a higher income tax burden.
Absence of “connection” with Belgium
The current system is only available to expats who do not have Belgian nationality and who have never filed a resident tax return in Belgium in the past.
This requirement has been replaced by the so-called “rule of absence of connection with Belgium.” This essentially entails that, at any time during a period of 60 months prior to the assignment or employment in Belgium, the expat:
- may not have been taxed as a resident in Belgium;
- may not have been taxed in Belgium as a non-resident on professional income; and
- may not have been living closer than 150 km from the Belgian border.
An expat holding Belgian nationality will therefore no longer automatically be excluded from the special tax regime.
Introduction of a limitation in time
Under the current rules, expats can benefit from the special regime for an unlimited period of time, provided that it can be demonstrated that they still maintain sufficient links with their home country.
As this often resulted in discussions between the Belgian tax administration and the taxpayers, the legislator has decided to introduce a time limit of five years, with a possible extension of three years, for the application of the regime.
Lump-sum calculation of the tax-free allowances
The current regime provides for a tax exemption for certain reimbursements made by the employer to the expat, which cover the expenses incurred as a result of the assignment to Belgium (tax-free allowances). These reimbursements benefit from a tax exemption up to EUR11,250, or EUR29,750 per year in case of research and development personnel. In addition, as mentioned above, the part of the salary of the expat that relates to business days worked abroad is also exempt from income tax (foreign travel exclusion). The amount of these allowances is generally computed on the basis of a complex set of rules. Now the legislator has decided to introduce a lump-sum deduction of 30% to be applied to the gross salary of the expat (capped at EUR90,000). This lump-sum allowance must be explicitly included in the relevant (employment) contract.
In addition, the reimbursement of the school fees of the children and the costs of moving to Belgium and of furnishing the home in Belgium should remain exempt from income tax, subject to certain limitations.
Finally, it can be expected that the aforementioned tax-free allowances will also be exempt from social security contributions due in Belgium. However, the social security authorities have not yet confirmed this.
Minimum salary requirement
While under the current regime, no minimum salary is required, the legislator has decided that such threshold, amounting to EUR75,000 per year (without the tax-free allowances) must be imposed. However, a distinction should be made between “researchers” and “non-researchers.”
- Researchers: the minimum salary requirement does not apply to researchers. To qualify as a researcher, the expat has to be an employee and has to perform exclusively or almost exclusively (at least 80%) of their research activities of a scientific, fundamental, industrial or technical nature and hold a qualifying doctor or master’s degree (in medical, agricultural sciences, in engineering, etc). The parliamentary documents contain an extensive list of qualifying degrees. Expats who do not hold a qualifying degree, must demonstrate that they at least have ten years’ of relevant professional experience.
- Non-researchers: the minimum salary requirement will apply to non-researchers. Non-researchers are, in general, all employees, as well as self-employed managers or directors, who are not a researcher. To assess whether the threshold is met, the base salary, bonuses, benefits in kind, holiday pay, etc. should be taken into account, but not the tax-free allowances.
Simplified practical example: employee benefitting from the new special tax regime vs the current special tax regime and the ordinary tax regime applicable to employees.
|Ordinary employee||Current regime||New regime|
|Salary (total package)||EUR100,000||EUR100,000||EUR100,000|
|- Tax-free allowance (max.) (*)||N/A||EUR11,250||EUR23,077 (30%)|
|- Social security (13,07%) (**)||EUR13,070||EUR11,599.62||EUR10,053.85|
|- Income tax (53,5%)||EUR46,507.55||EUR41,275.45||EUR35,775.04|
|Net income||EUR40,422.45||EUR47,124.93||EUR54,171.18 (***)|
(*) Please note that we have only included the recurring allowances, and not the non-recurring allowances for compensation of the costs of moving to Belgium and of furnishing the home in Belgium (and the school fees for children). We also assume that the employee concerned does not perform R&D activities (this is relevant for determining the maximum amount of the tax-free allowance under the current regime).
(**) Assuming that social security contributions are due in Belgium.
(***) The advantage of the new regime will increase if the salary of the employee is higher, considering that the tax-free allowance is calculated on a lump-sum basis (capped at EUR90,000).
Administrative formalities to claim the new expat tax regime
To claim this special tax regime, the employer will have to file an application with the Belgian tax authorities, including a certificate signed by the expat, within three months from the start of the assignment or employment of the expat in Belgium. The authorities will have to reply within a period of three months.
In addition, before 31 January of each year, the employer will have to provide the Belgian tax administration with a list of all qualifying expats for the preceding year.
The new set of rules will apply to all expats that will be employed or assigned to Belgium as from 1 January 2022.
Expats who are currently entitled to the existing regime for a period less than five years on 1 January 2022, can opt into the new regime, provided that all the aforementioned conditions have been met as from the first day of their assignment or employment (minimum salary, absence of connection with Belgium, degree requirement). These conditions will thus have to be assessed retroactively.
Opting-in requests, including a certificate signed by the expat, will have to be filed by the employer before 1 August 2022. The years under the existing regime will be deducted from the five (or eight) year period that the expat will be entitled to under the new regime.
Expats who do not opt in will be subject to a phasing out of the existing regime over a period of two years. The details of the phasing-out procedure are yet to be determined by the Belgian tax administration, as this is not included in the relevant law. A Circular Letter setting out these transitional measures and other practicalities is expected in early 2022.
As from 1 January 2022, a simplified and more transparent, but not necessarily a more beneficial tax regime for expats will enter into force. The current system, that has been in place since 1983, is expected to be phased out over a period of two years.
The changes are not only relevant for new assignments and employment of expats in Belgium, but also for companies currently employing expats who benefit from this special tax regime, as they should assess on a case-by-case basis whether it is favourable for them and their expats to opt in to the new set of rules, or whether it is more beneficial to remain covered by the current system (as, for instance, the minimum salary requirement is not met).
Finally, it should be noted that the application of this reformed tax regime does not exclude the application of other tax incentives such as the exemption from payment of payroll withholding taxes for research and development personnel.
For any requests of more information and/or assistance, please contact one of the lawyers below.