The Belgian Government has announced some significant changes to the existing special tax regime for foreign executives. The new rules will apply as of 1 January 2022.
The current regime is based on an administrative tolerance that dates back to 1983. The special status has not much changed since. Under the current system, an expat is considered a ‘non-resident’ taxpayer, which means he is only taxable in Belgium on Belgian source income. The other benefits are the ‘foreign travel exclusion’ and the fact that certain expat allowances remain completely tax-free.
The new regime would give more legal certainty to expats as it will now be included in the Belgian Income Tax Code (BITC). We hereafter give you an overview of the most important changes in case you currently employ expats or would be interested to apply for this new status.
Two new categories
Under the new regime, a distinction is made between ‘inbound taxpayers’ (employees and directors) and ‘inbound researchers’ (employees). The first category should either be recruited abroad or made available within an international group and transferred to work in a Belgian entity (not necessarily a subsidiary). The Belgian entity can also be a branch office or a not-for-profit organization. The fact that NPOs and NGOs can now also employ expats is a big improvement compared to the current situation.
Directors are also eligible on the condition they are responsible for the ‘daily management’ of the company (not just board members) and only if they are a shareholder for less than 30% in the company’s equity.
For inbound taxpayers, there is no minimum educational requirement. Inbound researchers are required to provide a qualifying master’s degree or demonstrate at least 10 years of relevant professional experience (i.e. in scientific, fundamental, industrial or technical research in a laboratory or an R&D centre).
Furthermore, in the 60 months prior to starting employment in Belgium, (i) the taxpayer may not have been a Belgian tax resident; (ii) has lived at least 150 km from the Belgian border; and (iii) may not have been subject to the Belgian non-resident tax (in respect to professional income earned here).
The special status is not only available to foreigners, but to Belgian nationals as well. As long as they meet the above conditions, Belgians can be eligible.
While the current expat regime did not have a maximum period one could benefit from it, the new regime will now be limited in time. It will be initially applicable for 5 years, with the possibility – under certain conditions – to extend it with another 3 years. This extension needs to be requested within 3 months after the first 5-year term has expired.
As a result, the special status will be in place for maximum 8 years in total.
If the expat would change employers in the meantime, the new employer should file a separate request to renew the expat status. The maximum 8 year term can never be exceeded or extended because of this change in employment.
Resident or non-resident?
While expats are traditionally considered non-resident taxpayers in Belgium, it often happened that they were no longer a tax resident in their home country either. This resulted in taxpayers not being considered a tax resident anywhere.
The individual who applies for the new status, will in principle be considered a Belgian tax resident. As the normal residency rules will apply, they will become taxable in Belgium on their worldwide income (incl. overseas properties and investment income). On the other hand, they will also have access to the double tax treaty network to claim tax relief where possible.
In case the expat wants to be considered a non-resident taxpayer instead (taxable on Belgian source income only), the latter will need to demonstrate every year that he is still considered a tax resident in his home country (which is typically done by means of a Tax Residency Certificate issued by a foreign tax office).
Under the new regime, there will also be a minimum gross salary requirement of €75.000,00 per year for the Belgian employment. This includes holiday pay, end-of-year bonus, benefits in kind, bonuses and other gratifications, but never severance pay, replacement income, meal and eco vouchers or any costs proper to the employer.
The salary threshold is indexed every 3 years, starting for the first time in 2024. There is no minimum salary requirement for inbound researchers.
The current tax benefits like the ‘foreign travel exclusion’ and the expat allowance (up to €11,250 or €29,750 per year) will be replaced with 30% of the gross salary being considered a tax-free expense reimbursement. There is a maximum threshold of €90,000 per year for recurring expenses (which equals a gross salary of €300,000), also indexed every 3 years, starting in 2024. Any repayment above that amount will be considered taxable salary for the employee.
For the year of arrival and the year of departure, the €90,000 amount needs to be prorated.
The above maximum amount does not prevent additional non-recurring expenses to be reimbursed on top of that. These are, for example, (i) relocation expenses for moving to Belgium; (ii) costs of refurbishing the expat’s house/apartment in Belgium within the first 6 months after arrival (limited to max. €1,500, to be indexed); (iii) school tuition fees for the children; and (iv) tax advisory fees in respect to, for example, the expat status application.
The more traditional ‘costs proper to the employer’ can continue to be reimbursed tax-free to the employee as well.
Considering the minimum salary requirement of €75.000,00 per year and the fact that the 30% tax-free allowance qualifies as a ‘cost proper to the employer‘ – to be excluded from the minimum salary – the total gross remuneration of the executive would need to amount to at least €107.150,00 per year.
Same as before, the company that employs the expat needs to file a formal (online) request within 3 months as from the start date of employment in Belgium. This is significantly less than the 6 months that are currently in place. On the other hand, the Belgian tax authorities will also have 3 months to decide on the application. This is a big improvement compared to the current situation, in which the tax office basically had no deadline to take their decision.
An important change is also the so-called ‘annual nominative list’. By 31 January, the employer must provide a list of all employees who benefitted from the expat regime in the previous calendar year. This should allow the Belgian tax authorities to regularly verify whether the above conditions for the special tax status are still met.
The employment contract itself should also explicitly mention the option to apply for the expat status. If nothing is mentioned in this respect, the employee will not be eligible.
The new regime is available to those expats arriving in Belgium on or after 1 January 2022.
Under certain conditions, those who benefit from the current expat regime can opt for the new one if they want (opt-in). A request for this needs to be filed before 31 July 2022. It should be noted that this option is only available to those expats who have been under the current regime for 5 years or less. If the authorities approve the application, the new tax status will apply retroactively as of 1 January 2022.
If the decision is negative, the new regime will not apply and the employee will stay under the ‘old’ expat status for the time being. In view of this, those Belgian companies that currently employ expats, need to check if their employees should file such request or better stay under the current regime.
The new status would especially be interesting for those expats that have an annual gross salary above €107,150, but who have little or no foreign travel. Due to the recent pandemic, the absence of business trips abroad might have gotten a more permanent character for many employees.
In any case, if it is clear that you(r employees) would not meet the conditions of the new regime, there is obviously no point in applying for it. A two-year transition period will remain in place (under the old expat status), after which the expats will lose their status and become a Belgian tax resident.
The Belgian social security authorities would still need to confirm that the 30% tax-free allowance can also remain exempt from social security contributions.