Before we can advise clients on their global tax situation, it is essential to understand where they are tax resident. Tax residence is the country where you are legally required to pay taxes, often on your worldwide income. It is not because you physically live in a country that you are considered a tax resident there and vice versa. The two are connected but are not necessarily the same.
Tax residence is determined under the domestic tax laws of each jurisdiction. Every country has their own set of rules that stipulate if you are required to pay taxes there. Some countries apply the ‘183 day-rule’, while others look at your center of vital interests instead. These rules are separate from the ones required to obtain a residence permit. If it is your goal to become a tax resident of another country than the one you are living in now, you need to understand the basic rules of both countries. Some clients want to be considered a Belgian tax resident, while others prefer to avoid exactly that.
Since every country applies their own rules, there can be situations where a person qualifies as a tax resident of more than one jurisdiction. This is where the double taxation agreement (DTA) becomes relevant. The DTA will prevent double taxation by ultimately allowing only one country to tax your earnings and allowing you a tax exemption (or tax credit) in the other.
The Belgian Tax Code defines a Tax Resident as ‘any private individual who has established either their residence or seat of wealth in Belgium’. It is further stipulated that whether your residence or seat of wealth is established in Belgium, is assessed based on the factual circumstances.
Unless demonstrated otherwise, private individuals that are registered in the National Register of Belgium, are deemed to have established their residence or seat of wealth in Belgium. If you register at the city or town hall in Belgium for immigration purposes, you will automatically trigger a legal presumption that you have established your tax residency in Belgium as well.
Therefore, the fact you must register at the local town or city hall upon arrival is only an immigration requirement, but obviously one with an important tax consequence.
In absence of such registration, tax residence is based on the general principles governing the determination of resident or non-resident status, in particular whether or not the tax residence or seat of wealth is located in Belgium.
Belgian Tax Residence has been defined as a ‘special and de facto residence, which can be independent from the civil domicile and nationality, which is established, confirmed and consolidated by a set of facts and circumstances’. It can also be described as ‘an actual place of residence which is necessarily characterized by a certain degree of permanence or continuity’.
More or less than 183 days?
In other words, Belgium does not apply the ‘183 day-rule’ to determine whether you are a Belgian Tax Resident but does require a certain degree of permanence. In practice, the tax authorities always refer to the date of initial registration in our National Register. You will only be considered a tax resident in Belgium from that day onwards, even if you would spend more than 183 days that year in Belgium. This approach is quite different than in most other countries.
It rarely happens that somebody is suddenly considered a tax resident without having registered before at the local town or city hall. It would not even practically be possible to file a Resident Tax Return without a Belgian national registration number. The authorities will simply not be able to issue a resident tax form in that case.
The seat of wealth, on the other hand, is the ‘place where one’s financial assets are administered, which is evidently characterized by a certain degree of permanence’. Furthermore, ‘the place of the taxpayer’s assets does not mean the place where the assets themselves are located, but the place where the owner, who manages or supervises them, has the center of their interests or affairs’.
‘Tax residence’ and ‘seat of wealth’ are two alternative criteria for determining tax residency. Each can therefore be used independently from one another as a criterion.
Marriage or legal cohabitation
For married couples, the general rule is that their status of resident/non-resident should be assessed jointly for both partners together. They are either both residents or both non-residents depending on whether their tax residence is in Belgium or not. This does not mean that partners can de facto live separated and therefore still have a different tax status.
The place where the household is established normally determines the place of tax residence. The latter is defined in Belgium as the place where a person permanently resides, where his family is, and where he maintains vital relations with other people. It primarily refers to the place where an individual effectively and permanently resides, in other words, where he lives and works.
Impact of working or residing abroad
With an increased global mobility, it has become quite common to pursue a professional career in a different country than the one where the family is located or where the taxpayer normally resides. In this case, the various constitutive components of tax residence must be considered, obviously giving more importance to the center of vital relations than to the place of residence and professional activity.
The decisive element in most cases is where the dwelling of the close family or household of the taxpayer is located. Where one ‘usually’ physically resides can sometimes provide a sufficient criterion to determine whether a person is a tax resident of Belgium, but to properly assess this, it is in most cases more complex than just considering someone’s time spent abroad.
Greater importance will usually be given to somebody’s center of family interests in a country, to the extent that factual residence and professional activities in another country are less permanent.
Deregister from Belgium
The fact that a taxpayer who takes up a professional activity abroad decides to deregister from Belgium or is removed from the population register (sometimes even ex officio after a longer period of time), is not in itself sufficient proof that this person should no longer be considered a Belgian tax resident.
For private individuals who have effectively been removed from the national register of the municipality where they lived before in Belgium, their status of resident or non-resident must be determined based on the general rules of taxability, as explained above. In other words, whether their ‘tax residence’ or ‘seat of wealth’ can still be located in Belgium after they have left.
The most important thing to do if you no longer want to be a Belgian tax resident, is to properly deregister from Belgium and submit your final ‘exit’ return. However, in case your family remains here or you continue to maintain significant ties with Belgium (e.g. bank accounts, real estate, business activity, car registration, etc.), the Belgian authorities could still consider you a Belgian tax resident after that. It all pretty much depends on the factual circumstances.
Less than 24 months
In general, a taxpayer who has no close family or takes them abroad will be considered a non-resident taxpayer as from the date of departure from Belgium. This should normally not give rise to any discussion. However, it should be obvious that the place of employment abroad is fixed, and the factual circumstances clearly demonstrate that the taxpayer has the intention to permanently reside abroad.
In case of doubt, the main criterion should be the actual place of residence (of the family) rather than the often – more complex – concept ‘seat of wealth’. The Belgian authorities normally consider a continuous period of 24 months’ residence abroad as the absolute minimum for the condition of permanent residence abroad (of the family) to be met.
If the absence or stay abroad is less than 24 months, or if it is not a permanent stay in one particular place, but rather consecutive stays in different countries, it could be challenged by the Belgian authorities that the required degree of permanent residence abroad is not present.
The above analysis clearly demonstrates that the concept of Belgian Tax Residence is much more complex than simply adding up the number of days you spent in Belgium in the past year. It is a thorough analysis of all the factual circumstances that will hopefully allow the taxpayer (as well as the Belgian authorities) to come to the right conclusion.