When do COVID-19 working days qualify for the foreign travel exclusion ?
If you have an approved expat status, you are only taxed in Belgium on the salary earned for actual work performed in the country. Therefore, remuneration that relates to activities performed abroad is in principle not taxable in Belgium (‘foreign travel exclusion’). To this end, the executive’s total annual salary is split into a part relating to the working days performed in Belgium (taxable salary) and a part relating to those carried out abroad (non-taxable salary).
As it stands today, little or no information has been made available by the Belgian tax authorities in respect to the impact of COVID-19 on the benefits of the special expat tax regime, and more precisely the calculation of the travel exclusion. Belgium has made COVID-19-agreements with the Netherlands, Germany, France and Luxembourg already in May 2020, and it seems that any relevant information made available is strictly limited to this topic.
An administrative instruction of 17 June 2020 (Circular Nr. 2020/C/81) in respect to COVID-19 spends only one paragraph on the travel exclusion, and is in our opinion only relevant for foreign executives who were in Belgium most of 2020 and were not able (or willing) to travel abroad:
“I am residing in Belgium, but I benefit from the special expat tax status. Where are my remunerations for the home working days taxable? Since employees with the special expat tax status are considered to be non-residents, the double tax treaties concluded by Belgium do not apply to them, nor do the COVID-19 agreements. The remuneration is therefore taxable in Belgium, where the employment takes place”.
This administrative letter does not say anything about the opposite situation in which executives spent most of their working time abroad (i.e. in their home country or another country), neither does it make a distinction between (non-resident) expats who are still a tax resident in their home country, and those that are no longer covered by any double tax treaty.
However, we have learned that there is apparently an internal administrative instruction available that goes more into detail on the matter. The general approach is that only business trips abroad that were actually made, are taken into consideration for the travel exclusion.
The instruction provides an overview of different scenarios that determine which working days (and corresponding remuneration) are considered taxable in Belgium in the context of COVID-19:
- Scenario 1: if the employee resides in a country where he is still considered a tax resident under a double tax treaty, the working days abroad, including for teleworking, are only taxable abroad (Article 15 OECD).
- Scenario 2: if the employee resides in a country where he is no longer considered a tax resident for tax treaty purposes, but where he, for example, owns a second home or has family, in that case only the actual business trips abroad are exempt from taxation in Belgium. Teleworking in the country where the employee has a second house to their disposal, is not accepted as a foreign business trip since it is a personal choice. In that case, the second residence is considered an extension of the employer’s workplace in Belgium.
- Scenario 3: if the employee resides in a country where he is not considered a resident for tax treaty purposes (country with which he has no connection whatsoever), in that case only actual business trips abroad are exempt from taxation in Belgium. However, teleworking in a third country where the employee is stranded as a result of COVID-19, is also accepted as a business trip abroad.
- Scenario 4: if the employee resides in Belgium and continuously works from home, in that case only actual business trips abroad are exempt from taxation in Belgium. A day of teleworking in Belgium is considered to be a Belgian working day.
In view of calculating the foreign travel exclusion for income year 2020 (tax year 2021) and onwards (for as long as the pandemic lasts), the tax authorities have also drafted some guidelines. For all foreign working days in the context of COVID-19, both employer and employee will need to provide supporting documents for all teleworking days and business trips abroad:
- By presenting the general rules or policy adopted by the employer for all their employees;
- By showing an exchange of teleworking requests between employer and employee;
- By presenting e-mail exchange that demonstrates the executive’s professional activity;
- By using certified geolocation or location-based apps;
- By demonstrating an actual taxation on a certain number of days in the other country.
The below examples refer to the cross-border employment scenarios as outlined before:
- Scenario 1: if 60 days were spent on business trips abroad, of which 25 during COVID-19 on a total of 220 working days in 2020, the accepted travel percentage will be 60/220 or 27,27%. The executive will not be taxed in Belgium on the working days (incl. teleworking) spent in their home country on the basis of Article 15 OECD.
- Scenario 2: if 60 days were spent on business trips abroad, of which 25 during COVID-19 on a total of 220 working days in 2020, the accepted travel percentage will be (60-25) 35/220 or 15,91%. The foreign working days will only be excluded from taxation in Belgium if supporting documents can be provided, but the (voluntary) teleworking days abroad will be subject to Belgian income tax.
- Scenario 3: if 60 days were spent on business trips abroad, of which 25 during COVID-19 on a total of 220 working days in 2020, the accepted travel percentage will be 60/220 or 27,27%. The executive will not be taxed in Belgium on the foreign working days (incl. mandatory teleworking), but only to the extent that the employee can provide supporting documents.
In other words, executives will only be allowed to claim the foreign travel exclusion for the teleworking days abroad, if these days were spent in their home country (of which they are still considered a tax resident) or in another country they were not allowed to leave or travel from due to COVID-19. If working abroad was the personal choice of the employee, the travel exclusion will not be allowed.
Based on the above, many employees that benefit from the special tax status who used to regularly travel abroad could be confronted with a significantly higher Belgian tax liability for income year 2020 (tax year 2021). This may also result in an important additional cost for the employer (depending on the contractual arrangement in place).