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Reform of Belgium’s expat taxation regime - First thoughts and recommendations

  • Belgium
  • Tax planning and consultancy

09-12-2021

 

 

A draft bill overhauling the so-called expatriate tax regime for executives and specialists (“expat regime”) is currently being considered by parliament. The existing regime has been heavily criticized since years for lacking legal certainty and being prone to abuse. This reform should remedy that critique and is aimed at competing with similar regimes offered by neighboring countries. The present newsletter contains a short summary of the new regime as well as some first concrete thoughts and recommendations.

 

1. The new regime

Under the new regime, employees/directors who are recruited abroad or posted to Belgium within a multinational will have 30% of their annual income exempt from tax. The exempt amount is capped at € 90,000. The reimbursement of other costs, such as expenditures related to moving, tuition fees of children and home furnishings may under certain conditions and limitations also be exempt.

The regime requires that during the 60 months prior to the start of the employment in Belgium, the employee/director (i) was not a Belgian tax resident, (ii) that he did not live within 150 km of the Belgian border and (iii) that he was not subject to Belgian non-resident income tax. A Belgian citizen returning to Belgium after years of absence may thus benefit from the new expat regime. The annual remuneration of the individual must also amount to at least 75,000 EUR, except if he qualifies as a researcher.

The regime is only available for a period of five years, which may be extended to eight years.

Individuals who currently already benefit from the existent regime will have the choice between either (i) remaining under the existing regime for another two years (until December 31, 2023) or (ii) rolling over into the new regime by requesting the application of the new regime by July 31st, 2022 at the latest. Such roll-over is only possible if the conditions of the new expat regime were met at the time of the first employment in Belgium and the expat hasn’t benefitted from the existent regime for more than five years per January 1st, 2022.

 

  2. Concrete thoughts and recommendations in relation to the new regime

It cannot be assessed whether the new regime is effectively more (dis)advantageous than the existing one. The main advantage of the existing regime lies in the (often double) non-taxation of income related to the employment exercised outside of Belgium. The new regime is rooted in a fundamentally different fiscal approach, where the employee will no longer need to work outside of Belgium to fully benefit from all of the regime’s advantages.

It is of the utmost importance that employers assess the concrete consequences of the draft law for their employees and directors who currently benefit from the existing regime. The new regime and its transition rules are indeed bound to put an end to an advantageous fiscal treatment. Despite there being a two-year transition period, this ending will in many cases be felt as quite abrupt, as expats have not seldom been benefiting from these advantages since a very long time (more than 10 years). Particular heed is recommended if a request for a roll-over is considered, as the expat will have no right to the two-year transition if such application is denied.

The new regime should also apply to directors and employees of non-profit entities, which is a welcome change from the current rules. The wording of the draft should however be clarified, as it only mentions the Belgian not-for-profit association (VZW/ASBL). Also, foreign non-profit entities that operate via a Belgian establishment seem to be excluded under the current draft.

The extent to which the new regime will be beneficial will also depend on whether the amounts exempted from tax will also be exempted from social security contributions. It is not yet clear what position the social security authorities will take.

The exempt amount of 30% of the annual income of the employee is capped at € 90,000 EUR. This cap may be indexed each three years, which is a step forward compared to the existing regime, where the relevant amounts have never been indexed since 1983. That should allow to maintain the regime’s attractiveness over the years, especially given the expected level of inflation for the coming years.