by Ivan Maes and Els Van Eenhooge
For a long time, Belgium has had a generous fiscal regime for expat executives. The origins of the regime lie in an administrative circular from 8 August 1983 and there have been remarkably few alterations to the system since that date. The regime is open to scientific personnel and executives with non-Belgian nationality who work in an international group of enterprises. They must be recruited directly from abroad to work in Belgium, or posted to Belgium for a specific period. The employer and the expat submit a joint application and can then benefit from the regime.
Although the employment in Belgium needs to be temporary, there was no actual time limit specified. However, this fiscal regime is set to change from 1 January 2022.
First of all, these executives were viewed as non-residents for tax purposes and therefore were taxed according to the tax rules for non-residents. They might be living with their family in Belgium, but they were still considered non-residents, thanks to a legal fiction in the circular. This meant that they could only be taxed on income originating in Belgium. So, for example, they did not have to report property income abroad to the Belgian authorities, nor interest or dividends that originated abroad.
Another benefit concerned their professional income: the salary for any working days spent abroad was likewise not taxed. This was due to the ‘foreign travel exclusion’, which meant that only days worked in Belgium were associated with taxation in Belgium.
Finally, additional expenses resulting from the appointment or secondment to Belgium could also be reimbursed tax-free to the employee by the employer. These could come to a total of 11,250 euros, and for some cases, the maximum was raised as high as 29,750 euros.
On top of that, an employer could also reimburse the executive tax-free for the expenses of relocating, furnishing a house, an annual trip back to their country of origin and schooling costs (for primary and middle school)
The system had many advantages, but could not continue any longer in the modern international context. On 9 September, the Brussels Tribunal of First Instance (French chamber) issued a ruling regarding the following case: An expat executive had been living with their family in Belgium for over twenty years and benefiting from the special regime for expat executives. The tax authorities felt that after so many years, this was no longer appropriate and wanted to tax him on his personal income; this was, however, contested by the executive. As explained above, such individuals benefit from tax-free movable income originating abroad (dividends and interest). The executive, after so many years in Belgium, no longer had any links with his country of origin and had therefore become stateless for tax purposes.
The philosophy behind the scheme, in particular the legal fiction, was that it did not seem reasonable to tax non-residents for a temporary stay in Belgium while they were still being treated as a resident in their country of origin. The reality is that this is often no longer the case, especially after so many years, and some people are no longer considered resident in any country – with the result that they are no longer subject to taxation on their ‘worldwide income’, something that is a basic principle in many countries.
Thanks to international income reporting, for example via CRS files (Common Reporting Standard), the Belgian tax authorities are aware of bank accounts abroad and of foreign interest payments and dividends, and are therefore in a position to tax this income for residents subject to Belgian income tax, even if it is not reported voluntarily by the taxpayer. However, for residents like the executive above, who are taxed as non-residents and not subject to personal income tax, but are also no longer residents in their original country, there is no mechanism for taxing these movable assets. The executive lost the case and was obliged to provide the Belgian administration with information about his assets (bank statements, etc.).
This tax ‘invisibility’ will shortly be removed and these fiscally stateless individuals – such as the ‘invisible taxpayer’ in the case above – will be obliged to raise their heads above water and become visible to the tax authorities. The expat regime will only be open to residents subject to personal income taxation
The new regime for expat executives is being set in law on 1 January 2022 and will be explained in more detail in a separate article.
The broad outlines (based on the currently available texts) are as follows:
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In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.
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