Belgium adopts Inpatriate Tax Regime, Phases out Expatriate Tax Regime
The Act of 27 December 2021 has introduced an inpatriate tax regime from 2022 that will phase out the expatriate tax regime. The new rules must give the tax regime the legal certainty that the 1983 tax regime lacked while promoting Belgium to foreign investors and enable international companies to post or recruit qualified personnel at an acceptable and competitive cost.
The 1983 expatriate tax regime
Foreign executives have benefited from a favourable tax regime in Belgium for over 60 years but in 1983, the rules were consolidated in a practice note nr Ci. RH. 624/325.294 of 8 August 1983. It was only available to non-Belgian executives and specialised workers
The tax concessions under this special tax regime were to attract multinationals by minimizing the cost of employing foreign specialists and executives in Belgium. The practice note emphasises that the tax regime grants expatriates a saving in income tax and social security that must benefit the employer directly (for executives who are paid on a net salary basis) or indirectly (for employees paid a gross salary).
It is estimated that there are currently some 20,000 foreign executives who enjoy the expatriate tax regime.
The main feature of the expatriate tax regime was that the tax authorities admit that these executives are deemed to be non-resident taxpayers although they are living and working in Belgium. Consequently, they are only liable to tax in Belgium on Belgian source income. They do not pay tax in Belgium on the part of their remuneration that relates to work outside Belgium and the income from their savings remains tax exempt.
The qualifying executive benefits from two important tax concessions: tax free allowances and a tax-exemption for non-Belgian income.
Several tax-free allowances may be paid to the executive. These allowances are in principle designed to indemnify him for the extra expense, which he has incurred by coming to work in Belgium. In practice the tax authorities interpreted this notion rather generously.
One-time allowances covered expenses incurred because of the move to Belgium and they are in principle not subject to any ceiling or capping.
Recurring allowance covered recurring expenses of living in Belgium: a cost-of-living allowance, a housing allowance, a tax equalisation allowance, an exchange rate differential, an allowance for an annual trip home. The reimbursement of these recurring expenses was limited to EUR 11,250 per year (EUR 29,750 for employees working in a coordination centre or a research lab).
School fees could be reimbursed by the employer without any limitation.
Furthermore, income for work abroad is tax exempt
Although the executive lives and works in Belgium, the part of his remuneration for work outside Belgium is tax free in Belgium, even if his/her whole salary is paid by a Belgian company.
This was calculated as the number of working days spent outside Belgium over the total number of working days in the year. The resulting percentage is then applied to the total remuneration to determine the tax-free part.
The new tax regime for inpatriates
The new regime is governed by specific provisions in the income tax code, aligning the new regime with the current legal and global environment.
To distinguish the new regime, the focus is on inpatriates, rather than expatriates, who come to work and live in Belgium with their families, they will become Belgian resident for income tax purposes. They will be liable to Belgian income tax on their worldwide income, but they will be able to claim treaty protection for income taxed abroad.
Inpatriates do not need to become Belgian residents. If they keep their main residence abroad, they remain non-residents for Belgian income tax purposes. They can, also claim the benefit of the new tax regime if they meet the requirements but every year, they will have to provide a certificate of residence from the state where they are resident (new articles 240ter and 240quater ITC 1992)
There are two regimes, one for "inpatriate executives and employees" (new article 32/1) and one for "inpatriate researchers" (new article 32/2). The conditions for inpatriate employees and executives are stricter than those for inpatriate researchers. For the latter, relevant degrees are more important than the remuneration. The tax advantages are the same.
inpatriate employees and executives
These inpatriates are employees and executives who come to work and be paid in Belgium. They must have been posted to a Belgian company within a multinational group, or recruited directly from abroad by a Belgian company, a Belgian establishment of an overseas company or by a Belgian non-profit organisation.
- Unlike under the current regime, inpatriates may be employed by a non-profit organisa¬tion.
Executives must be appointed as company director and be in charge of the day-to-day management of the company; members of the board of directors do not qualify. Executives who have a leading function or a leading activity of daily management, of a commercial, financial or technical nature, without an employment contract qualify as well. However, an executive who has set up the company and holds more than 30% of the shares, will not qualify. - In the last 60 months before coming to Belgium, the inpatriate must not have been a Belgian resident, he must not have lived in a radius of 150 km from the Belgian border, and he must not have been liable to Belgian income tax on his earned income as a non-resident.
- Unlike under the current expatriate tax regime, the inpatriate may have Belgian citizenship or a dual nationality.
- Furthermore, their gross remuneration must be at least EUR 75,000 per calendar year (that amount can be adjusted every three years and for the first time for the income year 2024")
- This gross remuneration is the normal remuneration: the monthly salary, the holiday pay (13th month), the end-of-year bonus (14th month), any fringe benefits, bonuses and other gratuities, before deduction of social security contributions. Termination indemnities and indemnities to compensate for a temporary loss of remuneration are excluded as are any benefits that are not liable to tax (luncheon vouchers, ecocheques, …). Any expenses covered and reimbursed by the employer that result directly from the posting or employment in Belgium cannot be taken into account either.
If the inpatriate starts working in Belgium during the year or if he has to interrupt his activity and his salary is not paid, the EUR 75,000 threshold is calculated pro rata.
- The researcher must be an employee (not a company director or executive) who has been posted within a multinational group or who has been directly recruited abroad by a Belgian company (that must not even be part of a multinational group). The employer can also be Belgian establishment of an overseas company, or an NGO.
- To qualify as a 'researcher', the employee must hold a (qualifying) degree or have demonstratable relevant professional experience of at least 10 years, and he must (either alone or in a group), exclusively or mainly (that is at least 80% of his working time) carry out research activities of a scientific, fundamental, industrial or technical nature within a laboratory or an undertaking carrying out one or more research and development programmes".
- In the last 60 months before coming to Belgium, the inpatriate researcher must not have been a Belgian resident, he must not have lived in a radius of 150 km from the Belgian border, and he must not have been liable to Belgian income tax on his earned income as a non-resident. Belgian nationals can be researchers as well.
Tax Concessions
The employer can pay the employee or executive a tax-free allowance in the form of a reimbursement of expenses covered by the employer. A lump-sum equal to 30% of the gross taxable salary can be paid as a “reimbursement of expenses covered by the employer" in respect of recurrent expenses that are directly related to the posting or the employment in Belgium. This lump sum is capped at EUR 90,000 (that may be indexed as from 2024).
No social security contributions are due on the allowances. This has been confirmed by the social security office in an interim instruction but this needs to be confirmed by a change in the law.
These recurring expenses include in particular: the additional cost of accommodation in Belgium, as compared to the country of origin; the additional cost of living in Belgium, as compared to the country of origin; the cost of private travel to the country of origin for the inpatriate, his or her partner and the children of his or her household; the cost of travel to the country of origin on the occasion of the birth, marriage or death of a member of the inpatriate’s or partner's family. The employer can pay such expenses directly or he can reimburse them to the employee. This allowance must be agreed between the employer and the employee.
This flat-rate system of “expenses covered by the employer relating to the posting or employment in Belgium” does not exclude the reimbursement of other expenses covered by the employer, such as representation expenses, expenses relating to working from home, … as long as they do not overlap.
The employer can also reimburse other expenses for (i) the moving to Belgium, (ii) the furnishing of the house within six months and (iii) the school costs for the children for pre-school, primary and secondary education. These are reimbursable upon presentation of invoices.
Application procedure and duration
The employer or the company must file an online application with the Tax Administration, within a period of three months after the taxpayer entered their service in Belgium. The employee or manager must sign a certificate confirming that he agrees to apply for the inpatriate tax regime.
The Administration must take a decision on the application within three months. If the decision is positive, the inpatriate tax regime applies to the remuneration obtained by the incoming taxpayer as from his entry into service in Belgium.
The expat status is granted for a maximum period of five years, which can be extended with an additional three years under certain conditions if the inpatriate is still working in Belgium. The employer will have to continue to meet the conditions, and the executive (not the researcher) will have to prove he earns more than EUR 75,000. The employer will have to file the application for the extension with the agreement of the employee. The form and the content of the application will be determined by Royal Decree.
If an inpatriate is hired by another employer, the new employer can file a new request. However, this cannot lead to an inpatriate tax status beyond 8 years.
Transitional provisions
The new inpatriate tax regime applies to expats who commence working in Belgium as from 1 January 2022. It also applies to current expats who meet the requirements and opt for the new regime. For those expats that do not meet the requirements or do not wish to opt for the new regime, a transitional period of two years is provided for, under which they still enjoy the benefit of the previous regime.
The Belgian tax authorities have issued a first practice note 2022/C/9 to clarify the application of the new rules in particular in respect of the transitional provisions.
Conclusion
The new inpatriate regime has a number of advantages
The employer must not be a Belgian company anymore that is part of a multinational group. Belgian employers, companies and non-profit associations can attract talent from abroad. Non-profit organisations are often involved in R&D.
Belgian nationals or dual nationals are not excluded anymore. However, they only qualify if they return to Belgium after a successful career abroad.
The new inpatriate tax regime is based on a tax-free allowance of up to 30% of the gross salary (capped at EUR 90,000). This is good news for inpatriates, such as researchers, who travelled little or not at all.
There is no minimum salary threshold for researchers so that the tax regime can attract talented researchers who earn less than EUR 75,000 per year.
Expatriates who were non-resident in Belgium could not rely on the double tax treaties concluded by Belgium. Inpatriates are residents and can invoke the treaties.
The procedure has been improved. The application must be filed online within three months after the employee starts working in Belgium and the tax administration has to take a decision within three months. This is much faster that under the 1983 expat tax regime.
Disadvantages are that the new inpatriate tax regime is limited in time: 5 years, with a possibility of a 3-year extension. In the past, some expatriates could benefit from the 1983 regime for 10,20 or even 30 years.
The new regime excludes employees who had been working or were liable to tax in Belgium, or who have lived within a radius of 150 km from the Belgian border.
Many expatriates at present earn less than EUR 75,000; they will not qualify for the new regime unless they are researchers.
As Belgian residents, inpatriates will be able to rely on the double tax treaties signed by Belgium, but they become liable to income tax on their worldwide income, in particular on their investment income, that used to be tax exempt in Belgium. They will also have to report overseas bank accounts in their tax returns, as well as overseas life insurance, and legal arrangements such as trusts, as well as the income from overseas real estate