The New Tax Regime for Inbound Taxpayers and Researchers

For further details we refer to our previous articles ‘New Year, New Tax Regime‘ and ‘COVID 19 and the Expat Status‘, but in summary the new regime states that providing conditions are met, an employer can pay tax free allowances as reimbursement of costs proper to the employer up to 30% of the gross salary (capped at €90.000, possibly indexed as from 2024). If applied, these tax free allowances are to be paid on top of the contractual salary.

The new tax regime for expats has been applicable as from January 1st, 2022, but the 1983 expat regime did not cease to exist with immediate effect. Indeed (and luckily), transitional measures were put in place, to avoid sudden loss of tax benefits and decrease net pay of expats involved.

The Transitional Period and its End

When introducing the new tax regime for expats, the legislator created “opt-in” or “opt-out” possibilities for persons who were benefiting form the 1983 special tax regime for expats. In summary:

  • If on January 1st, 2022, one had benefited from the 1983 expat status for less than 5 years and they met the criteria for the new regime (in a retroactive consideration), an application for the new regime could be filed. If approved, the new expat tax regime can be applied for (as from January 1st, 2022) for the “remaining period” of the 5 (or 8) years under the new tax regime.
  • If on January 1st, 2022, one was benefiting from the 1983 expat status and did not meet the criteria for the new regime (or a request to apply it was refused), there was a transition period of 2 years. After these 2 years, the old regime ceases to be applied (whilst also the new regime is not acquired).

This 2 -year transitional period started on January 1st, 2022 and ended on 31St December 2023. This means that, finally, the final curtain has fallen over the 1983 expat status.

Most employers and their expats have anticipated this change by renegotiating the salary package or, in some cases, by returning home.

The Main Changes

For those expats or employers who have (unwillingly) neglected the issue, it is important to analyse the situation and take action. Let’s summarize once more the three major tax benefits of the 1983 expat status:

  • The expat and his family members, even when living in Belgium, were always treated as non-residents. This meant they were taxable only on Belgian source income;
  • The employer was able to grant tax free allowances as reimbursement of costs proper to the employer (up to €11.250 or €29.750 for certain types of costs and unlimited reimbursement for certain types of special costs);
  • Application of the so-called “travel exclusion”: the remuneration that corresponds to professional workdays outside of Belgium was excluded from the taxable base.

Under the new expat tax regime:

  • The normal tax rules on tax residency will apply to expats and their families. In most cases this will mean they become tax residents and they are taxable on their worldwide income (under application of double tax treaties tax exemptions may apply). In specific situations the expat and his familiy will be considered non-tax resident, but they will need to prove their tax residency in their home country to the Belgian tax administration.
  • Tax free allowances of costs proper to the employer that can be paid on top of the contractual salary are now limited to 30% of the gross salary (however, these allowances are capped at €90,000 per year). Other allowances, covering special costs like school fees, house installation costs, etc. can be paid separately (subject to conditions and limitations).
    • However, it’s important to note that this 30% cost allowance and specific cost allowances cannot be used to reach the €75,000 salary threshold required to obtain and maintain the new special tax status.
  • Most importantly, should you change employer in Belgium, you will no longer automatically lose your expat status: your new employer can apply to continue your expat status if conditions continue to be met.

Our advice in this matter: For the expats who have been benefiting from the 1983 expat status up until now and who are not eligible for the new expat tax status, it is very important that they seek tax advice on the consequences of losing their special 1983 tax status. When they continue to work and live in Belgium, they will be treated as tax residents as from January 1st, 2024. This tax status implies a number of tax obligations and tax consequences to which they have not been exposed before.

As with any tax situation, it’s always best to receive professional and personalised advice. Be sure to reach out to an accredited tax lawyer who specialises in cross border and international employment. We’ll be happy to help.

Brigitte Lievens, tax lawyer

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Currently there is a draft program law pending in parliament which will provide this “update” by means of a new tax regime which will apply to “inbound taxpayers and inbound researchers”. As the law still needs to be voted, some changes may still be brought to the draft law during the debates in Parliament.

Employers who employ expats benefiting from the current special tax regime (or who are planning new expatriate hires) should monitor the changes and their impact very closely.

The draft program law uses following abbreviations for the new tax regime(s):

  • For inbound tax payers: BBIB/ RSII, in Dutch: Bijzonder Belastingstelsel voor Ingekomen Belastingplichtigen, in French: Régime Spécial d’Imposition pour les Impatriés;
  • For inbound researchers: BBIO/RSICI, in Dutch: Bijzonder Belastingstelsel voor Ingekomen Onderzoekers, in French: Régime Spécial d’Imposition pour les Chercheurs Impatriés.

As the scope of this article does not allow us to go into all (technical) details of the new regime, we will only highlight the most important changes comparing them to the current special tax regime.

The current special tax regime for foreign executives, known as the “expat status”, has following (well known) characteristics and interesting tax benefits:

  • Belgian nationals are not eligible for the expat status (even if they have double nationality or even when they have lived abroad for a (very) long time);
  • Not-for-profit organisations (VZW/ASBL) are excluded from the regime;
  • Expats who have obtained the special status (and their family) are deemed to be non-residents, even if they live in Belgium; that resulted in the non-application of double tax treaties if the expat was no longer considered a tax resident in his home country;
  • No time limit on the expat status as long as the conditions are continuously fulfilled;
  • A change of employer in Belgium resulted in the loss of the expat tax status (except in special situations of intra-group switches);
  • There are no requirements in terms of salary minimum or diploma as long as it concerned an “executive” function, the decision was based on an analysis of each case at hand;
  • Eligible to the regime are key functions/executives and researchers;
  • The expat is entitled to three major tax benefits:
    • As a non-resident, he is only taxable on Belgian source income;
    • Tax free allowances as reimbursement of costs proper to the employer (up to €11.250 or €29.750 for certain types of costs; unlimited reimbursement for certain types of special costs);
    • Exclusion from the taxable base of that part of the remuneration that corresponds to professional workdays outside of Belgium.

Under the new special tax regime for inbound tax payers and inbound researchers, which will now have a legal basis, the most important features are:

  • Nationality does not have an influence anymore on the eligibility under the new regime, though, a number of conditions are inserted to be eligible:
    • During 60 months (5 years) prior to application for the new expat regime
      • one should not have been considered a Belgian tax resident;
      • one should not have lived within 150km from the Belgian border;
      • one should not have been subject to Belgian non-resident tax in respect of Belgian source professional income;
    • Not-for-profit organisations (VZW/ASBL) are no longer excluded from the regime;
    • Expats who have obtained the expat status (and their family) will be subject to the normal rules on tax residency. An expat who lives in Belgium with his family will therefore normally be treated as tax resident. I the home state continues to consider the expat (and his family) as tax resident, Belgium will treat them as tax non-resident upon the condition of providing an annual tax residency attestation; this means that double tax treaties will have full application under the new regime;
    • There is a time limit on the new expat status: there is an initial period of 5 years, with a possibility for an extension with 3 years (maximum of 8 years);
    • A change of employer in Belgium will no longer automatically result in the loss of the expat status; the new employer will have the possibility to also make an application for the expat status, but there will be no new 5-year term (as the eligibility starts as from the first employment date in Belgium, even with a change of employer, this date remains the anchor point);
    • Eligible to the regime are still key functions/executives and researchers, though the new regime provides for some minimum salary requirements and diploma conditions:
      • As mentioned above the new regime is a system with two sub-regimes: “inbound taxpayers” and “inbound researchers”:
        • BBIB/ RSII – for inbound taxpayers (employees or company directors):
          • the expat must be (i) recruited directly from outside Belgium by a

Belgian company, by the Belgian branch of a foreign company or a not-for-profit organisation, or  (ii) seconded by a foreign company which is part of a multinational group to a Belgian company or Belgian branch of a company within that group, or to a non-for-profit organization;

  • a minimum of €75.000 gross compensation on yearly basis (excl. of the 30% cost allowance – see further);
  • BBIO/RSICI – for researchers (only accessible for employees):
    • the expat must be recruited directly from outside Belgium or seconded to Belgium (see above);
    • no minimum salary level;
    • the expat needs to qualify as researcher:
      • alone or in group, at least 80% of working time is research time (as defined in the law);
      • qualifying diploma or at least 10 years equivalent experience (diploma= doctor or master-level defined science domains).

 

  • The expat is entitled to following tax benefits under the new expat status:
    • Tax free allowances as reimbursement of costs proper to the employer up to 30% of the gross salary (capped at €90.000, possibly indexed as from 2024) paid on top of the contractual salary; the employer’s engagement to use the new 30% system to reimburse costs can thus not be used to reach the €75.000 threshold;
    • A system of additional reimbursement for special costs remains: it concerns costs of moving, cost of decoration and organisation of one’s home and school fees (subject to conditions and with certain limitations). Also these reimbursements are not taken into consideration to reach the salary threshold.

It very important to highlight also the new procedure to obtain the new special expat tax regime and the envisaged date of entry into force.

  • Under the new regime the application will need to be filed electronically within three months after the start of the qualifying employment (today: 6 months) and the tax authorities will need to make a decision within 3 months (in practice often up to 12 months currently).
  • The draft program law has an entry into force date on January 1st, 2022! This is real soon! Eligible employees, directors and researchers starting employment as from that date will fall under the scope of application of the new law if they meet the conditions.

For expats enjoying the tax benefits of the current expat status a complex set of transitional measures will be available. On the basis of “opt-in” or “opt-out” possibilities, the files of the expats enjoying the current special tax regime should be analysed and decisions will need to be made:

  • If on January 1st, 2022 one is benefiting from the current expat status for a period of maximum 5 years and one meets the criteria for the new regime (in a retroactive consideration), an application for the new regime can be filed and such will need to be done ultimately on July 31st, 2022. The new regime can then be applied – as from January 1st, 2022 – for the “remaining period” of 5 (or 8) years. If however upon such a request the answer is negative, the new regime is not acquired, but a transitional measure will allow for the old regime to remain applicable for 2 more years.
  • If on January 1st, 2022 one is benefiting from the current expat status and does not meet the criteria for the new regime, there will be a transition period of 2 years. After these 2 years, the old regime ceases to be applied (whilst also the new regime is not acquired).

Foreign executives currently benefiting from the special tax regime for expatriates and their employers will need to closely monitor on a case-by-case basis the consequences of all the changes brought to the Belgian special tax regime for expats.

At the moment this article was written it was still unclear how the tax-free allowances for costs proper to the employment will be treated for social security purposes. This topic is not inserted in the draft program law and will need separate legislative work if an exemption for social security is to be added to the new tax regime for expats.

 

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For employees not having been granted the “expat status”, but normally frequently travelling for business purposes, COVID19 could cause unpleasant tax surprises. Indeed, in general, on the basis of Article 15 (OECD model) of the applicable double taxation treaty, an employee is taxable in his home State, except where he can prove his physical presence abroad for the performance of his professional activities. The salary corresponding to those working days exercised abroad are then normally exempted in the state of residence and taxable abroad (the working State). If, because of the COVID19 crisis, the employee is unable to perform abroad and this, contrary to his normal working rhythm, this would normally have a serious impact on his tax situation. In principle, this means that this employee would suddenly (at least for the COVID19 crisis period) only perform in his home state and would thus be taxable in his home state on a bigger part of his salary.

In this context, Belgium concluded amicable agreements with Germany, The Netherlands, France and Luxembourg to counter such unexpected effects. The solution is that for those who cannot work in the usual working state because of the COVID19 measures and are stuck at home, these working days from home will be ignored in terms of the analysis of the allocation of the taxing authority on the basis of the applicable double taxation treaty. In other words, the “home” working days are -by fiction- considered to have been performed where work would normally have been performed under a normal work regime.

For employees who fall under the scope of Article 15 of these double tax treaties a solution has thus been agreed upon.

Some expats benefiting from the special tax regime believed such rule would also be applied to their situation. This not true and therefore this may mean “bad news”.

As you know, for expats benefiting from the special tax regime, the taxable basis is calculated using the so-called “travel exclusion”. The days performed outside Belgium are not allocated to Belgium and the corresponding wage is not taxable in Belgium.

COVID19 home working days are not deemed fiscally neutral compared to their normal working and travel patterns.

The tax administration has indicated that the general rules remain in place for expats and therefore there is no “COVID19 tolerance” for working from home for them.

For the calculation of the Belgian taxable basis, they will only consider the working days actually performed abroad.

For the expat who travelled less and was “stuck” in Belgium, this will mean an increase of the Belgian tax debt. For those who were “stuck” abroad and performed more working days abroad, the Belgian tax debt will fall. For the latter group, attention should be paid to a possible increase in foreign tax burden in case they have remained tax resident in their home country.

For one group clearly undesirable effects, for the other a more pleasant prospect in difficult times.  For companies that have expats in the first category, I recommend that you have a conversation about this in time, check the contractual agreements (gross/net guarantee) and adjust where needed the salary withholding tax in due time.

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