COVID-19 and the Special Tax Regime for Expats?

Consequences of working at home during COVID-19 crisis

During the past months, the COVID19-crisis has reduced significantly professional travel. Homework and video & teleconferencing has become the norm. For employees not having been granted the “expat status”, but normally frequently travelling for business purposes, COVID19 could cause unpleasant tax surprises.

Special rules on "home work" not applicable to expats benefiting from the special tax regime

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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Categories: tax & legal

About Brigitte Lievens

Brigitte is an experienced tax lawyer specialized in personal income tax with focus on taxation of employment related income and tax (& tax treaty) aspects of international employment. She also assists HR staff and expats with tax coaching.