Belgium has a long tradition when it comes to special tax regimes for expats. Back in the sixties a special tax regime was introduced to attract foreign investment and create employment in Belgium.
Especially the 1983 tax regime for expats was very well known and has been a popular tool for lots of companies. Given the high progressive tax rates which apply in Belgium to professional income, this special tax regime was intended to attract investments and create jobs. The system was rather favourable when compared to the special tax regimes for expats of other European countries.
However, in 2022, a new Belgian tax regime for expats, the so-called “tax regime for inbound taxpayers and inbound researchers”, was introduced to replace the 1983 special tax regime.
'It is very important that expats who have been benefiting from the 1983 expat status up until now and who are not eligible for the new expat tax status seek tax advice on the consequences of losing their special status.'
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