New Year, New Tax Regime for expats

The issue has been discussed numerous times over the years.  For more than 35 years the current special tax regime for foreign executives is being granted and applied without legal basis (as it is based on a tax circular of 8 August 1983). The Belgian Cour des Comptes and courts criticized the regime more than once. We can state that all parties involved knew and accepted an “update” was needed.

The real question was how to modify or to replace the existing regime?

'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”. '

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 1^st, 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 1^st, 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 1^st, 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 1^st, 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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