New special tax regime for expatriates
The deadline of 31/07/2022 is approaching
Nicolas Stockmans, Partner BDO Tax
Up until the end of last year, around 20,000 executives and researchers were benefitting from a special tax regime for expatriates. A new regime has been in force since 1 January. It has a significant impact on the taxation of foreign employees and on the employer’s HR policy. Here’s a summary of key changes.
The federal parliament has made a lot of headlines by adopting the new special tax regime for ‘inpatriate taxpayers and inpatriate researchers’. Executives and researchers hired abroad who work in Belgium for a certain period can make temporary use of special tax regimes. Since 1 January 2022, the new regimes have replaced the special tax regime applicable to certain foreign executives (administrative circular of 08/08/1983).
“The new regime has a significant impact on employers who benefitted from the old tax regime for expatriates.”
Why a new tax regime?
A new tax regime has been implemented for foreign executives (‘expats’) with a view to making our country more attractive to international companies wishing to establish themselves here. Subject to one of the highest tax burdens in Europe, employers can benefit from this advantageous regime to offer those concerned an attractive net salary and ensure the competitiveness of wage costs compared to other countries. Although this special tax regime is regularly applied, it has attracted a number of criticisms:
no legal basis (this is an administrative circular);
automatic assimilation of executives to non-residents (which could make them tax-stateless persons likely not to be covered by double tax treaties and not to be taxed on remuneration covered by the ‘travel exclusion’);
complexity of calculating employer-specific costs.
Ins & outs of the new regime
The new regime increases legal certainty because it is now enshrined in law and is included in the Belgian Income Tax Code. While it offers benefits, it also includes restrictions. These have a significant impact on any company that already uses the former special tax regime in the search for new talent and their retention.
- No link to Belgium
For a period of 60 months before their arrival in Belgium, the expatriate cannot:
- have been taxed as a resident in Belgium;
- have lived less than 150 km from the Belgian border;
- have been taxed as a non-resident on professional income from Belgian sources.
The expatriate must also:
- have been recruited from abroad by a resident company, a Belgian establishment of a foreign company, or a non-profit association;
- have been seconded/transferred to Belgium or within a multinational group or non-profit association.
Unlike the previous regime, the employer no longer has to be part of an international group or pursue a profit: an opportunity for Belgian companies not belonging to an international group.
Furthermore, being of Belgian nationality does not prevent the beneficiary from benefitting from the special tax regime.
- Minimum remuneration threshold: EUR 75,000
The minimum annual salary threshold required is set at EUR 75,000. This threshold includes: gross salary, variable remuneration and benefits of any kind. However, employer-specific costs are not taken into account. In the event of an incomplete calendar year, this threshold is reduced pro rata temporis.
Exception for researchers
This minimum salary threshold is not applicable to researchers, insofar as they meet one of the following conditions:
- They hold a master’s degree in the following fields: agricultural sciences, applied sciences, industrial sciences, medical sciences, natural sciences, pharmaceutical sciences, veterinary sciences, or engineering;
- They have at least 10 years of proven experience in these fields.
Note: this exception for researchers does not apply to self-employed company directors. Another essential condition: researchers must devote at least 80% of their working time to research activities.
Benefits of the new regime
The employer may reimburse or compensate for additional recurring costs following expatriation (e.g., cost of living or housing costs) without this constituting taxable remuneration. This tax-free reimbursement is capped at 30% of the gross remuneration. However, a lower reimbursement remains possible. It should be noted that these exempt reimbursements may not exceed EUR 90,000/year, or make the share of income subject to social security less than the threshold of EUR 75,000. Reimbursement is made on a flat-rate basis, so no supporting documentation is required.
Reimbursement of school fees in an international school, as well as relocation and installation expenses, may also be reimbursed as employer-specific costs, in addition to the 30% limit.
Territorial exclusion (generally referred to as ‘travel exclusion’) is no longer applicable.
Belgian companies can now also benefit from the new tax regime for expatriates.
The new regime is granted for a period of 5 years. It may be extended for a period of 3 years under certain conditions and is no longer exclusively limited to a single employer.
Contrary to what the previous regime provided for, the ordinary Belgian rules for determining tax residence are now applicable. Therefore, if an expatriate cannot be considered as a Belgian resident on the basis of national legislation, they must provide the Belgian tax authorities with a certificate of residence from their State of residence.
This Belgian tax resident status implies that expatriates falling within the scope of the special tax regime are taxable in Belgium on the basis of their global income. They are also covered by the double tax treaties concluded by Belgium.
The expatriate must submit an application file within 3 months from the date of their start of activity in our country.
Every year (no later than 31 January), employers must provide a list of employees and directors who have benefited from the special tax regime in the past year.
Around 20,000 people were benefitting from the special tax regime at the end of 2021. A transitional measure has been provided for: the law allows opt-in/opt-out mechanisms for existing situations that must be analysed on a case-by-case basis. This transitional period is limited to 2 years.
Taxpayers who have benefitted from the previous special tax regime for less than 5 years may opt to apply the new regime if they already met the conditions for applying the new regime when they arrived in Belgium. The opt-in request must be submitted no later than 31 July 2022.
In this case, the maximum period of application of the new regime will be reduced by the period during which the person benefitted from the previous regime.
Taxpayers who have benefitted from the previous special tax regime for less than 5 years may choose to continue to benefit from the previous regime until 31 December 2023. This measure may be of interest to expatriates who had high ‘travel exclusion’ percentages.
3. Non-eligible expatriates
Expatriates who have been in Belgium for more than 5 years or who do not meet the conditions for application of the new regime may continue to benefit from the previous special tax regime until 31 December 2023. This means that they will become Belgian tax residents from 01 January 2024.
Given these various transitional measures, we recommend that employers carefully analyse the impact of the new regime on their expatriates in order to make a suitable choice before the deadline of 31 July 2022.