Teleworking impact on employees and company directors benefitting from the special tax regime for foreign executives and specialists

Authors: Yana Slachmuylders, Senior, Nicolas Stockmans, Partner BDO Tax

The corona crisis has impacted our lives in an unprecedented way. Not only did we have to adjust personally and socially, our professional lives also significantly changed with organisations and its employees being obliged to reorganise their way of working in the blink of an eye. It’s likely that teleworking will become a habit as this ‘new normal’ we have been living in for over a year highly favours employees working remotely more frequently. This home office treatment will also have an important impact on employees working in a cross-border situation and the companies they work for. That is why employees and company directors benefitting from the Belgian special tax status for foreign executives and specialists should be given special attention.

Foreign travel exclusion

As you may know, one of the main benefits of this special tax regime consists of the so-called “foreign travel exclusion”. Under this mechanism, the portion of the salary pertaining to the days spent abroad for professional purposes is deducted from the taxable basis and consequently, exempted from taxation in Belgium. Considering the impact of this mechanism on the taxable basis of the foreign executive, it is of utmost importance to accurately determine his/her travel exclusion percentage in order to evaluate his/her Belgian tax liability. In this respect, for many of these people, the COVID-19 travel restrictions have influenced the travel exclusion percentage due to cancellation or postponement of business trips. On the other hand, some of these executives can work from home, which is not necessarily in Belgium.

Whether a foreign executive’s teleworking days should come into consideration for the determination of the travel exclusion, depends on the individual’s home country.”

How is the travel exclusion percentage calculated?

The foreign travel exclusion percentage, i.e. the breakdown between the compensation earned in Belgium and the salary earned abroad, is usually obtained by comparing the number of working days spent in Belgium with the total number of working days for the whole year (or a shorter period in case of a part-year activity in Belgium).

Considering the current limitation of international travel, this percentage has an impact on the travel exclusion of the foreign executives and consequently, on their net salary or their employment cost, depending on their compensation structure.

What about teleworking days in Belgium?

“Teleworking days spent in Belgium need to be considered as time spent in Belgium.”

There were some theoretical arguments to consider the COVID-19 outbreak as “force majeure” and to regard some working days spent at home as a foreign day, while others suggested to base the 2020 travel percentage on the previous income year. The Belgian tax authorities, however, have not allowed any exceptions to the standard travel exclusion rules and communicated a restrictive interpretation: teleworking days spent in Belgium need to be considered as time spent in Belgium.

Nevertheless, for some foreign executives their home office can be located outside of Belgium. As such, the question was raised whether their home working days come into consideration for the determination of the travel exclusion. From the Belgian tax authorities’ perspective, the answer depends on the individual’s residency situation:

A final note

Given the new position of the Belgian tax authorities, BDO recommends companies to accurately monitor the working locations of their foreign executives and to verify whether or not they are considered as tax residents of their home country. Based on this analysis, it might be appropriate to revise the Belgian withholding taxes applied on their compensation as their teleworking days will have an impact on their final Belgian tax liability anyhow.

Do you wish to receive more information about the impact of teleworking on the special tax regime for foreign executives and specialists?

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