A welcome change - Belgium’s new tax regime for expats

Like many European countries, Belgium has had for decades a separate beneficial tax regime aimed at attracting skilled and talented people from abroad. A new and substantially different regime (“Expat Regime”) entered into force on January 1, 2022 for such people starting their employment in Belgium as from that date. The previous regime will phase out by December 31, 2023. That phase out and transition process will require particular attention in the coming months. The announced clarifications of the Expat Regime have unfortunately not yet been announced. Caution is therefore required in the meantime when applying this regime in certain cases.

1. The old regime

a. Eligibility and conditions

The previous regime is based on a circular of the tax administration dating from 1983. It is only available to individuals who are (i) recruited abroad by a Belgian for-profit enterprise that is part of a multinational group or (ii) transferred from abroad to such enterprise within the multinational group. The job must entail a leading function requiring specific knowledge and responsibilities. Individuals were excluded if they held the Belgian citizenship.

The application of this regime had to be requested to the tax authorities, which often involved lengthy process of six to twelve months.

There is no maximum duration for the old regime. Certain individuals therefore benefit from the regime over a long period of time (sometimes more than 20 years), which doesn’t correspond to the spirit and purpose of the regime.

b. Tax treatment

The main fiscal advantage under this old regime is that the individual is in principle treated as a non-resident for Belgian tax purposes. This is even the case if the individual settled in Belgium with his family. The remuneration received for work performed outside of Belgium is consequently not taxed in Belgium, which is quite beneficial in cases where the employee or director regularly travels abroad for work. Such remuneration may even end up being taxed nowhere else, as the regime (unintendedly) often resulted in fiscal statelessness. This occurs especially if the individual effectively left his home country and moved to Belgium.

The old regime also provides for some amounts to be reimbursed in a tax-free manner. Recurring costs could be reimbursed to the employee/director for up to 11,250 EUR (29,750 EUR if the individual is active in a specific field, such as e.g. a scientific centre). These amounts have never been increased since 1983. Reasonable tuition fees for children may also be reimbursed, as are certain one-off costs such as moving costs. These reimbursed costs are in principle also exempt from social security contributions.

2. The new regime

a. Eligibility and conditions

i. The individual

The new regime is still aimed at attracting talented foreign workers, but it is based on a fundamentally different approach.

The essential condition for employees/directors is that they have had no link with Belgium during the sixty months prior to the start of their employment in Belgium.

This means more concretely that they haven’t resided in or close to Belgium (ie. within 150km of its borders) and that their professional income hasn’t been subject to non-resident income tax in Belgium.

Belgian citizens are no longer excluded, as long as they meet these conditions.

ii. The function

There are no specific requirements anymore regarding the function that will be exercised in Belgium. These requirements have in a certain sense been substituted by the condition that the job is paid at least EUR 75,000 (gross) per calendar year for work performed in Belgium.

The remuneration of work performed outside of Belgium is not considered for the purpose of this threshold, if the applicable double taxation treaty does not grant Belgium the authority to tax that income.

The annual gross remuneration to be considered is the remuneration before the deduction of social security and excludes any reimbursements of costs paid to the individual under the Expat Regime (see below). In case of an incomplete year, the threshold amount is prorated in function of the number of days during which the employment relationship lasted and the conditions were met.

The EUR 75,000 threshold does not apply if the individual qualifies as a researcher. A researcher is employed in a laboratory or company engaged in one or more R&D programs and carries out (at least 80% of the working time) scientific, fundamental, industrial or technical research activities. He must also hold a doctorate or a master’s degree in one of the exhaustively listed scientific fields. (restrictive list).

The individual must in other words exercise a function of researcher or a function yielding a certain level of taxable income in Belgium.

iii. The employer

The individual must “arrive” in Belgium by one of the two following ways:

• Direct recruitment abroad by a Belgian company, a Belgian establishment of a foreign company or by a specific type of non-profit association listed in the Companies Code (ie. an association sans but lucratif/vereniging zonder winst or an association internationale sans but lucratif/internationale vereniging zonder winst);
• The individual is made available by a foreign company that is part of a multinational group to: one or more Belgian companies; or one or more Belgian establishments of a foreign company belonging to the same multinational group; or one of the aforementioned non-profit associations listed in the Companies Code.

A multinational group is defined as any group that includes two or more enterprises with tax residence in different jurisdictions, or that includes an enterprise that is resident in one jurisdiction and is liable to taxes in another jurisdiction on activities carried out through a Belgian or foreign establishment.

The legislator has extended the scope of application compared to the previous regime. Indeed, the employer must no longer be part of a multinational group in case of direct recruitment abroad. Any Belgian company may thus recruit abroad with the application of the Expat Regime. The inclusion of not-for-profit associations is also very welcome, as employees of non-profits entities were not eligible under the previous regime.

iv. Formalities and timing

The new regime can only apply if the employer submits a request to the tax authorities within three months of the start of the employment relationship. The tax authorities must decide on the request within three months.

The request must be filed by means of a specific form (available here French/Dutch) together with a document in which the individual confirms meeting all the conditions of the regime.

The form and attestation are quite straightforward, which is a welcome change to the relatively cumbersome application file that needed to be prepared under the previous regime. The obligation of the authorities to respond within three months is also a step forward by comparison to the previous regime.

The regime applies for a period of five years, which may be extended by another three years. The regime may cease to apply earlier if the underlying conditions of the regime are no longer met.

b. Tax treatment

i. Tax advantages

Under the new regime, employees/directors will qualify as either resident or non-resident taxpayers in accordance with the general rules. The travel exclusion and the possibility of double non-taxation of remuneration for work performed outside of Belgium, will therefore no longer exist. This is more in line with the general principles of how cross-border situations should be taxed. The travel exclusion had moreover already lost some of its benefit since the Covid pandemic erupted.

The fiscal advantage of the new regime takes the form of tax-free sums that may be paid (reimbursed) to the employee in addition to the gross annual remuneration. These amounts will also be exempt from employee and employer social security contributions. This means a significant saving for both the employer and the individual.

These exempted sums are the following:

• A lump sum of maximum 30% of the employee’s annual gross income (with an absolute cap at EUR 90,000). This payment is deemed to cover all recurring expenses incurred by the taxpayer in connection with his recruitment or his transfer to Belgium, with the exception of the school tuition fees of his children. The lump sum character means that no underlying documents (such as invoices) must be available;
• Expenditures related to the moving to Belgium. These pertain more specifically to the costs of a trip to find a new home in Belgium, the travel expenses of the employee himself, his partner and the children of his household, as well as the costs of dismantling, packing, loading, transporting, unloading, unpacking and assembly of furniture belonging to the employee. Hotel expenses of the employee, his partner and the children of his household during the first three months of employment in Belgium may also be covered. These amounts are not capped, but can only be paid by the employer on the basis of underlying documentation, such as invoices;
• Costs related to the fitting out of the home in Belgium that are made during the first six months following the arrival in Belgium. These are capped at EUR 1.500 and include only the costs incurred for the purchase of equipment intended to remain in the home in Belgium, as well as for the purchase of household appliances in accordance with “standards in force in Belgium”;
• School fees for the children of the expatriate or his/her partner who move with their parents or one of their parents, if they are of compulsory school age under Belgian law and attend a nursery or a private or international school. There is no cap on these fees.

 The above doesn’t preclude the employer from reimbursing other costs that are proper to the employer by means of a lump-sum on a tax-free basis (e.g. a representation allowance, an allowance for regular and structural work from home, etc.).

ii. Transition from the old regime

Many individuals currently still benefit from the old regime. The law provides transition measures for them, which will vary depending on their situation. If these people still meet the requirements of the old regime, they will have two options:

•  They may request the tax authorities to apply the new regime, provided that they met the conditions of the Expat Regime when their employment in Belgium started and that they still currently meet these conditions.

If the request is approved by the authorities, the new regime will apply for five years as from the start of the employment in Belgium (for income yielded as from January 1, 2022). A three-year extension should be obtainable upon request if the conditions of the new regime are still  met. If the request is denied, the old regime may still apply until December 31, 2023.

• They may simply not undertake anything, in which case the old regime will remain applicable until December 31, 2023.

It is crucial for employers and employees to assess their concrete situation and analyse how each employee would fare under the Expat Regime. This exercise has become quite urgent as a request to transition into the Expat Regime will have to be submitted by July 31, 2022 at the latest.

3. Comments

The Expat Regime constitutes a significant improvement. It is less prone to abuse, offers more legal certainty and should be more beneficial than the previous regime. It is also more in line with the (post-)Covid era, in which the travel exclusion certainly has lost some of its edge.

It is regrettable however that the tax authorities have not yet issued a circular on the concrete application of the new regime. One may indeed expect that the tax administration will add certain interpretations and modalities in relation to some aspects of the regime. It is therefore in the meantime recommended to be cautious when planning to use this regime.

There are indeed a few elements that would deserve clarifications, such as for example:

• Employees of a non-profit entity can only benefit from the new regime if their employer is an entity listed in the Belgian Companies Code (an association sans but lucratif/vereniging zonder winst or an association internationale sans but lucratif/internationale vereniging zonder winst). Yet, the regime may apply to the employee of a Belgian establishment of a foreign company.

This means more concretely that employees who start working in Belgium for one of the many non resident not-for-profit entities that are active in Belgium, cannot benefit from the regime. The reason for using this criterion is unclear. It seems moreover uncertain whether  such difference of treatment based on the nationality of the employer would pass muster from an EU law perspective.

• Many individuals are transferred to Belgium within a multinational under a group tax equalization scheme. When applying such scheme, it is typically difficult to predict the annual gross remuneration of the individual. Guidance on the combined application of the Expat Regime and a tax equalization scheme would therefore be welcome.