Belgium’s favorable special tax regime for foreign executives

Karel Van Hootegem   |  

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Karel Van Hootegem

At BOFIDI, Karel is the contact person for personal income tax, salary splits and all obligations of international executives.

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A foreign expat assigned temporarily to Belgium within an international group of companies may qualify for a special taxation regime. The expat will be treated for Belgian tax purposes as a non-resident, liable to Belgian individual income tax on his or her Belgian source income only. Once granted the special tax regime will result in a significant tax saving and can be set up in a way salary costs are significantly reduced for the employer.

Non-resident tax payer: criteria

Expatriates who qualify as non-resident taxpayer are mainly management personnel, research personnel and foreign personnel without managerial responsibilities who are so highly specialized that their recruitment in Belgium is very difficult, if not impossible. To qualify certain criteria have to be met:

  • employment must be in a qualifying entity. These include a scientific research center or laboratory or a business under foreign control or part of an international group. Employment could be in a control and coordination office of a multinational group of companies;
  • employment in Belgium must be of a temporary nature;
  • the expatriate has to be recruited outside Belgium; the expat may not have the Belgian nationality and may have never filed a resident tax return before;
  • the expatriate’s centre of economic and personal interests must not be Belgium

Tax benefits

In addition, the special expatriate tax status, the rules of which are laid down in an Administrative Practice Note of 8 August 1983, offers two important tax advantages to foreign executives:

  1. reimbursements made by the employer to cover the additional expenses incurred as a direct result of the assignment or employment in Belgium are treated as costs proper to the employer (up to EUR 11.250 or EUR 29.750), which are, within certain limits, not taxable for the expatriate (the “tax-free expatriation allowances”);
  2. the executive benefits from an exemption for the part of his or her compensation that relates to business duties carried out abroad (the “travel exclusion”).

Both the tax-free expatriation allowances and the portion of salary relating to business services rendered abroad are taken out of the expatriate’s taxable income from employment. The net taxable employment income after this deduction is then taxed at the ordinary progressive tax rates and is likewise added to the other income from Belgian sources.

Besides the above advantages and under certain conditions, Belgian social security contributions are not due on the tax-free allowances, grossed-up with the foreign travel exclusion.

What is in it for the employer?

Provided the above conditions are met, the employer may recruit highly skilled employees directly from outside Belgium and offer them a significant lower salary package but guarantee the same net salary as for a Belgian national. Conclusion? The employer saves money on the salary costs on the foreign expats.

BOFIDI, glad to assist you

As tax advisor we assist you in working out an expatriation policy for foreign employees, provide you with the payroll calculations in order to budget the total cost, support the expats with their tax and filing requirements and implement a tax equalization policy.