Special tax regime for expatriates amended
Belgium’s 2022 federal budget, published in the official gazette on 31 December 2021, includes significant changes to the special tax regime for expatriate taxpayers and researchers. The revised rules, which now are enshrined in legislation (articles 32/1 and 32/2 of the Income Tax Code), aim to simplify the rules and provide more certainty for taxpayers and their employers; the regime previously was based on provisions in an administrative circular.
The revised special expatriate/researcher regime is applicable for all employments and/or assignments starting as from 1 January 2022.
Under the old expatriate/researcher tax regime, qualifying individuals on a temporary assignment in Belgium could benefit from a reduction of Belgian income tax and social security contributions by excluding certain allowances (up to prescribed limits) from taxable income and excluding compensation earned during time spent on business outside Belgium.
Under the new regime, the employer may reimburse or compensate the expatriate on a tax-free basis for recurring additional costs arising from the expatriation (e.g., cost of living, housing costs, etc.). This reimbursement is limited to 30% of the gross remuneration, capped at a maximum annual tax-free amount of EUR 90,000. The 30% tax-free amount replaces the travel exemption and deduction of costs of the employer under the prior regime (which were capped at EUR 11,250 or EUR 29,750). Notably, the government has clarified that a lower percentage is also possible, which means that more expatriates should become eligible for the new regime. In addition to the recurring costs, certain other costs—e.g., school fees, moving/relocation costs and installation costs (e.g., costs incurred to purchase Belgian appliances)—will be considered a tax-free reimbursement of employer business expenses.
Requirements to qualify
The following requirements must be met for an employee/director to benefit from the new special regime for expatriates:
- The individual must demonstrate a five-year absence from Belgium. Specifically, for the 60-month period before arriving in Belgium, an employee or director must show that he/she (i) was not taxed as a Belgian resident; (ii) was not taxed as a nonresident on Belgian professional income; and (iii) did not live less than 150 km from the Belgian border.
- The expatriate must be directly recruited from abroad by a Belgian company, a Belgian establishment of a foreign company or a nonprofit organization, or assigned or transferred to a Belgian entity that is part of a multinational group of companies or a nonprofit. An individual recruited from abroad by a Belgian company that is not part of a multinational group qualifies for the inpatriate tax regime, which typically was not the case under the old regime. Additionally, the foreign citizenship requirement is eliminated so that Belgian nationals meeting the relevant requirements are eligible for the tax concessions.
- The individual’s annual gross remuneration must be at least EUR 75,000, which includes salary, variable compensation and benefits in kind, but not the 30% tax-free allowance. The EUR 75,000 will be prorated if the employment or director position does not cover a full calendar year. However, the annual minimum salary threshold does not apply to a researcher who is an employee and who spends at least 80% of his/her professional time on research activities and fulfills the following requirements:
- Holds a master’s degree in agricultural sciences, applied sciences, industrial sciences, medical sciences, natural science, pharmaceutical sciences, veterinary sciences and engineering; or
- Has at least 10 years’ relevant experience in these areas.
- Based on the explanatory memorandum to the law, it appears that the employment contract or director agreement should include provisions that confirm the application of the special tax regime and the details of the compensation package and tax-free allowance that will be paid. These items are expected to be confirmed by the Belgian tax authorities in an administrative circular that details the practical aspects of the regime.
- The employee/director and the employer must submit a joint application to the Belgian tax authorities within three months following the month the Belgian employment/assignment commences (six months under the previous regime). Additionally, before 31 January of each year, the employer must provide the Belgian tax authorities with a list of all qualifying employees/directors for the preceding year.
- The new regime will apply for a five-year period with a possible three-year extension (which can be obtained by submitting a new request and demonstrating that the relevant requirements are still met).
- The expatriate regime is no longer linked exclusively to the employer, i.e., it will continue to apply even if there is a change of employer.
Belgian residence status
Under the prior regime, individuals benefiting from the expatriate/researcher regime were considered “nonresident” for income tax purposes. This is changed under the new tax regime, which provides that the standard residency rules in the Belgian Income Tax Code apply, i.e., expatriates/researchers will be taxable on their worldwide income but will be able to invoke Belgium’s tax treaties to avoid double taxation. If an expatriate is not considered a resident taxpayer under Belgium’s domestic tax rules, he/she will have to provide the tax authorities with a certificate of tax residency from his/her residence country.
The law contains detailed transitional rules for taxpayers that currently are benefiting from the previous expatriate regime, which will have to be analyzed on a case-by-case basis:
- Opt-in: Taxpayers benefiting under the previous expatriate regime for less than five years may opt into the new regime if they meet the new requirements. An opt-in must be submitted by 31 July 2022 at the latest. The number of years the taxpayer benefited from the old regime will be deducted from the five-year limit under the new regime.
- Opt-out: Taxpayers benefiting under the previous regime for less than five years and that meet the requirements under the new regime may opt out and remain subject to the old rules until 31 December 2023. This option could be useful for expatriates that have high travel exclusion percentages.
- Non-qualifying expatriates: Expatriate individuals who are present in Belgium for more than five years or who fail to fulfill the conditions for the new regime may continue to benefit from the concessions under the previous regime until 31 December 2023. Such individuals then will become tax resident in Belgium as from 1 January 2024 and will no longer be entitled to favorable tax treatment.