Information gathered from LIMOSA declarations used in the framework of tax fraud prevention by foreign companies
On 1 April 2007 the Belgian government introduced a new legal obligation for employers of foreign employees and self-employed persons working on Belgian territory: the so called LIMOSA declaration. The LIMOSA declaration is an electronic notification that needs to be filed prior to the start of work in Belgium for any individual not subject to Belgian social security legislation who comes to work in Belgium on a temporary or part time basis.
The mandatory filing of the LIMOSA declaration applies to:
- Employees that habitually work or have been hired in a country other than Belgium and are posted by their employer to Belgium on a temporary basis or are involved in a multistate activity and a result of that subject to foreign social security legislation
- self-employed workers who come to Belgium to pursue a temporary or part-time self-employed activity in following “high risk” sectors:
- Meat processing industry
- Cleaning industry
The self-employed persons subject to the Limosa registration are those who do not reside permanently nor are settled in Belgium and do not become subject to Belgian social security legislation as the result of their activity in Belgium.
In principle, the filing of the LIMOSA declaration is an obligation to be fulfilled by the employer or the self-employed worker. However, if the employer or self-employed worker do not fulfill this obligation and no exemption applies, the receiving company will be obliged to fulfill this reporting obligation.
Initial consultation LIMOSA intended for Labour and Social Security Inspectorate
The LIMOSA declaration is in fact a notification towards the Belgian social security authorities for social security purposes. The LIMOSA declaration contains information about the identification of the worker and the employer or the self-employed worker, as well as on the period of posting / work, the type of the services rendered, the place of work, the weekly working time and the work schedule. This information is gathered in a national register.
Where the national register was originally intended for consultation by the Labour and Social Security Inspectorate, the information gathered through the LIMOSA declarations is however also entered in the Dolsis-application. This application is reserved for certain staff members of federal, regional and -local services who are responsible for the various inspections in the framework of fraud prevention.
However today also used for tax fraud prevention
It is our observation that recently the Belgian tax authorities are increasingly using the information in the Dolsis application, and consequently also the information obtained from the LIMOSA declarations, in order to determine whether or not a foreign company or enterprise can be considered to have a permanent establishment or a fixed base as defined under the applicable double taxation treaty (DTT), or a “Belgian establishment” as foreseen under article 229 of the Belgian income tax code (WIB 92).
It is important to note that even if the foreign company or enterprise is not deemed to have a permanent establishment under the DTT, it cannot be excluded that the company or enterprise will be considered to have the disposal of ta Belgian establishment under Belgian law. Indeed, the conditions for a Belgian establishment are considerably stricter than those under the DTT’s. For example:
- there is no exception for preparatory/supporting activities (the so-called negative provisions);
- it is sufficient that the employee provides services in Belgium for more than 30 days in a 12-month period;
- it is not required that the employee/representative has an authorization to conclude contracts in Belgium on behalf of the foreign company or enterprise. The mere presence of a representative is sufficient.
Although the mere presence of a Belgian establishment will not automatically give rise to taxation in Belgium (after all, there is no taxable permanent establishment under the DTT, if there is one), the company or enterprise will have to comply with certain tax obligations:
- Filing of a “nil” tax return preferably including an explanation why they are not deemed to have a permanent establishment in Belgium on the basis of the DTT;
- Affiliation with a Belgian social security fund for self-employed;
- Payment to that social security fund of an annual contribution between 350 EUR and 870 EUR.
The recent investigations by the tax authorities however do not only aim to determine the allocation of the taxation of the profit of the foreign employer / enterprise, but also focus on the withholding tax obligation for employers who have foreign employees working in Belgium.
When a permanent establishment under the DTT is present:
- Employees will be subject to Belgian income tax on the income derived from the work performed for the permanent establishment or fixed base as of the first day of employment in Belgium;
- Employers have the obligation to withhold payroll tax on the salary of its employees related to their work for the permanent establishment. While there most certainly is a withholding tax obligation when a permanent establishment is present, such requirement may also exist when no permanent establishment exists, but the activities in Belgium result in a Belgian establishment.
Action to be taken
In view of these investigations, companies and enterprises are recommended to verify whether the undertaking of work in Belgium and the postings of foreign employees has been organized in accordance with the applicable legislation. If not, it will be important to adjust these situations as soon as possible. For companies that use subcontractors or hire staff abroad and deploy these employees on their Belgian projects, it is also important to make their business partners aware of this issue and, where necessary, to ask them to comply.
Despite the fact that in practice it is usually possible to retroactively regularize the situation, we advise companies or enterprises to seek adequate guidance prior to undertaking cross-border business. Failure to understand to precise obligations can have significant consequences for financial planning (budgets are no longer correct) and can create unrest among the employees working in Belgium.