BELGIUM - New reporting and withholding tax obligations for benefits granted by foreign companies
To attract new talent and to retain staff, Belgian companies have been increasingly offering bonuses linked to the company’s performance. In addition to the normal salary and extra-legal benefits, stock options or warrants, free shares, Restricted Stock Units (RSUs) or performance shares are also offered.
If the Belgian company is part of an international group, it is common practice that the stock related awards are granted by the foreign affiliated company, most likely the foreign parent company. In the situation where the benefit resulting from the offering by the foreign company is linked to the employment in Belgium, the benefit in kind will be subject to Belgian taxation.
In a previous newsletter we already announced that the social security treatment of such benefits has changed significantly. Now changes in connection with the (withholding) tax requirements are imminent.
Present tax legislation
Based on current Belgian tax legislation, neither the foreign company (the grantor) nor the Belgian company (provided that there is no active intervention) are obliged to report the taxable benefits. Nor are they obliged to withhold and pay withholding taxes when a foreign affiliated company grants free shares (RSUs, performance shares etc.) to the employees of the Belgian subsidiary company.
To date, a reporting and/or withholding tax obligation only applies in following situations:
- Grant of stock options by the foreign parent company to the employees of its Belgian subsidiary, resulting in a benefit in kind taxable at grant. In this situation the benefit always has to be reported on the individual tax statement (281.10 or 281.20 for grants to company directors), irrespective of whether the Belgian company is involved in the offering or bears the cost.
- The Belgian employer/company actively intervenes in the grant of the free shares.
In practice this means that the taxable benefits arising from grants by the foreign parent company to the employees of the Belgian company are very often not reported on the individual’s tax statements, nor subject to Belgian withholding tax. Also the absence of a reporting or withholding obligation, has led to taxpayers believing that the benefit derived from the free grant of shares was not taxable and did not need to be reported in the Belgian income tax return.
The Belgian income tax legislation regarding the employer’s reporting and withholding tax obligations is about to change following a new legislative proposal which was recently approved by Parliament. Once published, all benefits and remuneration received from an affiliated foreign company by the employees of the Belgian company, will become subject to a reporting and withholding tax obligation by the Belgian employer unless a double taxation agreement prevents Belgium from levying taxes.
Wage withholding tax obligation
As of the 1st of March 2019, the Belgian employer will have to withhold taxes on all remuneration and benefits granted by the affiliated foreign company to its employees resulting in a taxable benefit in kind in Belgium. The withholding taxes will always have to be withheld even if the Belgian company does not intervene in the allocation of the benefits or the costs related to the grant are not charged to the Belgian company.
All benefits granted in 2019 will have to be reported on the 2019 salary statement (fiche 281.10 / 281.20), which will have to be submitted to the Belgian tax authorities in 2020. This obligation already existed for stock options granted by an affiliated foreign company taxable at grant and will now be expanded to all benefits and remunerations.
Taxable benefits granted in the period as from 1 January 2019 up to 28 February 2019 aren’t subject to a withholding tax obligation and only need to be reported on the 2019 salary statement. As of 1 March 2019 all taxable benefits will need to be reported and withholding taxes will be due.
On a final note, it’s important to mention that the penalty for not fulfilling the reporting obligation amounts up to 10% of all remuneration and benefits that were not properly reported.