The impact of benefits granted by foreign group companies on Belgian withholding tax and reporting obligations
The Law of 11 February 2019
As of 1 March 2019, new rules came into force with respect to mandatory reporting and wage tax withholding obligations. All benefits and remuneration received from a foreign company by employees and company directors (beneficiaries) due to work carried out on behalf of a Belgian affiliated entity became subject to a reporting and withholding tax obligation, unless a double taxation agreement prevented Belgium from levying taxes.
Before the introduction of this Law, Belgian entities were only due to comply with Belgian withholding tax and reporting obligations for such benefits if they were involved in the grant or payment to their employees.
While it introduced some new obligations, the law was not entirely clear with respect to its precise scope.
A more detailed narrative of these rules can be found in the previous edition of this newsletter.
A number of these uncertainties have recently been clarified via ‘frequently asked questions’.
One of the key questions was how the concept of “by the beneficiaries received by reason of or at the time of their professional activity exercised on behalf of such a Belgian company” should be interpreted. The FAQ has now given a very broad definition of this concept.
“Beneficiaries” is broader than personnel
While the law itself did not include any indications in this respect and the preparatory documents for the legislation even expressly stipulated the requirement of an employment contract between the beneficiary and the Belgian group company, the FAQ now specifies that it is not a requirement that the beneficiary has signed a formal employment agreement with the Belgian company.
“On behalf of” means being involved in any professional activity
Whereas the activities of the beneficiary must be considered as ‘on behalf of’ the Belgian entity, it not only refers to the financial benefits, but it suffices that the seconded employee is involved in any activity of the Belgian company. It is however not required that the activity is exercised within the Belgian territory.
Impact of this broad interpretation: inbound seconded assignees and business travelers are “beneficiaries”
Based on this broad interpretation, the Belgian company will have a reporting and withholding obligation on remuneration and benefits provided by a foreign (group) company to its own employees, who occasionally work for the benefit of this Belgian company (such as inbound seconded assignees and business travelers).
The most concrete example of such a situation is that of seconded employees. These secondees typically remain on the payroll of the company sending them to Belgium and often the salary cost is subsequently charged to the Belgian entity. Most times only an assignment letter is put in place as an addendum to their employment contract with the sending company, but no contractual relationship is created between the employee and the host company in Belgium who receives the cross-charge.
Before the law of 11 February 2019, the foreign company, nor the Belgian entity, had a withholding obligation in Belgium with respect to the remuneration and benefits paid to these assignees. From now on however, although the law does not clearly state this, withholding tax will be due from the Belgian company if these assignees work for the benefit of this Belgian company.
Reporting obligation even if the remuneration is not taxable in Belgium
In addition to the above, the FAQ states that even if the remuneration is not taxable in Belgium based on the existing double tax treaties or even the Belgian law and therefore no withholding obligation occurs, the benefits received from a foreign related company must always be reported in the Belgian tax forms.
Action points for Belgian group companies
The tax authorities’ new guidelines are an interpretation of the existing law and therefore deemed to be applicable as of the moment the law of 11 February 2019 entered into force (1 March 2019 for the withholding obligation).
In view of the importance of this new development, we advise you to analyse the exact impact of these rules on the Belgian group company if the group has internationally mobile employees and to discuss what withholding method is best suited for the organisation.