Belgian tax residency

The Belgian tax system distinguishes between "resident" and "non-resident" taxpayers when it comes to determining what income is subject to taxation. As a general rule, Belgian residents are taxed on their worldwide income, while non-residents are only taxable on their Belgian source income. When a foreigner comes to Belgium temporarily to work here, it does not necessarily mean that he will automatically be qualified as a non-resident.

A Belgian resident is any person who has his family home (place of residence) or the place from where he manages his personal wealth, in Belgium (Article 2, §1, 1° a) BITC92 – Belgian Income Tax Code of 1992). People registered with the local community are presumed to be resident, unless the contrary is proven (Article 2, §1, 1° in fine BITC92). Consequently each foreigner will be considered to be a Belgian resident (for tax purposes) as soon as he is entered into the local population register and, as a result, domiciled in a Belgian community.

Special tax status

However, in a number of situations the resident foreigner may be granted a special tax status, allowing him to be taxed as a non-resident on certain categories of income. For example, foreign executives, directors, specialists and researchers appointed by a foreign employer to work "temporarily" in Belgium, are allowed, under certain conditions, to exclude part of their income from Belgian Income Tax. This so-called "special expatriate tax status" has no legal basis, but is merely an administrative tolerance (Circular nr. Ci.RH.624/325.294, dd. 8 August 1983).

Since the special status only applies to foreign executives, specialized foreign staff or foreign research staff, the persons eligible for this tax regime will have to prove that they perform activities which require a special knowledge and responsibility, thus executive functions.

Furthermore, the secondment to Belgium should be of a temporary nature to work in a branch or company controlled by a foreign enterprise as part of an international group. The residence or centre of economical and personal interests of the executive should remain located abroad (e.g. spouse, children, house, life insurance policy, etc.).

Tax benefits

Foreign nationals benefiting from the special expatriate tax status are treated as non-residents and are therefore only taxable on their Belgian source income. The benefits, that can only be obtained by filing a motivated application with the Expatriate Tax Directorate in Brussels, are two-fold: (i) certain "expatriate allowances" or reimbursements of expenses and (ii) the so-called "foreign business travel exclusion" will be excluded from the taxable basis. Applications should be filed within six months from the start of the month following the month of employment in Belgium.

i.   Some "expatriate allowances" (i.e. tax equalization, cost-of-living differential, housing differential, home leave allowance) are treated as "costs proper to the employer" and are therefore, within certain limits, not taxable to the individual employee. It is namely the reimbursement of expenses by the employer to cover the additional costs as a result of the secondment to Belgium. A distinction is made between non-recurring expenses (e.g. moving costs, ...) and recurring expenses (e.g. housing differential, ...). The excludable portion of the latter is limited to 11.250 EUR or (under certain conditions) to 29.750 EUR per year.

ii.  An additional benefit under the term "foreign business travel exclusion" is provided to the expatriate who travels abroad on business during his secondment to Belgium. The executive’s taxable remuneration will be further reduced to the extent that his compensation relates to business activities carried out abroad. Specific rules are provided by the Belgian Tax Administration to determine the number of days worked outside Belgium. Proof of the presence abroad for professional reasons is required.

Both the "expatriate allowances" and the "foreign business travel exclusion" will be excluded from the taxable income from employment. The taxable income after this deduction is then taxed in the same way as the taxable income of any other Belgian resident (i.e. applying the same tax rates, deductions and exemptions) and is likewise added to the other Belgian source income of the expatriate.

The expat who benefits from the special tax status is required to annually file the so-called "non-resident tax return" (Article 227 BITC92).

An illegal regime ?

In 2003, the Belgian Court of Audit published an extensive survey (summary in English) in which it questioned the legality of the special expatriate tax regime. The court stated that the enforcement by way of a circular (Ci.RH.624/325.294, dd. 8 August 1983) does not respect the delimitation of competences as established by the Constitution. The court also considered the administrative circular to be in breach of several provisions of the Belgian Income Tax Code.

In a recent decision of the Court of Appeal of Brussels the court stated that it could not take the circular into account since it has no legal basis and emphasised that the administrative tolerance "disregards" the legal criteria in this matter (Brussels 21 January 2009, Nr. 2005/AR/1242, www.juridat.be/). To our knowledge, this is the first time that a Belgian Court of Appeal (indirectly) has qualified the special expatriate tax regime as "illegal". This decision proves once more that a legal framework is required.

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