"Nobody declares everything they earn or at least none of my friends do," explains a Belgium-based UK financial advisor who asked not to be named.

The taxman's after that foreign nest egg

The new legislation obliges taxpayers registered in Belgium – and that includes legally resident expats - to declare any money or investments kept abroad.

People who make the necessary declaration before 31 December this year have been promised immunity from prosecution and fines.

But Belgian Finance Minister Didier Reynders has warned that the authorities will come down very hard indeed hard on anyone found with undeclared earnings stashed abroad after the end of 2004.

So how will the legislation work in practice?

Expatica asked tax expert Jan Walraevens of accountants Moore Stephens Wood Appleton, a company that specialises in expat tax questions, to help decipher the new rules.

What is the purpose of the legislation?

Broadly, the law aims at regularising capital resulting from undeclared income. It is fairly new - the law was published in January - and details still have to be finalised.

For typical Belgian residents, and those expats subject to tax in Belgium, the law applies to income that you have omitted to declare, thus avoiding taxes in Belgium. That can be total earned income, interest, inheritance, and so on. You are now given the possibility of declaring and legalising that capital.

What exactly is this special tax return - the so-called One-Time Voluntary Declaration?

You have until 31 December 2004 to declare non-official income from investments. To do so, you must make a One-Time Voluntary Declaration (Declaration Liberatoire Unique in French or Eenmalige Bevrijdende Aangifte in Dutch).

The Declaration can be made for:

• cash, bonds and shares in a foreign deposit account opened before 1 July 2003
• bonds and shares (not cash) in a Belgian deposit account or deposited in a safe before 1 July 2003

The standard tax rate on these earnings will be 9 percent. But a lower 6 percent rate can apply if the money is invested in government approved schemes.

When should you make a declaration?

If you miss the opportunity to make the declaration in 2004 and are found out later, then you risk heavy fines of up to 100 percent.

People planning to use unofficial funds in the near future should make the declaration as soon as possible.

However, the legislation is fairly recent and most people will start making declarations in around two months.

To be on the safe side, you should decide whether or not to make a declaration by October at the latest, especially if you plan to repatriate bonds and other financial assets to Belgium.

Repatriation is likely to take some time, as foreign banks may be reluctant to transfer assets quickly and this could delay your declaration.

Are any aspects of the rules still unclear?

The general principles are set. But details concerning procedures and forms need to be finalised.

For example, it seems that precise amounts to be declared will have to be decided by the taxpayer him or herself, then checked by the tax authorities.

Do I have to declare money I have in a foreign bank account if I earned and paid tax on it before I came to live in Belgium?

No. That's because the money was not earned while you were taxable in Belgium. If you are a non-Belgian resident here and you declared everything abroad before coming to Belgium, then those financial assets can be justified at any moment. In that case, the Belgian tax authorities can't accuse you of avoiding tax.

If you earned income abroad but did not declare it, you should contact the tax authorities in the country you were working in at the time. You only need to tell the Belgian authorities about money earned while living in Belgium.

Do I have to declare a holiday home if I bought it before I came to live in Belgium?

A holiday home is a totally different issue. The unofficial income invested in a property abroad cannot be "made legal" by a declaration under the new law. In the One-Time Voluntary Declaration, you can only declare cash, bonds and other financial assets. But undeclared rental income from property can be regularised if physically present in the form of cash, shares, bonds and other moveable assets.

Are there any special criteria for expatriate workers? Not all non-Belgians working here have expat status. Do they come under this new law?

Expats with the special foreign executive status, under a tax circular of 1983, are technically considered to be "non-resident". They only need to declare income from Belgian sources. They can earn interest and dividends and salary abroad without the obligation to report such foreign income in their Belgian income tax returns.

But non-Belgians who do not have foreign executive status are treated like Belgian residents. They have to report worldwide income.

What about self-employed expats?

All expats subject to Belgian tax will have to follow the same tax rules as Belgian citizens.

Are there any special pitfalls expats should look out for?

Expats often have savings that were earned and taxed abroad, before they moved to Belgium.

This means that if they access large sums of foreign capital, the Belgian taxman may ask questions.

 But so long as you have kept records and can demonstrate your capital results from income that was not taxable in Belgium, you should have no problems.

However, expats subject to normal resident income taxes should remember that the dividends or interest earned on foreign accounts are taxable in Belgium — at 15 percent or 25 percent. This is regardless of whether such income has already been taxed abroad.

The expat community generally appears well-versed in tax and investment rules. Additionally, many expats are here on temporary missions. They move around and consequently are less concerned by such legislation as they have more flexibility. They probably will leave Belgium at some point.

January 2004

DISCLAIMER

While we make every effort to ensure the accuracy of all our articles, Expatica is not a professional tax advice service. We cannot accept responsibility if any of the information in this guide is not correct.