Sun, 22 November 2009
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Belgian residents preparing their tax returns for the 2005 income year who wish to obtain a full or partial exemption of foreign-earned income now need to have proof at hand.It is no secret that Belgium taxes employment income at high rates; the combined social security and income tax rates quickly go above 50 percent.
The foreign income exemption puts more money in your pocket
It has therefore been popular planning for some years for Belgian residents who have an international role to receive part of their salary from the foreign countries where they work ('multiple employment structures'). 
The structure is put in place where the salary paid abroad can be taxed in the source country at lower rates than in Belgium, meaning that the total amount of taxes due is reduced.
Putting such a structure in place is only feasible where there is a double tax treaty between Belgium and the source country, so that the income is taxed in one place, the lower tax country.
In theory, foreign source income should only be considered tax exempt in Belgium provided that the conditions mentioned in the treaty are met.
However, in practice, provided that the taxpayers report their foreign source remuneration in the box 'foreign earned income' of their resident tax return, the Belgian tax authorities generally exempt the foreign source income without verifying whether the conditions mentioned in the tax treaties to exempt the income are met.
Proof required
The Belgian tax authorities want to put an end to this practice of 'automatic' exemption.
They have issued a new Administrative Circular letter recommending local tax administrations verify carefully whether the conditions to obtain an exemption are fulfilled.
As a starting point, the circular states the general principle that Belgian resident taxpayers are taxable in Belgium on their worldwide earned and unearned income, including the foreign-earned income.
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