New Tax Regime For Foreign Executives

The Belgian Federal Government recently announced that the current tax regime for foreign executives is expected to be replaced by a new tax regime that should enter into force as of 1 January 2022.
 
In addition to other new features, the new regime will now include two pillars: (i) a special tax regime for incoming taxpayers and (ii) a special tax regime for incoming researchers. With the adoption of this new regime, the Federal Government mainly aims at maintaining Belgium's attractiveness for qualified personnel from abroad and for foreign investments.

In the following article, we briefly outline the main features of this expected new tax regime (subject to legislation to be enacted).

Legal basis 

In contrast to the current tax regime for foreign executives, which is based solely on a circular letter (dd. 8 August 1983), the new regime will be given a statutory basis through its integration directly into the Belgian Income Tax Code of 1992. The objective here is to reach better legal certainty.

Tax benefit in two words (and social security)

The recurring costs proper to the employer (which are tax-free allowances for foreign executives) will no longer be limited to a maximum of 11.250 EUR or 29.750 EUR, as this is currently the case. Instead, 30% of the qualifying foreign executives' salary will be allocated as tax-exempt costs proper to the employer. However, the 30% tax-free portion will be capped at 90.000 EUR, and there will no longer be a tax-free travel exclusion. 

Moreover, and subject to certain conditions, foreign executives will have the possibility to receive a full reimbursement for specific additional costs proper to the employer.

At this moment, it is uncertain whether the social security authorities will follow this position. It seems to us that when exempting 30% of the gross remuneration from social security contributions (90.0000 EUR maximum), the social security authorities may wish some more evidence and eventually take another position than the tax authorities (as they do on other subjects too). According to our information, the Social security authorities are deemed to take a decision late November on the social security treatment of the non-taxable reimbursement of costs by the employer, calculated according to the new tax regime for foreign executives. To be followed as this may have an important (beneficial) impact on employing foreign executives. 

Another heavily debated issue is whether the tax-exempt costs (reimbursement of costs by the employer) will not have to be taken into account for employment law purposes, e.g. the calculation of the termination pay. Some changes in argumentation and case law may also be expected on this particular issue in the next few years. 

Conditions of application

The new regime will not impose any condition with respect to the nationality, allowing thus the benefit of it for individuals with Belgian or foreign nationalities. However, foreign executives will have to receive a minimum gross salary of 75.000 EUR per year to qualify for the application of the new regime. While this last salary condition will not be required for researchers, the latter will still need to either hold a Master's degree or have at least 10 years of professional experience to benefit from the new regime. 

Besides, additional conditions will need to be assessed over a period of 60 months (i.e. 5 years) prior to the foreign executives' employment in Belgium. Namely, in this period, foreign executives must not (i) be tax residents of Belgium, nor (ii) live within 150 km of the Belgium border, nor (iii) be subject to Belgian non-resident tax.

Limited duration

While there is no prescribed duration of the benefit of the current regime, the new regime should apply a duration limitation of 5 years, with the possibility of a 3-year extension (i.e. a maximum duration of 8 years).

Tax residency in Belgium

Foreign executives benefiting from the new regime will have tax residency in Belgium, meaning that they will be taxable in Belgium on their worldwide income (in contrast with the current regime that provides a fictitious non-resident tax status linked to a taxation on Belgian source income only).

Transitional period

The new regime will apply to new foreign executives arriving in Belgium as of 1 January 2022. As for the individuals already subject to the current regime, they will have the possibility to opt for the new regime by requesting its application before 30 June 2022, if certain conditions are met (only if under the current regime for 5 years or less). 

If foreign executives subject to the current regime do not choose to opt for the new regime, or do not meet its condition of eligibility, the benefit of the current regime will not automatically be lost on 1 January 2022. Instead, a transitional period of 2 years will in principle be available, after which foreign executives will become tax resident in Belgium.
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In case of questions, please do not hesitate to contact the Belgian tax or employment teams of Fieldfisher.