The reform of the Expat Tax Regime in Belgium

The Federal Government recently announced that a new tax regime for expatriates (“Expat Tax Regime”) will be introduced in Belgium effective January 1, 2022.

After 38 years, the existing Expat Tax Regime – which is still based on an administrative circular letter of August 8, 1983 – will be overhauled, in order to provide more legal certainty and adapt it to the legal and tax needs of today.

The new Expat Tax Regime will be given a statutory basis and incorporated into the Belgian Income Tax Code of 1992. It is part of the Belgian Government’s Budget Plan 2022 and is expected to bring in about €25 million of additional tax revenue for the Federal Government next year.

The purpose of a specific tax regime for expats has always been to promote Belgium as an attractive and competitive place to do business, especially for international companies. It should allow them to assign key global talent and decision-makers to Belgium at an acceptable and competitive cost.

The Expat Tax Regime should mitigate, to a certain extent, the very high individual income tax rates in Belgium, even for moderate salary levels (more than 50% for every additional euro in excess of approximately €41,000 of taxable income per year), and the high and uncapped social security contributions.

General principles of the new Expat Tax Regime 

Tax status of the persons who will benefit from the new Expat Tax Regime

The individuals benefiting from the new Expat Tax Regime will, in principle, have Belgian tax resident status (if living in Belgium). Under the current regime, expats are fictitiously considered as non-residents of Belgium for income tax purposes. Under the new Expat Tax Regime, expats will be taxable in Belgium on their worldwide income, subject to exemptions based on bilateral tax treaties, to which the expats will have access as tax residents of Belgium.

Scope of application and conditions

The expat must either be recruited outside of Belgium or seconded to Belgium to an enterprise that is part of an international group, as defined in the statute.

He or she must not have been a resident of Belgium in the 60 months prior to employment, nor have lived within 150 km of the Belgium border, nor have been taxed as a non-resident of Belgium for professional income in Belgium.

A minimum gross salary of €75,000 per year (exclusive of the tax-free allowances, see below) will be required in order for an expat to be eligible for the new Expat Tax Regime. No such minimum salary will be required for researchers, but they will be required to hold a Master’s degree or have (the equivalent of) at least ten years of professional experience. This new requirement is very different from the current regime.

Tax benefit of the new Expat Tax Regime

Thirty percent of the qualifying expat’s salary will be earmarked as tax exempt “costs proper to the employer.” This makes the system more transparent and simpler to manage for international companies than the current Expat Tax Regime.

However, the tax exempt portion of 30% will be capped at €90,000. Thus, when an expat is earning a gross salary above €300,000 per year, no further tax benefits will be available (300,000 x 30% = €90,000). Clearly, this cap will make the new Expat Tax Regime less attractive for executives and decision-makers with higher levels of compensation.

The new Expat Tax Regime will be totally different from the current regime as there will no longer be a tax-free travel exclusion for days spent outside of Belgium. However, the current – quite moderate – tax-free allowances for specific additional costs that expats incur (costs proper to the employer) of up to €11,250 or €29,750 per year will be replaced by the tax-free portion of 30% capped at €90,000 per year.

In addition to the (capped) 30% tax-free amount of costs proper to the employer, the following costs can still be reimbursed tax free by the employer (without any specific cap):

1. costs incurred in connection with the expat’s relocation to Belgium;
2. costs incurred for the furnishing of a house in Belgium; and
3. school tuition costs paid for the expat’s children.

Subject to certain conditions, the reimbursement of these costs continue to be earmarked as tax-free allowances.

Duration of the new Expat Tax Regime

The new Expat Tax Regime will be available for five years, with a possibility to apply for an extension for an additional three years, subject to certain conditions. Thus, in total, the new regime can apply for a maximum of eight years.

Transition period

The new Expat Tax Regime will be applicable for new expats arriving in Belgium on or after January 1, 2022. Under certain conditions, people currently benefiting from the existing Expat Tax Regime can opt for the new one starting January 1, 2022.

The expats who are currently benefiting from the existing Expat Tax Regime but do not meet the conditions of the new regime will not automatically or immediately lose the benefits of the existing regime on January 1, 2022. A transition or grandfathering period of two years will in principle be available.

Companies employing expats in Belgium under the current Expat Tax Regime should verify if they will meet the conditions for the new regime and consider opting into the new regime or continuing the current regime for another two years.

Conclusion

The new Expat Tax Regime will be incorporated in the Belgian Income Tax Code of 1992, which will lead to more legal certainty. However, as this reform is also part of a package of “budgetary measures”, several restrictions are added, such as a minimum salary of €75,000 per year (not for researchers) and a cap of €90,000 on the tax-free allowances. It can be questioned if going forward the system will be competitive enough compared with similar expat regimes that exist in neighboring countries.

AmCham Belgium’s Legal & Taxation Committee and more in particular its Employee Tax Subcommittee is closely monitoring this new Expat Tax Regime.