Winter is coming for the former expatriate tax regime in Belgium

Effective as from January 1st 2024, the former special tax status currently still enjoyed by approximately 27,000 taxpayers will cease to exist. This change is expected to result in significant financial and administrative implications for both employer and employee, which are highlighted below.

Almost two years ago the new tax schemes for inbound taxpayers and researchers came to see the light (alert). Taxpayers who benefitted on  January 1st 2022 for less than five years from the former expat regime (Circular Letter of 8 August 1983) had the opportunity to opt-in into the new regimes, provided that a number of other conditions were also met. Taxpayers who did not meet the conditions to opt-in or preferred not do so, remained covered under the former regime during a phasing out period of two years until December 31, 2023. As of the beginning of 2024, these taxpayers will lose their special tax status, and will become “regular” taxpayers.

The former expatriate tax concessions

The three main benefits of the former regime can be summarized as follows: 

Non-taxable allowances / Tax exemption for extra costs incurred while in Belgium up to EUR 11.250/29.750 per annum (or without ceiling e.g. for school fees reimbursements)

Qualifying taxpayers will lose this tax exemption and should therefore anticipate an increased tax burden as of 2024. Employers should also expect increasing costs since this non-taxable allowance (including school fees) was also exempted from social security contributions for employees subject to the Belgian social security scheme. 

Travel exclusion: tax deduction for duties performed outside Belgium

For the majority of qualifying taxpayers who will become Belgian tax resident as of 2024, this tax deduction will as a general rule no longer be available to them.

Deemed non-resident tax status:

Qualifying taxpayers – even if residing in Belgium – were deemed non-resident, implying that any (personal) income from source outside Belgium was not taxable in Belgium, but also that they were exempt from specific ad hoc reporting formalities imposed on resident taxpayers. This deemed non-resident status will now disappear, meaning that the regular Belgian tax residency rules will apply.

Expats, who have their main residency or center of economic interests in Belgium, will therefore normally be considered as Belgian tax residents as of January 1st, 2024, which has a number of consequences:

1. They will have to report worldwide income in Belgium, including all personal income earned or located outside Belgium. They should therefore expect an increased tax burden on their personal income.
2. They will have to comply with all administrative and reporting requirements imposed on Belgian resident taxpayers. The most important requirements include:

• Specific reporting obligation for real estate located outside Belgium on top of the annual tax return reporting;
  
• Reporting of foreign bank accounts outside the regular annual tax filing
• Reporting of foreign stock exchange transactions and liability to the foreign stock exchange transaction tax
• Reporting of foreign security accounts (in excess of EUR 1M) and liability to the resulting tax.

Finally, when drafting the text for the new tax regime for inbound taxpayers and researchers, the legislator had confirmed that tax return assistance provided by an employer to its employees should be considered as a reimbursement of a private expense – rather than an employer business expense – and should therefore be considered as a taxable benefit in kind in the hands of the employee.
 

Time for action

There is a need for action, if not yet taken. We strongly advise employers to assess the impact of losing the former special tax status on their workforce and employer costs. Clear communication seems a must, as well as a potential need to review the Belgian salary administration and the individual employment agreements.

Furthermore employers will also need to decide to which extent they will communicate/facilitate/ assist their employees with the reporting requirements imposed on resident taxpayers, as well as with potential future tax return assistance.

At EY, we understand that each company is distinct, with its own unique set of challenges and opportunities. We stand ready and available to delve deeper into the aforementioned issues, always aiming to turn potential challenges into opportunities for you.