Transitional period
Since 2022, a new special tax regime has been in place for inbound taxpayers (employees and directors) and inbound researchers (employees) who arrive to work in Belgium. It allows part of their salary to be paid out as a tax- and social security-free expense reimbursement. The system benefits both the employer, as well as the employee.
We can refer to our previous news items on this topic. You can consult them here and here.
Foreign executives who benefitted from the ‘old’ tax regime, as outlined in a Circular Letter of 8 August 1983 (Ci. RH 624/325.294), were offered the choice to either transition to the ‘new’ expat regime (if they met the conditions) or continue to benefit from the ‘old’ one until December 31, 2023.
Those foreign executives who did not meet the criteria of the new regime, or those who neglected to transition to the new status by 30 September 2022, automatically resorted under a 2-year transitional regime that ended in December 2023.
You can review the most important consequences of this in one of our previous news items.
Non-Resident Tax status
Under the 1983 expat regime, despite often being domiciled in Belgium, foreign executives were always considered Non-Residents Taxpayers (and hence, only taxed on their Belgian sourced income here). This is no longer the case in the current expat regime.
One of the benefits of the old regime was referred to as the ‘foreign travel exclusion’. Expats were not taxed in Belgium on the salary they earned for the days spent working abroad on behalf of their Belgian employer.
In addition to this, taxpayers were not required to report any foreign (non-Belgian) assets or sources of income to the Belgian authorities. This was obviously extremely beneficial to those working in Belgium who – at the same time – earned foreign business, real estate or investment income, and preferred not to disclose these to the Belgian Tax Authorities.
Most important changes
As the transition period has ended on 1 January 2024, there are a few very important elements that one should keep in mind:
- Expat taxpayers are automatically classed as Resident taxpayers from 1 January 2024 onwards, making them potentially liable for Belgian tax on their worldwide income.
- If you benefitted from the transitional regime until the end of 2023, there is no possibility to switch to the new expat regime anymore.
- Unless a different arrangement has been made with your employer, the discontinuation of the expat benefits under the old regime (i.e. ‘foreign travel exclusion’ and fixed tax-free expat allowance) will logically result in a lower net salary in 2024.
- If you have a net guaranteed remuneration package, this will significantly increase the total cost for the employer due to the loss of expat status benefits.
Non-Resident or Resident?
It is important to understand that those individuals who no longer benefit from the ‘old’ expat regime, can still request the tax authorities to maintain their Non-Resident status. Strictly speaking, the Belgian authorities are of the opinion that if you lost your expat status at the end of 2023, you automatically became a Tax Resident on 1 January 2024.
However, if you can demonstrate that your principal place of residence or the centre of your social and economic interests remain located abroad, you may be able to continue being considered a Non-Resident taxpayer in Belgium.
If you can prove that your stay in Belgium is only temporary and/or if there are certain elements in your personal situation that tie you closer to your home country than to Belgium, you may be able to successfully retain your Non-Resident Tax status.
Since Non-Residents only have access to certain personal tax allowances if they earn at least 75% of their worldwide income in Belgium during the calendar year, applying for Non-Resident status may not always have the desired result. In some cases, it can be more interesting to opt for a normal Resident Taxation and report your foreign earnings, to avoid that your personal tax deductions would be disregarded or limited.