We all know that tax liabilities vary enormously from one country to the next, and many allow individuals to claim deductions and/or tax credits according to their family size and marital status. However, in some tax jurisdictions, liabilities can vary significantly from one person to the next, even if their incomes and family sizes are identical; several countries offer tax concessions to qualifying expatriates, resulting in lower tax liabilities compared to a local national.
Expatriate tax concessions usually exist to attract talent, address shortages in particular fields of expertise and encourage foreign investment in the country. As high taxes do not normally encourage an influx of assignees, they are typically found in high-tax jurisdictions. They are less relevant if the overall tax burden is low since a fiscal incentive already exists for inbound assignees.
A tax concession can take many different forms. Some countries, such as Denmark, Finland, Korea Republic, Portugal and Spain offer lower tax rates while others, such as Cyprus, Greece, Irish Republic, Italy, Netherlands and Sweden, offer additional tax deductions which are not available to locals. Alternatively, in countries such as Belgium, France and Taiwan, the concession may allow certain assignment-related benefits and allowances to be provided tax free or at a reduced rate of tax.
From time to time the relevant authorities may choose to tweak available concessions, depending on the current political and/or economic motivations. The system might be made more generous to encourage a further influx of highly skilled assignees or restricted to increase tax revenues or encourage investment in local talent. For example, Greece introduced a 50% tax exemption for certain individuals in 2021, while in 2019 the Netherlands reduced the applicability of their 30% tax-free allowance from eight years to five years.
A focus on Belgium - significant changes introduced 1 January 2022
Sometimes, the authorities may look at the wider picture and implement a major reform to their existing system. Since 1983, qualifying Belgium inbounds have been able to claim certain lucrative concessions. In short, various expenses and allowances related to the assignment have been exempt from tax and social security contributions up to certain limits, and eligible assignees have been able to claim ‘special non-resident’ status. This means that assignees are not taxable on any part of their income related to work performed abroad – a very lucrative concession to many.
Effective 1 January 2022, a major overhaul of the system has taken effect. While the reimbursement of relocation-based expenses and other costs of expatriation remains exempt from tax and social security contributions (within limits), assignees can no longer claim ‘special non-resident’ status; claimants are considered tax resident and therefore taxed on foreign-source income unless they can prove residence in another country under the provisions of a double tax treaty.
The key changes are summarised below:
*EUR 29 750 limit applies to assignees working in co-ordination and control or scientific research centres, while EUR 11 250 limit applies to industrial or commercial organisations.
**Inclusive of gross salary, variable compensation and benefits-in-kind but exclusive of the tax-free expenses. Researchers satisfying certain conditions have no minimum salary requirement.
|Maximum tax-free expenses
||EUR 29 750 or EUR 11 250*
||EUR 90 000
|Taxability of foreign income
|Minimum salary requirement
||EUR 75 000**
|Length of concession
(Three-year extension possible)
|Previous time in or around Belgium
||Must not have been a Belgium tax resident, or lived within 150km of the border, in the previous five years.
||Foreigners and returning Belgian nationals.
Although the qualifying conditions are now more stringent, and the regime has a time limit and minimum income requirement for the first time, higher-earning assignees can clearly claim more tax-free expenses. The maximum available reimbursement is legislated as 30% of gross remuneration, with a maximum tax-free amount of EUR 90 000. The duration of entitlement is another important element to note; the previous regime was applicable indefinitely unless the qualifying conditions were no longer met, or the assignee changed employer. The new regime is applicable for five years, with scope to extend for a further three years, although entitlement will no longer end if the individual changes employer.
What does this mean for existing assignees in Belgium? The new law contains transitional provisions, where the previous regime can remain applicable until 31 December 2023. Assignees who also qualify for the new regime can elect to switch, although any application must be submitted before 1 July 2022. Otherwise, assignees will be subject to the old rules and will be unable to claim any concessions from 1 January 2024. Furthermore, the five/eight-year limit for assignees who successfully switch will be reduced by the number of years already claimed under the old regime. For example, an assignee who arrived in Belgium on 1 January 2020 and switches to the new scheme in 2022 could receive the concessions until 31 December 2024, and potentially extend their entitlement until the end of 2027. However, it is inevitable that some employees will lose the right to claim concessions.
Whilst the new expatriate taxation system is strongly rooted in its predecessor, there are a number of major, impactful changes. The five-year limit and higher tax-free allowance certainly stand out, but the abolition of ‘special non-resident’ status and its potential impact on Belgium inbounds should not be underestimated. Assignees with a high proportion of income sourced outside Belgium may see their Belgian tax liability rise significantly. The short-term impact can be nullified by remaining in the existing scheme during the transition period, but this will not be an option going forward. Global mobility professionals should therefore be aware of this.
FIND OUT MORE
Please contact us to speak to a member of our team directly.
Clear and comprehensive tax reports are available for more than 100 countries as part of a subscription to ECA data and can also be bought on demand.
Our Tax Calculator enables you to calculate hypotax at the touch of a button, and is used by our Consultancy & Advisory team to run tax calculations on your behalf.
ECA’s hypothetical tax data is built into our various assignment calculators and cost projections, including our assignment management system, ECAEnterprise.