The new Belgian tax regime for inpatriates and inpatriate researchers: opt-in or stay out?

Belgian tax authorities have created a new Belgian tax regime for inpatriates and inpatriate researchers. The underlying tax bill has been published on 27 December 2021.

The new regime foresees a possibility to ‘opt-in’ the new regime for employees and directors already working in Belgium on 1 January 2022. Alternatively, expatriates currently benefitting from the Belgian special tax regime for foreign executives and researchers of 1983 can in principle decide to maintain the current status until 31 December 2023, therefore forfeiting their right to possibly opt-in the new regime.

The purpose of this article is to give you an insight on the transition period from a strategic perspective.

The new regime: conditions

In order to apply for the new special tax regime for inpatriates and inpatriate researchers, certain conditions have to be met by both the employee and the employer. Hereafter is a brief summary of the latter conditions. We will prepare a more in-depth analysis of the conditions at a later stage, when the upcoming FAQ will have been published by Belgian tax authorities.

• The special tax regime requires that the individual at hand is either recruited directly from abroad or posted from abroad;
• During an uninterrupted period of 60 months preceding the start of activities or arrival in Belgium - the inpatriate was not:
  • considered as a Belgian tax resident
  • subject to Belgian non-resident income tax on his professional income in Belgium or
  • living at a distance of less than 150 km from the Belgian borders.
• Minimum wage threshold: the inpatriate must earn a gross remuneration of more than €75.000 per calendar year from his employer or company for services provided in Belgium (this amount may be adjusted every three years as from income year 2024).
  
  In case the inpatriate is only partially taxable in Belgium, only the remuneration subject to Belgian taxation will in principle be taken into account for the remuneration threshold. Benefits in kind and variable remunerations (this means, a bonus) will be taken into account to appreciate this condition, which will have to be fulfilled every year.
  
  Failing to meet this condition in any given year will result in the interruption of the special tax regime on behalf of the inpatriate:
  
  
• An application request should be submitted electronically by the employer or the company to the Administration within three months of the expatriate taking up employment in Belgium. The application must be accompanied by a certificate signed by the inpatriate, certifying his agreement to the application request.

More restrictive or not quite?

From a certain perspective, the new special tax regime could be regarded as more restrictive than the old expat regime (for example, the wage threshold, 150km distance, and time limit of 5 years). Some foreign employees and directors working in Belgium could therefore be excluded from the new regime while they could otherwise benefit from the old expat regime.

On the other hand, the new regime appears to be more flexible on other aspects. It is therefore also perfectly possible that an individual who could not benefit from the old expat regime, could qualify for the new special tax regime.

Although a double condition relating to absence of ties to Belgium has been created (see above), nationality no longer plays a role in the possibility to apply for the new regime. For example, a repatriated Belgian national with more than 5 years of absence from the Belgian territory was excluded from the old regime but could possibly benefit from the new one (if all other conditions are met).

Another example would the requirement to present sufficient links abroad, which often resulted in the old expat regime being denied to individuals which would for instance be married to a Belgian national. Such restriction does not exist in the new regime either (to be confirmed based on upcoming complementary comments from Belgian tax authorities).

Many expats benefitting from the current regime, do not meet the conditions of the new one, but many who could not benefit from the old regime might qualify for the new one as well. Therefore it is important for a company to screen their entire workforce to assess the possible opt-in opportunities, and not limit such screening to the population currently benefitting from the old regime as all employees and directors might be susceptible to potentially benefit from the new regime.

The above position is based on the current text of the tax bill and will hopefully be confirmed by Belgian tax authorities in due course.

Which regime is potentially the most beneficial?

As from 1 January 2022 (financial year 2022) the old tax regime can no longer be applied for (except on behalf of expatriates who arrived in Belgium between 31 July 2021 and 31 December 2022). However, in its recent circular letter 2022/C/9, Belgian tax authorities have indicated that the old tax system may continue to be applied until 31 December 2023, provided that the conditions of the old regime are complied with and the employee or director at hand already benefitted from it on 1 January 2022.

Expats currently benefitting from the old expat regime (for less than 5 years) who meet the conditions of the new regime therefore have the possibility to either opt-in the new regime or decide to keep the old regime and still benefit from the phase-out period.

In case an individual opts-in to the new regime, the years where that individual has already worked in Belgium until 1 January 2022 will be deducted from the 5 years limit.

A trade-off between possible benefits must then be carried out. The new regime should in principle always apply to a longer period than the old one, due to the requirement to be in Belgium for less than 5 years to opt-in the new regime combined with the possibility to extend the duration until 8 years. However, the application of the old regime, even for a shorter period of time, may appear to be more beneficial (this will mostly be the case for expats with a high travel percentage).

For example: an expat who started working in Belgium on 1 January 2018, currently benefits from the old regime with a gross salary of €85.000, 50% travel exclusion and reaches the cap of €11.250 of tax-free allowances and meets the conditions to opt-in the new regime.

Therefore, opting-in the new regime would result in four years of benefit (one year to reach five years as from the beginning of the activities in Belgium, plus three years of extension) against two years of phase-out under the old expat regime.

However, the accumulated net salary across the latter four years would be €202.827,18 (this means, 4 x €50.706,79) if opting-in the new regime, while it would reach €223.123,53 (this means, 2 x €44.775,35 + 2 x €66.786,42) in case of phase-out.

In the example above, we presume that Belgian tax authorities will not consider the Belgian taxable income after travel exclusion (from the old expat regime) to determine whether the individual meets the conditions for the new regime or not. Otherwise, in this example, the individual would presumably not meet the conditions of the new regime. This is one of the points which will hopefully be clarified by Belgian tax authorities in their upcoming FAQ.

Some other considerations might also come into play. In this example, a travel exclusion of 50% could result in an increased risk of tax audit. Such consideration may also be taken into account in the decision process.

A case by case approach will therefore be required to capture all possible impacts of each option.

Contractual terms will be crucial

The gross salary to appreciate the €75.000 threshold as well as the maximum 30% of tax-free allowances should be the contractual gross salary.

For employees and directors already working in Belgium on 1 January 2022 and currently considering whether to opt-in the new regime or not, it is still to be confirmed what social and tax authorities will tolerate in terms of contractual arrangements. For instance, a reduction of the contractual gross salary accompanied with a ‘new’ tax-free allowance could be regarded either as an infringement to Belgian employment law (by Belgian social authorities) or an abuse (by Belgian tax authorities).

Conclusion

In light of the foregoing, and even though some clarifications are currently still expected with respect to underlying conditions, you can already proceed to a review of your own position or a screening of your workforce to identify possible opportunities.

Such screening should however be made with caution and followed up with a case-by-case analysis.