A bill to reform the special tax regime for foreign executives as of 1 January 2022 is currently under consideration in the House of Representatives. Its outline, which is currently uncertain, is commented on below.
Reminder of the current regime
As a reminder, the current special tax regime is not based on any legal provision and is only based on the administrative circular n° Ci. RH.624/325.294 of 8 August 1983. This regime allows, subject to certain conditions, the executives and managers concerned to benefit from the following advantages:
- The notion of non-tax residence, allowing executives to be taxed only on their Belgian source of income;
- Exemption of professional remuneration relating to days worked abroad;
- Exemption of reimbursements of costs proper to the employer, calculated on the basis of a technical note, up to a maximum amount of €11,250 or €29,750, as well as the tax exemption of certain expenses reimbursed by the employer in an unlimited manner.
Outline of the new regime
a. Scope of application
According to our information - relatively limited at this stage - the law would include two categories of beneficiaries:
- The impatriate taxpayer, i.e. an employee or company director who could benefit from the application of the regime provided that:
- his gross annual remuneration reaches €75,000 (excluding in particular the reimbursement of recurring expenses);
- during a period of 60 months prior to taking up the post, he was not a Belgian tax resident AND did not live within 150 km of the Belgian border AND was not subject to non-resident tax in Belgium in respect of his professional income;
- he is seconded or transferred to Belgium by an international group OR recruited abroad by a Belgian employer.
- The impatriate researcher, i.e. an employee (directors are excluded) who carries out a scientific research activity for whom the remuneration threshold should be lower, or even non-existent, but who should justify particular qualifications by means of his professional experience (minimum 10 years) and his diploma.
The benefits granted by the application of this regime are similar for both categories. They consist of:
- The flat-rate tax exemption of 30% of the beneficiary's remuneration for recurring expenses. This benefit would be limited to a maximum amount of €90,000, which could be adjusted every three years;
- The tax exemption of certain expenses reimbursed by the employer in an unrestricted manner, such as moving allowance, accommodation allowance or school fees, on the basis of supporting documents;
- The application of the normal rules for determining tax residence - the beneficiary would in principle be considered a Belgian tax resident (although it is possible to demonstrate that he/she is a tax non-resident by providing a certificate of tax residence in another state). As a Belgian tax resident, the beneficiary will be obliged to declare all worldwide income in Belgium. In application of international tax treaties, certain foreign source income will be exempt from tax in Belgium, but subject to progressivity, i.e. it will still be taken into account in determining the effective tax rate.
The application of the regime should be requested within three months from the date of taking up employment in Belgium and would be limited to a period of 5 years from the date of taking up employment, which could be extended by 3 additional years.
Introduction of a transitional regime
Persons benefiting from the special tax regime for foreign executives could still benefit from it for a period of two years, i.e. until 31 December 2023.
They could also apply for the application of the new regime, which in certain cases is more advantageous, provided that :
- They meet the conditions for the application of the new regime as from the initial entry into service ;
- They have not benefited from the application of the special tax regime for foreign executives for more than five ;
- This application must be submitted by 30 June 2022 at the latest.
The application of the new regime may be granted for a period corresponding to the time remaining of the maximum period of five years from the initial entry into service.
If the application is denied, the benefit of the special tax regime for foreign executives will be definitively lost.
This new legislation will therefore bring substantial changes to the current regime.
In the meantime, we invite you to identify your employees for whom, in view of the specificities developed, the application of the new regime could be applied.
We will keep you informed of the entry into force of this new law and its final scope.
Do not hesitate to contact us if you would like more information or to examine the potential impact on your employees.