The new special tax regime : what’s new?
The new special tax regime for foreign executives who are working temporarily in Belgium under specific conditions, was voted on 23 December 2021 and published on 31 December 2021 in the Belgian Official Gazette with entry into force as of 1 January 2022. However, there is a transition period applicable for individuals who currently benefit from the special tax regime until 2023 which has been officially stipulated in Circular letter 2022/C/9.
The old special tax regime was not embedded in tax law, but was based on the Circular letter of 8 August 1983. The old regime focused on (multinational) companies and more specifically on lowering the Belgian tax pressure and thus mitigating employment cost, encouraging foreign investments in Belgium and allowing to attract certain people with the right skills to Belgium. The old special tax regime was intended to benefit the employer, not the employee. On the one hand, the system stipulated that employees would be considered as non-residents, despite in practice effectively residing in Belgium, resulting in the fact that they would only be taxed on the income of Belgian sources (the so-called travel exclusion). On the other hand, expats could be reimbursed for a number of expenses related to the employment in Belgium exempt from income taxes, on top of part of their annual compensation being considered as costs proper to the employer (the so-called non-taxable allowances) and thus equally exempt from income taxes. The latter costs consisted of a cost of living allowance, cost of housing allowance, tax equalisation and a home leave and were capped at EUR 11.250 (29.750 for researchers). These costs were in any case calculated according to the guidelines of the Belgian tax authorities as described in the technical note of the Circular.
Under the new special tax regime, the employer may reimburse the employee tax-free for the costs related to the employment in Belgium (e.g. cost of living, housing etc.) up to 30% of the gross salary (to be paid on top of the gross salary) and up to a maximum of EUR 90.000 per year. In addition to this ‘30%-rule’, there are other exceptional costs which can also be considered as a reimbursement of costs proper to the employer such as moving costs, relocation costs and schooling fees under certain conditions. If you would like to know more about the tax related topics of this new regime, we recommend reading the latest newsletter of PwC.
The social security position
Under the old expat regime, the Belgian social security authorities (‘NSSO’) aligned their position to the position of the tax authorities as regards the non-taxable allowances. The Belgian NSSO confirmed in the past that the non-taxable allowances were also exempt from social security contributions if the conditions as described in the technical note of the Circular were complied with, as was the case in respect to the expense allowances, for which the social security tax authorities generally accepted that -within certain limits and considerations- these amounts could be reimbursed free from social security contributions.
In respect to the new regime, the social security tax authorities confirmed today their point of view. The Belgian NSSO aligns its position again to the position of the tax authorities. This means that the NSSO accepts that cost allowances granted to expats under the new regime for an amount of maximum 30% of the gross salary and up to an absolute maximum of EUR 90.000 per year are exempted from social security contributions. However, in this regard, article 19 of the Royal Decree of 28 November 1969 must be adjusted. The foregoing is therefore subject to final approval and signature of the amending Royal Decree. As it thus concerns a reimbursement of expenses, on which no social security contributions must be paid, the amount must not be included in the DmfA declaration either. Employees benefiting from this system will, however, need to be identified towards the social security tax authorities through a specific code on the DmfA, on which further information is still to be disclosed by the social security tax authorities.
Labour law implications : attention points
This new special tax regime does not only affect social security but also has several implications from a labour law perspective. First and foremost, it is important to review all employment contracts of the employees currently already in scope of the old special tax regime, to decide on -in first instance- the legal possibility for application of the new special tax regime (for which the application needs to be filed ultimately on 31 July 2022) or to choose to benefit from the transitional arrangement. Contracts will need to be adapted accordingly. Moreover, since both the application of the transitional measures as well as the new special tax regime will in any case be limited in time, it will be essential to already think at this stage on how the employee’s compensation will be structured subsequent to the lapsing of either the transitional measures or the new expat regime.
In addition, for new hires, the template employment contracts should be adapted in line with the provisions of the new special tax regime in order to have a clear view on the consequences and impact on compensation and benefits during and after expiration of the special tax regime.
Questions may also arise on for example the salary that should be taken into account for indexation, whether or not the non-taxable allowances qualify as salary for the calculation of an indemnity in lieu of notice, etc. PwC Legal is of course happy to guide you through all these implications.
Conclusion
The new special tax regime entered into force as of 1 January 2022. Despite the fact that practical procedures still need to be clarified from an income tax perspective, the social security and labour law consequences may not be lost out of sight either.
In case you have additional questions or if you are looking for more guidance on the social security and labour law implications of this new regime, do not hesitate to reach out; we would love to hear from you.
