The 6th State Reform and Belgian expatriate tax

Written by Nicolas de Limbourg 4 June 2014


On 28 May 2014 the law of 8 May 2014, modifying the Belgian income tax code of 1992 following the 6th State Reform (Act of 6 January 2014) was published in the Official Gazette.

Rules applicable until tax year 2014 (income year 2013 included)

Foreign executives temporarily working in Belgium for whom the special tax regime, as determined by Circular letter of 8 August 1983, is applicable (hereafter ‘foreign executives with Belgian expatriate tax status’), are considered as non-resident taxpayers of Belgium for income tax purposes. A lot of foreign executives with Belgian expatriate tax status move to Belgium with their close family for the duration of their temporary assignment in Belgium, and thus have an abode in Belgium. These foreign executives were treated as privileged non-resident taxpayers for income tax purposes. In contrast to ordinary non-resident taxpayers, privileged non-resident taxpayers (i.e. non-resident taxpayers with an abode in Belgium during the entire taxable period and non-resident taxpayers earning at least 75% of their total professional income in Belgium) benefit from certain tax advantages, such as the marital quotient (i.e. lump sum allocation of a portion of the professional income to the non-working spouse for the computation of the taxes due, as a result of which the thus-allocated income is taxed at the lower tax rates of 25% and 30% instead of being taxed at the top rate of 50%) and the application of personal tax deductions (the tax-free allowances).

New rules as from tax year 2015 (income year 2014):

(I) Abolishment of the category of non-resident taxpayer with abode in Belgium;

(II) Regional tax reductions will be available only for non-resident taxpayers who are a tax resident in another EEA-country and who earn at least 75% of their total professional income during the taxable period in Belgium

As from tax year 2015 (income year 2014), the category of non-resident taxpayer with abode in Belgium is abolished. Hence foreign executives with Belgian expatriate tax status who live with their close family in Belgium will no longer benefit from the above-mentioned tax perks (marital quotient and tax free allowances), unless they earn at least 75% of their total taxable professional income during the taxable period (which runs from 1 January until 31 December) in Belgium. If applicable, the loss of the afore-mentioned tax credits (marital quotient and tax free allowances) for a married foreign executive with Belgian expatriate tax status with an abode in Belgium, a non-working spouse and two dependent children, is estimated to be equal to € 7,661.

Furthermore, foreign executives with Belgian expatriate tax status who live with their close family in Belgium, and who are not a resident of another EEA country will no longer be entitled to certain tax reductions that, following the 6th State Reform, have been regionalised (i.e. the regional tax reductions), of which, based on our experience, the most commonly used are the tax reduction for service cheques and the tax reduction for mortgage loans and mortgage loan insurance expenses related to the single and own residence. If applicable, the loss of the aforementioned tax benefits (tax reduction for service cheques and the tax reduction for mortgage loans and mortgage loan insurance expenses related to the single and own residence) can, for tax year 2015, be estimated respectively at €899 (for a married couple) and €2,602 (for expenses related to a qualifying mortgage loan concluded after 1 January 2005 and before 1 January 2015) for a married couple where one of the spouses does not work.

On the basis of the foregoing, and in order to minimise tax losses, it may be advisable for some foreign executives with Belgian expatriate tax status who live with their close family in Belgium to limit their foreign business travel to a maximum of 25% of their time and/or make use of remote communication means (e.g. video conference), business requirements permitting.

For other foreign executives with Belgian expatriate tax status, earning a high income and making frequent foreign business trips, the tax benefits resulting from the foreign business travel exclusion may exceed the amount of the tax losses resulting from the abolishment of the abode rule and from the fact that the regional tax reductions no longer apply to non-residents who are not a resident of another EEA-country. Should you be interested in knowing what the foreign business travel turning point is for your foreign executives with Belgian expatriate tax status, please get in touch with your PwC HRS contact.