The authorities have informally confirmed that they will launch an audit of foreign executives who have been benefiting from the special expat tax status for over ten years.
The special tax status available for expat executives in Belgium
Under certain conditions, foreign executives who are temporarily assigned to work in Belgium can benefit from a special tax status. Those qualifying are treated as non-residents of Belgium for tax purposes and taxed on their Belgian-source income only.
The special expatriate tax status, the rules of which are laid down in an Administrative Practice Note of 8 August 1983, in addition offers two important tax advantages to foreign executives:
- reimbursements made by the employer to cover the additional expenses incurred as a direct result of the assignment are, within certain limits, non-taxable for the expatriate (the ‘tax-free expatriation allowances’),
- the executive benefits from an exemption on the part of their compensation that relates to business duties carried out abroad (the ‘travel exclusion’).
To benefit from the special tax regime, a request must be filed with the Foreign Office of the Belgian tax authorities when a foreign executive meeting the conditions arrives in Belgium. One of the criteria in order to qualify for the special tax regime is proof that the expatriate’s centre of economic and personal interests is not in Belgium.
Tax authorities to review certain cases
The Foreign Office of the Belgian tax authorities informally confirmed to us at the beginning of this week that they are currently preparing an extensive audit of foreign executives who have been benefitting from the special Belgian expat tax status for ten years or more. The ten year threshold will be calculated as from the first arrival date in Belgium (with the current employer or with a previous one). The tax authorities will in the first instance be focusing on those companies with more than ten employees benefitting from the special tax status who have spent ten years or more in Belgium.
The scope of the audit is to analyse if these non-residents still meet the requirements for benefitting from the favourable tax status by checking whether the centre of their private and economic interests continues to be outside of Belgium.
A letter informing the companies concerned about this audit is expected to be sent by the tax authorities before the end of 2013, asking them to list all their expats benefitting from the special tax regime that have been in Belgium for ten years or more. An indicative list of employees that the tax authorities have identified as being in Belgium for ten years or more will be sent along with the letter, but this is for information purposes only and should not be considered as exhaustive.
The tax authorities will request that the employer submit a net balance of foreign and Belgian assets per employee concerned. As regards assets in Belgium, they will mainly focus on real estate, but they will also look at other information such as children’s schooling and spousal employment. The time frame to gather the information and to respond to the tax authorities will be one month from the posting date of the letter, but requesting an extension will in principle be possible.
Should insufficient proof be provided that an expat’s centre of private and economic interests remains outside of Belgium, the special expatriate tax status of the employee concerned will be cancelled as from 1 January 2014.
