New social security treatment of expatriate’s non taxable allowances retroactively applicable as from 1 January 2012

Bart Elias 30 November 2012


Context

Under certain conditions, foreign executives who are temporarily assigned to work in Belgium can benefit from a special tax status. In this case, they are treated for tax purposes as non-residents of Belgium 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 for the part of his/her compensation that relates to business duties carried out abroad (the “travel exclusion”)

As far as tax-free expatriation allowances are concerned, separately from educational fees and the certain once-only expenses, for which proper justification must be given and which must appear reasonable, the other expenses – to be properly justified as well – are considered reasonable only to the extent that they do not exceed:

  • EUR 11.250 for executives of manufacturing companies
  • EUR 29.750 for executives of control and coordination offices, scientific research centres and laboratories

Social security usually agreed that these amounts are exempted from social security contribution.

News

In order to make Belgium and its special tax regime more attractive, the social security authorities have changed their position in respect of the amount of tax free allowances that can also be exempted from Belgian social security. To that end, the amount of the non taxable allowances may be grossed-up with the travel exclusion percentage. The maximum limit of EUR 29.750 would however remain applicable in any case.

This new social security position would be applicable as from 1 January 2012. This will therefore have an impact on the 2012 year-end payroll calculation.

For example, in the past no social security contributions were due on the non taxable allowances (within the limits stated above, e.g. EUR 10.000 in this case) of an expat working in Belgium under the special tax regime and subject to Belgian social security with a travel exclusion percentage of 30%.

With the new position, no social security contributions would be due on the non taxable allowances increased by the travel percentage which would result in a social security exempted amount of EUR 14.285,71 (i.e. EUR 10.000 x 100 / 70) in the example above.

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