Similar to salaries paid to employees, director fees are subject to wage withholding taxes. To the extent that the wage taxes withheld do not cover the final income tax due on the directors’ fees, a tax increase will be applied. This will be the case for instance if a person has a directorship in two or more companies. Directors who want to avoid such increases can make tax prepayments.
Based upon case law of last year, it is clear that directors cannot choose to pay their final income taxes by way of tax prepayments instead of wage withholding taxes. If the company does not withhold (sufficient) wage withholding taxes, the tax authorities are entitled to claim the (remaining) withholding tax due from the company and consider the wage withholding tax as a taxable benefit in kind in the hands of the company directors.
Now, the Belgian tax authorities have announced that wage withholding tax obligations for directors’ fees will be given high priority in tax audits. Backed up by the case law of the Belgian Supreme Court, the Belgian tax authorities have made it clear that companies which have not withheld (sufficient) wage withholding taxes on directors’ fees during calendar year 2013 can rectify this situation before the end of this year. Otherwise, the Belgian tax authorities will apply administrative sanctions, in combination with standard late payment interest due.
