The end of the old expat status
by Eline Demeyere and Shauni Taildeman
Starting from January 1, 2022, a new favorable tax regime for expatriates was introduced, namely the "Special Tax Regime for Incoming Taxpayers and Incoming Researchers" (BBIB/BBIO). At the same time, its predecessor, the well-known "special tax regime for some foreign executives [1]", was abolished. For foreign executives who did not qualify for a transition to the new system, the old system can still be applied until December 31, 2023. However, this transition period will come to an end very soon, starting from January 1, 2024, and the aforementioned executives will no longer be able to claim the tax benefits of the old tax system. This will be noticeable in the wallets of many expatriates and will also impact employers in terms of labor costs.
Old system
What were the major advantages of the old regime? Let's briefly summarize them below:
Executives were fiscally considered non-residents and were solely taxable on their income of Belgian origin (not on foreign real estate and movable property, for example).
Workdays performed abroad with a professional character were exempt from taxation in Belgium ('Foreign Travel Exclusion').
The portion of the gross salary intended to cover recurring additional expenses (such as the difference in the cost of living compared to the home country) resulting from employment in Belgium did not constitute income for executives and was therefore exempt from taxation in Belgium ('tax-free allowances'). This amounted to a maximum annual sum of 11,250 euros and in some cases 29,750 euros.
Financial disadvantage for employee and employer
Due to the abolition of the old tax regime and its previously outlined fiscal benefits, expatriates will face a higher tax burden on their professional income starting from the income year 2024. As clarified in the example below, this will result in a loss of net income.
On the other hand, an expatriate residing with their family in Belgium will obtain the tax status of a Belgian resident and will be taxed in Belgium on their worldwide income (including foreign dividends/interest). Belgian residency also entails additional administrative obligations, such as the mandatory declaration of real estate abroad, registration with the central contact point of the National Bank of Belgium for foreign accounts, declaration and payment of the 'Tax on Stock Exchange Transactions (TOB)', and more.
Furthermore, employers of expatriates, subject to the Belgian social security system, must take into account an increased employer contribution for social security. Under the old tax regime, these contributions were only due on the portion of the gross salary that compensates professional activities, thus, after deducting the tax-free allowances.
Example
Executive X (single with no dependent children) receives a gross annual salary of €69,600.00 (paid in 13.92 installments) and is subject to the Belgian social security system. In his current role, he spends approximately 5% of his time working abroad for attending meetings. According to the government's fixed calculation method, the annual amount of tax-free allowances that the executive is entitled to is €11,250.00.
Under the old tax regime, Executive X enjoyed an annual net income of €47,530.43. Starting from the income year 2024, due to the elimination of fiscal benefits, this net income will decrease to €39,525.48. This represents a net loss on an annual basis of €8,004.94. Furthermore, the employer needs to consider an increase in employer contributions to social security of €2,812.50 on an annual basis.
Old regime | No regime | |
|---|---|---|
Employer contribution social sec. (25%) | € 14.587,50 | € 17.400,00 |
Gross yearly salary | € 69.600,00 | € 69.600,00 |
(Min) Tax-free allowances | - € 11.250,00 | - € 0,00 |
Gross yearly salary (subject to social sec) | € 58.350,00 | € 69.600,00 |
(Min) Employee contribution social sec (13,07%) | - € 7.587,99 | - € 9.050,98 |
(Min) ‘Foreign Travel Exclusion’ (5,00%) | - € 2.538,10 | - € 0,00 |
Total taxable salary | € 48.223,91 | € 60.549,03 |
(Min) Belgian income taxes (*) | - 13.969,13 | - € 20.363,19 |
(Min) Special contribution social security | - € 512,45 | - € 660,35 |
(Plus) ‘Foreign Travel Exclusion’ (5,00%) | € 2.538,10 | € 0,00 |
(Plus) Tax-free allowances | € 11.250,00 | € 0,00 |
Total yearly net salary | € 47.530,43 | € 39.525,48 |
(*) Calculated according to the applicable amounts for the assessment year 2024.
Key points for employers
(Re)Inform your expatriates about the fundamental changes in residency status and other consequences for their professional and other incomes.
Calculate the impact of the end of the old regime on net income and employer costs. How can you still remain an attractive and competitive employer? Are there solutions to reduce the negative impact (through alternative compensation techniques)?
There is a possibility that employment contracts (and any appendices) may need to be adjusted.
If you have questions about the new expat regime or the phasing out of the old regime, be sure to contact one of our experts via the form below.
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[1] Circulaire nr. Ci.RH.624/325.294 van 08.08.1983
Eline Demeyere
Manager International eline.demeyere@vdl.be
Shauni Taildeman
Senior Advisor International shauni.taildeman@vdl.be
Disclaimer
In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.
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