An advantageous tax regime for foreign executives working in Belgium

The special regime for foreign executives has been conceived by the Belgian tax administration to attract the managerial staff of other countries on our territory by establishing an advantageous tax status derogating to common law.

In order to benefit from the regime, both the company and the detached executive (she could also be hired from abroad) must first submit an application to the Foreign Service of the Tax Administration. A circular of the 8th of August 1983 governs this status.

Who can benefit from this favourable tax regime?

This regime is available to employees and directors who do not have the Belgian nationality and who are seconded to Belgium to exercise in a Belgian company, branch or subsidiary of the foreign company, a management position temporarily.

May also benefit from this status individuals who, without being part of the executive staff, own a specialization that is difficult to find on the belgian market and foreign researchers seconded from abroad or recruited directly abroad to exercise in Belgium in scientific research centres and laboratories.

If the detachment is supposed to be temporary, the circular doesn’t set a time limit. The decisive fact is simply to be able to prove that the presence on the Belgian territory is not meant to last. The elements for demonstrating the temporary nature can be  personals (family of frame remains abroad, the frame has movable or immovable property abroad, any existing lease contract contains clauses in Belgium Specific, etc.) or professionals (being subject to foreign law, the nature of the function performed in Belgium, a job abroad, etc.).

What are the advantages of this scheme?

They are twofold.

Firstly, because of the temporary nature of the presence in Belgium, the tax authorities grant the status of non-resident to the foreign executive. The executive is therefore subject to the Tax on Non-Residents (Impôts de Non-Résidents – INR). This status has as consequence that he shall be only taxed on the incomes received for activities made in Belgium. In practice, the remuneration related to the working days abroad is not taxed in Belgium… and nowhere else!

Secondly, the executive may benefit – far beyond what is commonly accepted – from several expenses qualified as expenses attributable to the employer. A portion of the remuneration granted by the employer to the executive are considered expenses related to the secondment to Belgium. Hence, these reimbursements – which can be determined as a lump sum – are not taxable and not subject to social security contributions.

These reimbursements are extremely large and are either recurrent or on “one-shot” like moving expenses. In particular, they cover school fees for children, moving to or out of Belgium, part of private travel expenses, the loss due to the inability for the executive to find a tenant for the building that he owns abroad, the increased cost of living due to the presence in Belgium or the net loss of income due to the importance of taxes in Belgium.

If the amount of recurrent expenses is in principle limited to € 11,250 per year, it may reach € 29,750 per year (for executives seconded to a coordination center or staff seconded to a laboratory or research centre) and the one time charges such as education or moving in or out of Belgium are limitless.

These two benefits significantly increase the net take home salary of foreign employees in Belgium. Indeed, while the average tax rate in Belgium (social security included) is around 56% for executives’ income, this regime permits to achieve a more acceptable  average rate of 36%, more or less the same average burden than in the United States.