Who Is Liable For Income Taxes in Belgium
Income tax is levied on the worldwide income of Belgian residents and on the Belgian-source income of non-residents.
Residents are individuals who are domiciled in Belgium or who manage their wealth from Belgium. Residency status is determined based on the facts and circumstances. A rebuttable presumption exists that individuals enrolled in the National Register of the Population are resident in Belgium for tax purposes. For married individuals (or individuals officially engaged in a “cohabitant” scenario), an irrefutable presumption exists that the tax domicile is where the spouse or partner and any dependent children live.
Certain foreign executives, specialists and researchers residing temporarily in Belgium are eligible for a special tax regime under which they are treated as nonresidents (see Special expatriate tax concessions).
The income of spouses and registered cohabitants is taxed separately, even though they are required to file a joint tax return.
Income subject to tax. The Belgian tax law provides for the following four categories of taxable income:
- Earned income, including employment income, director fees, self-employment income, business income and retirement income
- Real estate income
- Investment income, including dividends, interest and royalties
- Other miscellaneous income
For each category of income the net taxable amount is determined as the gross income received minus a number of deductions specific to the income category. In addition, several deductions, allowances and credits can be set off against the total net taxable income.
The taxation of various categories of income is described below. For a table outlining the taxability of income items.
Employment income. Employment income includes salaries, wages, bonuses, perquisites and benefits in kind, as well as retirement income. Benefits in kind are taxable based on the actual value of the benefit to the employee. Specific valuation rules are provided for several of the more common benefits, such as company cars, below-market interest loans, free housing and stock options (see Taxation of employer-provided stock options).
Income from employment may be reduced by normal professional expenses, including, among others, the following:
- Percentage of the cost of gasoline for the professional use of a car (percentage depends on carbon-emission value of the car)
- 75% of most other automobile expenses
- Commuting expenses up to €0.15 per kilometer
- 69% of restaurant expenses and 50% of other entertainment expenses incurred in Belgium
Instead of claiming a deduction for actual professional expenses, the taxpayer may choose to claim a standard business expense deduction. The maximum standard deduction is €3,670 for the 2011 income year (2012 tax year).
Directors’ fees. Directors’ fees are included in total earned income. Directors’ fees include income earned by a director as fixed remuneration as well as participation in the profit of the company. Certain benefits derived by a director are also included in the taxable income of the director. Directors’ fees also include amounts paid to in-house self-employed consultants with day-to-day managerial responsibilities of a technical, commercial or financial nature. A deduction for professional expenses (actual expenses uncapped or standard deduction of 3%, up to a maximum of €2,200) can also be claimed against the directors’ fees. To avoid a tax surcharge (2.25% of the tax for the 2011 income year), tax prepayments and wage tax withholdings must equal the final tax due.
Self-employment and business income. Self-employment and business income is included in total earned income. A deduction for actual professional expenses is also available against this income. To avoid a tax surcharge (2.25% of the tax for the 2011 income year) at the time of final assessment by the authorities, tax prepayments must be made.
Real estate income. Real estate income includes rental income from real estate that is used for a professional activity and, in certain circumstances, from real estate used for private purposes by the occupant. Nonresidents whose Belgian-source income consists only of real estate income are exempt from personal income tax if the annual rental income does not exceed €2,500.
Investment income. Under the Belgian domestic tax law, investment income consists of dividends, interest and royalties.
Dividends and interest are subject to a withholding tax. Except for specified types of dividends and interest payments, an individual may elect to treat this Belgian withholding tax as the final tax. If this election is made, the dividend and interest income does not need to be reported in the annual individual income tax return. Foreign-source dividends and interest payments that have not been subject to Belgian withholding tax must be reported in the individual income tax return of the recipient.
Special expatriate tax concessions. Foreign executives, specialists and researchers residing temporarily in Belgium may qualify for a special tax regime when they are assigned, transferred or recruited from outside Belgium to work for a Belgian operation of an international group of companies. The special expatriate status is obtained through a written application to the Belgian tax authorities that sets forth the reasons why the relevant employee should qualify. The application is filed jointly by the employee and the employer. It must be filed within six months after the beginning of the month following the month of arrival of the employee in Belgium.
Foreign executives, specialists and researchers qualifying under the special expatriate tax regime are treated as nonresidents for purposes of the Belgian tax law. As a result, they are taxed on Belgian-source income only. Accordingly, unearned income and real estate income arising outside of Belgium are ignored in the determination of Belgian taxable income.
Qualifying individuals are taxed only on employment income or directors’ fees relating to professional activities performed in Belgium. Unless other reliable criteria are available, the amount of remuneration excluded from taxation in Belgium can be calculated as the fraction of the total worldwide remuneration that corresponds to the number of workdays performed outside Belgium compared to the total workdays performed (the travel exclusion). Special rules apply to the calculation of the exclusion. No maximum or minimum travel percentage is required to qualify for the special regime.
Certain allowances paid to the employee as a result of his or her temporary stay in Belgium are treated as deductible expenses for the employer and are nontaxable to the employee, within certain limits. An overall annual limit of €11,250 applies for qualifying expatriates working for regular operating companies. For qualifying expatriates employed by recognized headquarters, coordination offices, and research centers, an increased limit of €29,750 applies. The following are the most common recurring allowances:
- Cost-of-living allowance (COLA)
- Housing differential
- Home leave
- Income tax differential
The tax-free allowances can be determined based on either the actual allowances granted by the employer (if these are based on recognized tables) or on a calculation method provided by the Belgian tax authorities (if no specific allowances are paid by the employer).
Expatriates are also allowed to exclude from taxable compensation the reimbursement of moving expenses and the reimbursement of education expenses for international primary and secondary schooling in Belgium and, by exception, outside of Belgium. These exclusions have no overall limitation other than that they be reasonable in amount. In this context, lump-sum relocation allowances are considered taxable in most instances unless justified by specific relocation expenses.
Although the concessions are not granted for a fixed time period, maintaining the concessions beyond 10 years is becoming increasingly difficult.
Taxation of employer-provided stock options. Effective from 1 January 1999, specific rules are included in Belgian domestic law relating to the taxation of stock options granted to employees, directors and other independent persons.
Two applicable tax regimes are provided for stock options.
Stock options offered during the period of 2 November 1998 through 10 November 2002 or offered after 10 November 2002 and accepted within the 60-day period. Options offered on or after 2 November 1998 and before 11 November 2002 are deemed to be granted 60 days after the offer date (communication of the award to the employee), unless the beneficiary has indicated his or her refusal in writing within this 60-day period.
Options offered on or after 11 November 2002 are deemed to be granted on the 60th day following the offer if the beneficiary has given written notice of his or her acceptance of the option before the expiration of the 60-day period. If the option is accepted within the 60-day period, the taxable benefit is determined in the same manner as for the options offered during the period of 2 November 1998 through 10 November 2002. If the option is not accepted within the 60-day period, special rules apply (see Stock options offered on or after 11 November 2002 that are not accepted within the 60-day period).
The benefit arising from an unquoted stock option offered on or after 2 November 1998 and before 10 November 2002 or offered after 11 November 2002 and accepted within the 60-day period is taxable to the beneficiary on the date of grant on a forfeitary basis, regardless of whether the exercise of the option is unconditional. Under the forfeitary basis, the taxable income is determined as a percentage of the value of the underlying shares at the moment of the offer of the options. If the exercise price of the option is lower than the value of the underlying shares at the time of the offer, the forfeitary basis is increased by the difference.
In general, only the grant of an option results in a taxable benefit. If that is the case, the employee is exempt from tax on potential benefits arising from subsequent possession of the option, including benefits from the exercise or sale of the option or from the sale of the underlying shares. However, the grant tax does not apply in all circumstances. If the grant tax does not apply, taxation would normally be imposed at the time of exercise.
No social security contributions are required with respect to such options, unless the options are “in the money” (that is, granted at a discount) or if the options are “covered” (that is, the risk that the value of the underlying shares will decline is covered at the time of offer or until the end of the exercise period of the option, therefore granting a guaranteed benefit to the beneficiary of the option).
Stock options offered on or after 11 November 2002 that are not accepted within the 60-day period. Special rules apply to stock options granted on or after 11 November 2002 that are not formally accepted within the 60-day period following the date of offer. Such options are taxed at the time of exercise on the difference between the fair market value of the underlying shares at the time of exercise and the exercise price. The benefit is also subject to social security contributions at the time of exercise.
No further taxes are due when the shares are sold.
Capital gains. In general, capital gains on assets that are not used for a professional activity are not taxable. However, exceptions exist for the following types of capital gains:
- Capital gains derived from speculative activities
- Capital gains derived from the sale of land that was acquired by purchase if the sale takes place within eight years of acquisition
- Capital gains derived from the sale of land that was obtained by donation if the land was acquired by the donor within eight years before the donation
- Capital gains derived from the sale of a Belgian corporation’s shares to a company not resident in the European Union (EU) or the European Economic Area (EEA) if the individual, alone or together with his or her family, directly or indirectly owned more than 25% of the corporation’s shares at any time during the five years before the sale
- Capital gains derived from the sale of certain intangible rights
- Gains derived from the sale of developed real estate if the property is sold within any of the following time periods:
— Five years after purchase
— Five years after the start of using a new building if construction began within five years after purchasing the land on which the building stands
— Three years after donation if the donor bought the property within five years before the donation
Deductions, personal allowances and credits
Deductible expenses. Certain deductions are allowed against total taxable income, including, among others, the following:
- Interest on loans for financing the purchase, construction or renovation of privately owned real estate (subject to certain limits).
- Investment deduction for new fixed-asset acquisitions by self-employed persons. For the 2011 income year (2012 tax year), the investment deduction is 5.5%, subject to an annual review for inflation.
- Deduction for certain alimony and support payments (limited to 80% of the payments).
- Child care expenses for children up to the age of 12 (limited to €11.20 per child per day).
- Charitable contributions to qualifying charities.
- Energy-saving investments.
- Service vouchers.
- Security investments to protect private houses from fire and theft.
Some of the above deductions are not available if the payments are made by or to nonresidents.
Personal allowances. All individuals may deduct personal allowances. Additional personal allowances are available for dependents.
The personal allowances are applied to the lowest tax brackets. For the 2011 income year (2012 tax year), the standard personal allowance equals €6,430 per person.
Credits. A tax credit system, with limitations, operates in Belgium for the following:
- Life insurance premiums
- Personal contributions to group insurance contracts or pension funds
- Investments in shares issued by the individual’s employer
- Loans used to finance real estate acquisitions or renovations
Eligible taxpayers receive a tax credit that is determined by using an adjusted average tax rate between 30% and 40% (this percentage is increased by a municipal tax percentage).
Several other tax reductions are available, depending on the taxpayer’s family situation and the type of professional income (pensions, pre-pensions for early retirees, unemployment income, and disability or sickness reimbursement).
All tax amounts are increased by applicable municipal (commune) taxes, which are imposed at rates of up to 9%. The municipal tax is calculated on the amount of income tax due.
For nonresidents, the final tax due is computed in the same manner as for Belgian residents, with personal allowances being allowed if nonresidents maintain their abode in Belgium. No municipal tax is due, but an additional federal tax at a flat rate of 7% on the amount of the individual’s income tax is payable.
The professional income of a husband and wife is taxed separately. If only one spouse receives earned income, 30% of this income (limited to a maximum annual amount of €9,470 for the 2011 income year) is attributed to the non-earning spouse and is taxable to such spouse at the (lower) progressive rates. If the earned income of the secondary wage-earning spouse is less than the maximum attributable amount, additional income from the primary wage earner is attributed to the second spouse to the extent of the difference.
The following types of income are subject to special tax treatment:
- Severance payments are taxed at the average rate applicable in the last year of normal professional activity, taking into account the municipal tax.
- Prepaid Belgian holiday pay is taxed at the average rate applicable to all income in the year of payment, taking into account the municipal tax.
- The surrender value of life or group insurance contracts and lump sums paid instead of pensions are taxed at a rate of 10% or 16.5%, increased by the municipal tax.
- Miscellaneous income from occasional benefits (including certain capital gains, prizes and subsidies) is taxed at a rate of 16.5% or 33%, depending on the nature of the income (the rates are increased by the municipal tax).
- Income from author’s royalties earned as of 1 January 2008 up to a ceiling of €37,500 (net after standard or itemized deductions) is taxed at a rate of 15%. Effective from 1 January 2009, such income is subject to a specific 15% withholding tax.
The above flat rates apply to the special items unless it is more favorable to include the income with other income taxable at the regular progressive rates.
Withholding tax. Dividends are subject to withholding tax at a rate of 15% or 25%, depending on the type of dividends. However, exemption from withholding tax may apply to the following:
- Distributions made by Belgian mutual (investment) funds
- Dividends paid to certain nonresidents exempt from tax abroad
- Dividends paid by a Belgian investment company to certain nonresidents
- Dividends paid by a Belgian coordination center
- If certain conditions are met, distributions made by a Belgian subsidiary to an EU parent company or to a company established in a tax treaty country
Belgian-source interest is subject to a 15% withholding tax if the underlying agreement was concluded on or after 1 March 1990. Otherwise, a 25% withholding tax is imposed.
Royalties are subject to withholding tax at a rate of 15% if the underlying contract was concluded on or after 1 March 1990. Royalties paid on contracts concluded before that date are subject to withholding tax at a rate of 25%.
Employment income and director fees are subject to a withholding tax at source by the employer. This withholding tax is creditable against the final income tax liability and any excess income tax withheld is refundable to the employee or director.
A tax on immovable property is levied on all real estate property located in Belgium. The rate of this withholding tax ranges from 1.25% to 2.5%, depending on the region where the property is located. The basic tax is increased by a local surcharge depending on the municipality where the property is located. The tax is levied on the deemed rental income of the property.
Relief for losses. Losses with respect to earned income may be offset against other earned income and may be carried forward indefinitely. No carrybacks are allowed. No losses may be deducted with respect to other types of income.
B. Other taxes
Net worth tax. Net worth tax is not imposed in Belgium.
Inheritance and gift taxes. The inheritance tax rate system in Belgium varies depending on the region of residence of the deceased. Substantial differences exist between the rates applied by each region. Special rules apply with respect to the transfer of a family-owned business and to the transfer of a family home to a surviving spouse, legal cohabitant or other cohabitant (except in direct line). Readers should obtain up-to-date information regarding these rules.
Under existing law, the estate of a deceased resident consists of the resident’s worldwide assets. Belgian jurisdiction over estates of deceased nonresidents is limited to the nonresident’s real estate located in Belgium. The definition of resident for inheritance tax purposes may differ from the definition used for income tax purposes. Nonresident status for purposes of the special expatriate tax regime (see Section A) does not automatically apply for inheritance tax purposes.
Inheritance taxes are levied according to a sliding scale, depending on the beneficiary’s relationship to the deceased.
In most cases, gift taxes are levied on the same basis, and at the same rates, as estate tax. However, preferential rates ranging from 3% to 7% apply to gifts of movable property to offspring or ascendants.
Belgium has entered into estate tax treaties to prevent double estate taxation with France and Sweden.
Transfer duties. Transfer duties, whether registration or succession duties, apply only to the extent an effective transfer of assets occurs under Belgian matrimonial or inheritance laws. On the death of a spouse, the transfer of assets to the surviving spouse resulting from the dissolution of the marital community is not subject to succession duties. Consequently, succession duties apply only to the portion of the property that was actually owned by the deceased spouse.
C. Social security
Contributions. Social security contributions are generally compulsory for individuals working in Belgium. For 2011, the employee’s social security contributions equal 13.07%. This rate applies to the monthly gross compensation without a ceiling. In most cases, the employer’s social security contributions are calculated at a rate of up to 34.77% of gross monthly compensation, with no ceiling. These percentages apply to white-collar workers. No social security contributions are due on the benefit resulting from the personal use of a company car. However, an employer contribution that is based on the company car’s carbon dioxide emission level is required.
Different rates apply to self-employment activities, including activities of directors. For the 2011 income year, social security contributions are levied at a rate of 22% on net income up to €51,059.94 and at a rate of 14.16% on income between €52,378.55 and €77,189.40. Income in excess of €77,189.40 is not subject to social security contributions. The annual maximum contribution for self-employment activities is €15,036.48 (increased by 3% to 5% for administration fees for the social insurance fund).
Mandatory social security contributions are deductible for income tax purposes.
An individual who is liable for Belgian social security contributions is also required to make a special social security contribution. For the 2011 income year, the maximum amount of this contribution is €731.29. The special social security contribution is not deductible for income tax purposes.
Coverage. An employee who pays Belgian social security is entitled to benefits, including health insurance, disability insurance, occupational insurance, unemployment allowances, family allowances, and retirement and survivor’s benefits.
Totalization agreements.
To prevent double social security liability and to assure benefit coverage in situations of cross-border employment, Belgium has entered into agreements with several countries. As a member state of the EU, Belgium applies EU Regulation 883, which entered into force on 1 May 2010 and replaced EU Regulation 1408/71. Regulation 1408/71 continues to apply for a maximum of 10 years to all cross-border situations existing before 1 May 2010 in which Regulation 883 alters the relevant state if the individual does not opt into coverage of the new regulation and if a material change in circumstances does not occur. In all cases, Regulation 1408/71 continues to apply to cross-border moves involving Switzerland or any of the other three European Free Trade Association (EFTA) countries (Iceland, Liechtenstein and Norway). Regulation 883 extends the home-country standard coverage from 12 months to 2 years (in general, it can be further extended to 5 years). Belgium has also entered into social security totalization agreements with Algeria, Australia, Canada, Chile, Croatia, India, Israel, Japan, Korea (South), Macedonia, Morocco, the Philippines, Quebec, San Marino, Switzerland, Tunisia, Turkey, the United States, Uruguay and Yugoslavia. Belgium has signed new totalization agreements with Argentina and Brazil, which have not yet been ratified. Most of the totalization agreements provide for an exemption up to a maximum of five years. However, the agreement with the United States exempts employees working in Belgium from Belgian social security taxes for a period of up to seven years in exceptional circumstances.
To learn more about the history, culture, economy and other information about Belgium
We have been preparing US income tax returns for US Citizens and permanent residents living in Belgium for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Belgium and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Belgium.
We have helped hundreds of expats around the world catch up because they have failed to fille US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
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