Belgium targets low-income expats in new tax regime – POLITICO



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Belgium is looking to replace its complicated system of tax benefits for expatriates with a new scheme that could bring in an additional 24.5 million euros per year.

Belgian media first published rough estimates of the changes on Tuesday, ahead of the government’s presentation of the 2022 budget. The finance ministry confirmed to POLITICO on Wednesday evening more details on the overhaul, which still requires parliamentary approval.

The old regime allowed certain deductions from taxable income from which around 20,000 expats took advantage. Under the new proposal, these deductions would be abolished and replaced by a fixed deduction of 30%, capped at € 90,000, on taxable income for work-related expenses.

The most significant change in the scheme is that it almost doubles the minimum annual salary threshold to benefit from the scheme, from around € 40,000 to € 75,000. The objective is to limit depreciation to high incomes so that Belgium is not disadvantaged compared to neighboring countries, in particular among the “profiles of decision-makers”, specified the ministry. However, expatriates working in European institutions will continue to be exempt from Belgian income tax, paying instead a “community tax” of between 8 and 45%.

“This status was created not to offer gifts to employees, but to offer respite to employers attracting the best internationals [talent]”, explained Gunther Valkenborg, lawyer at Loyens and Loeff.

Among other changes, employees will no longer be required to report recurring expenses annually, as these will be considered part of the standard deduction of 30%. But they can still claim one-off expenses such as moving expenses.

While the government still has to work out some details before submitting the measure to lawmakers, it has already included the full € 24.5million in its 2022 budget, suggesting it will act quickly. But the finance ministry still expects a phase-out period.

“A phase-out would be strongly recommended,” said Valkenborg. “There will be winners and losers changes, and in some cases there could be drama.”

A gradual adoption could give time, for example, to expats who have negotiated a fixed net income with their company. A sharp transition could force their employers to pay significantly higher gross wages to get the same take-home pay, which could lead to layoffs.

Fair play

For many tax professionals, this decision was belated, given long-standing legal concerns.

The current regime, which dates back to a 1983 decree, was declared illegal on several points by the country’s Court of Auditors since 2002. The court reaffirmed its position in 2014, including its concern that the scheme was never approved by lawmakers and therefore has no legal basis.

The ministry said the old regime also risked going against EU rules that prohibit countries from granting selective advantages to companies. It was found that Belgium had granted such illegal ‘state aid’ by exempting multinational companies from corporate tax, and in 2016 it was order recover 700 million euros in unpaid taxes from 35 multinational companies.

The current rules were also meant to apply to expatriates on temporary assignments, but in fact often benefited long-term residents with families and property in tow. Under the new regime, deductions will be phased in, likely between five and eight years, the ministry said.

The overhaul will also likely include a provision that would exclude expats living 150 kilometers or closer to the Belgian borders. This measure is a blow to the Netherlands, which has a similar provision across the border while its citizens working close to the border in Belgium are exempt.

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