Impact of tax reforms on the special tax regime - part 2/3
Although the special tax regime is very attractive, it is not flawless and the reshaping of Belgian income taxes, over the past years, also had its impact.
2014 tax reform
No longer non-residents with and without an abode in Belgium
In 2014 several tax reforms have been implemented. One of them involved abolishing the distinction between non-residents having an abode (in Belgium) and those who did not. Instead, a threshold based on the income was put in place. Non-residents either earn at least 75% of their (worldwide) income in Belgium or they do not. Based on this threshold, it can be determined whether non-residents are eligible to benefit from so-called “tax reductions”. For expatriates benefiting from the special tax regime, the 75% threshold is breached if they have a professional travel outside Belgium (“travel exclusion”) for more than 25%.
Regionalization of tax reductions
In addition to this change, a further regionalization was also implemented with regard to certain tax reductions. Depending on the situation of the non-resident, a following distinction must be made in order to be able to invoke federal and / or regional tax reductions:
- For federal tax reductions (e.g. attribution to partner, children at charge, personal tax credit, etc.), non-residents either benefit:
- in full (i.e. non-residents earning at least 75% of their income in Belgium); or
- only partial (i.e. non-residents earning less than 75% of their income in Belgium but who reside in France, Luxembourg or The Netherlands); or
- not at all (i.e. non-residents who do not earn at least 75% of their income in Belgium nor reside in one of the mentioned countries)
- For regional tax reductions, the same distinction is made. However, for non-residents earning at least 75% of their income in Belgium, a further distinction is made between non-residents who reside in another EU member State and those who do not.
What about the actual impact ?
Assume a non-resident benefitting from the special tax status residing in Belgium with three children at charge and whose partner is not working. His travel exclusion equals 30%:
|Simulation till 31/12/2013||Simulation as of 1/1/2014||Simulation as of 1/1/2017|
|Having an abode in Belgium during the entire taxable period||Non-compliant with the 75%-rule (with travel of 30%)||Non-compliant with the 75%-rule (with travel of 30%)|
|Total gross income||100.000,00||100.000,00||100.000,00|
|(Less) Tax free allowances||-11.250,00||-11.250,00||-11.250,00|
|(Less) Belgian social security (employees)||-9.499,09||-9.499,09||-9.499,09|
|(Less) Travel exclusion||-23.775,27||-23.775,27||-23.775,27|
|(Less) Special social security contribution||-622,84||-622,56||-614,20|
|Tax free allowances||11.250,00||11.250,00||11.250,00|
|Net estimated income per year||76.464,33||67.074,51||67.682,80|
|Difference in net||
For non-residents benefitting from a net guaranteed income, the 2014 tax reform likely resulted in a company cost increase (for compensating the net loss). For other non-residents, the net income decreased. Although the 2014 tax reform also brought some changes in the applicable income tax brackets reducing one’s overall income tax burden. The net difference remains nonetheless quite important.
2017 Tax reform
By law of 25 December 2017 tax benefits (and reductions) also became limited pro rata the number of months for non-residents who become, or stopped being, taxable in Belgium in the course of a year (i.e. due to their arrival or departure from Belgium). The tax letter of 28 February 2018 summarises these tax benefits. To determine the number of months on the basis of which the non-resident can claim the tax benefits, the 16th of the month is decisive.
- A non-resident having the free use of a company car would prior to this reform benefit from a tax exempted amount of 400 EUR whereas the 400 EUR is to be limited to 9/12th if the non-resident arrives in Belgium on 18 March 2018.
- A non-resident who arrives in Belgium on 18 March 2018 and who is compliant with the 75%-threshold would have benefited in full from his personal tax credit prior to this reform, whereas because of this reform, he now sees his personal tax credit limited to 9/12th.
It is clear that above tax reforms have had a massive impact on the expatriate’s tax situation, either directly at charge of the non-resident, or at charge of the company depending on the applicable expat policy.