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Belgium is seeking to replace its complicated system of expat tax benefits with a new regime that could bring in an additional €24.5 million annually.
Belgian media first reported rough estimates of the changes on Tuesday, ahead of the government’s presentation of the 2022 budget. The finance ministry confirmed to POLITICO late Wednesday more details of the overhaul, which still requires parliamentary approval.
The old regime allowed certain write-offs on taxable income that about 20,000 expats took advantage of. Under the new proposal, those deductions would be scrapped and replaced with a fixed 30 percent deduction, capped at €90,000, on taxable income for work-related expenses.
The plan’s most significant change is that it nearly doubles the minimum annual salary threshold to benefit from the regime, from around €40,000 to €75,000. The goal is to limit the write-off benefits to high earners so that Belgium isn’t at a competitive disadvantage compared to neighboring countries, especially among “decision-maker profiles,” the ministry said. However, expats who work at EU institutions will continue to be exempt from Belgian income tax, paying instead a “community tax” of between 8 and 45 percent.
“This statute was created not to hand out gifts to employees, but to offer breathing room for employers attracting top international [talent],” explained Gunther Valkenborg, a lawyer at the firm Loyens and Loeff.
Among the other changes, employees will no longer be required to file annually recurring expenses, as these will be considered part of the 30 percent standard deduction. But they can still file one-off costs such as relocation expenses.
While the government still needs to iron out some details ahead of submitting the measure to lawmakers, it has already included the full €24.5 million in its 2022 budget, suggesting it will move swiftly. But the finance ministry still expects a phase-out period.
“A phase-out would be strongly recommended,” Valkenborg said. “There will be winners and losers from the changes, and in some cases there could be drama.”
A gradual adoption could give time, for example, to expats who negotiated a fixed net income with their firm. An abrupt transition could force their employers to pay substantially more gross pay to yield the same net salary, possibly leading to lay offs.
To many tax experts, this move was overdue, given long-standing legal concerns.
The current regime, which dates back to a 1983 executive order, was declared illegal on multiple points by the country’s Court of Audit as early as 2002. The court reasserted its position in 2014, including its concern that the regime was never approved by lawmakers and therefore lacked a legal basis.
The ministry said that the old regime was also at risk of going against EU rules that prohibit countries from granting selective advantages to companies. Belgium was found to have granted such illegal “state aid” by exempting multinational companies from corporate tax, and in 2016, it was ordered to recover €700 million in unpaid taxes from 35 multinational companies.
The current rules were also intended to apply to expats on temporary assignment, but in fact often benefited long-term residents with families and property in tow. Under the new regime, the deductions will have a sunset, probably between five years and eight years, the ministry said.
The overhaul will also likely include a provision that would exclude expats living 150 kilometers or closer to Belgium’s borders. This measure is a swipe at the Netherlands, which has a similar provision across the border while its citizens working close across the border in Belgium are exempt.
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