The present note has not for purpose to give an answer to all the questions raised by foreign EEC interim companies who put people during short, middle or long term periods at the disposal of Belgian companies in the context of "services agreements". Generally these people are IT specialists and enjoy the benefits of the 1.408/71 EEC ruling meaning they stay under the umbrella of the social security of the foreign employer.

My target is only to put a red light in view of all the employees concerned who might, innocently, be caught in a tax disaster.

What are the schemes usually carry out by these foreign companies?

First scheme : we have Foreignco, employee (Z) and Belgian client (Belco). Z is living abroad (say the home country) and is looking for a job. Foreignco hires Z and transfers Z in Belgium to work for Belco. Z is still being paid in his home country while he comes to work in Belgium. Foreignco and Belco sign a service agreement by which Z is put by Foreignco at the disposal of Belco against consideration.

Second scheme : we have Foreignco A, Foreignco B and even sometimes Foreignco C, employee Z and the Belgian client (Belco). Z is living abroad (say the home country) and is looking for a job. Foreignco A hires Z and puts him at the disposal of Foreignco B which in turns put him at the disposal of Foreignco C, this latter one transfers Z in Belgium to work for Belco. Z is still being paid in his home country while he comes to work in Belgium. Foreignco C and Belco sign a service agreement by which Z is put by Foreignco C at the disposal of Belco against consideration.

We will not comment the social security aspects nor develop the question as to know whether Foreignco (and which Foreignco in the second scheme) has or not a permanent establishment in Belgium. My first opinion is that due to the fact that Foreignco usually put 5 to 30 or even more people to the disposal of Belgian companies there is a permanent establishment of Foreignco in Belgium even if Foreignco has not as such rented offices. Indeed Foreignco will carry out his activity through the putting at his disposal of office spaces by its miscellaneous clients.

Consequences: from the moment the employee is transferred in Belgium he becomes liable to Belgian taxes either in the context of a non resident income tax return or a resident one. The choice between both tax returns depends on the actual picture of his transfer in Belgium. However it's for sure that if from day one the employee comes in Belgium with his family he must be taxed as a Belgian tax resident (1) (2).

The problem for the employees concerned is that they could keep on filing a tax return in the home country (and not in Belgium) as in their view the taxation is linked to the fact that the work contract is foreign meaning from the home country: this is a major error.

My opinion is that there is no doubt that, generally speaking, these employees are liable to Belgian taxes and that they must really be attentive to the tax practices of their foreign employer. In any event they would be wise to negotiate a contract on a net take home pay basis.

I have no client amongst these interim companies but I have discussed the matter miscellaneous times on the telephone on a free basis with some of them these last five years. Each time when I have underlined the question of the permanent establishment they have dropped the contacts. This does not mean that all the interim companies do not carry out their activity in compliance with all the tax requirements. I simply say that I have received calls sometimes from people trapped in tax problems as they have continued to pay taxes in their home country without doing it in Belgium.

The present note is a warning for these people.

Stephen G Hürner -Tax Advisor

(1) With the possibility to apply for the so-called special tax status if his foreign employer recognizes he has a permanent establishment in Belgium. However such a special tax status will not result in substantial tax saving as the employee usually does not travel or remotedly. 

(2) As soon as the employee comes in Belgium with his family to work for Belco the question of the presence or not of a permanent establishment of his foreign employer is no longer relevant: the employee is than taxable in Belgium as in most of the cases he will work the whole year in Belgium.