The Circular of  08.08.1983 granting a special tax regime to the executives / expatriates transferred temporarily in Belgium.

A. The philosophy
B. The way to compute the taxable basis
C. The so-called travel exclusion
D. The way to compute the percentage of business travels abroad
E. Administrative requirements - Procedure
F. Social security
G. General
H. Example of the computation of the non taxable indemnities
 
A.The philosophy
The philosophy of the so-called Circular is to consider as non taxable items the reimbursements made by the employer of the expenses incurred by the employee consequently to the transfer in Belgium. Such expenses are deemed to have been incurred by the employee on behalf of the employer and are thus treated as non taxable in the hands of the employee while professional charges to the employer.

Are only taken into consideration the expenses that have actually been incurred. Initially this could easily be supported through statistical information (the Circular undoubtedly has been drafted for US expatriates whose employers are most of the time using statistical sources such as O.R.C. or Airinc tables to compute the additional expenses resulting from the transfer in Belgium). Than has arisen the question for the ones who are transferred on a gross earned income basis meaning the executives transferred by most of the European companies. The tax people have agreed to consider as non taxable the indemnities paid to cover the expenses computed on a forfeitary basis as well as the ones computed based on statistical sources provided they do not exceed 11.250,00 EUR (for the expatriates working in a coordination center or office - that latter one may be set up inside a commercial company -  this 11.250,00 ceiling is brought up to 29.750,00 EUR).
To ease the computations of these reimbursements of expenses for the employer who transfers his expatriates from abroad to Belgium based on a gross remuneration (1) , the tax people have issued guidelines (see point H: Example): Assuming an expatriate is transferred from abroad with a gross earned income paid by the belgian employer amounting to 125.000,00 EUR the administrative guidelines enable us to extract from the 125.000,00 EUR that part of the remuneration that is deemed to cover the increase in the cost of living and housing as well as the increase in the income taxes. So we have to compute the amount deemed to have been reimbursed to the expatriate that is already included in the 125.000,00 EUR. As a matter of fact this is in line with what occurs in the day to day business as when an expatriate is transferred in Belgium he actually has higher expenses than in his home country and in the discussions with the employer to define the gross earned income, the belgian special tax status granted to expatriates is always taken into account.However this is often not clearly mentioned in the transfer agreement which is a step that should be modified so to take advantage of the recent Supreme Court arrests regarding belgian social security. So we will have to compute the amount deemed to have been reimbursed to the expatriate that is included in the 125.000,00 EUR.Provided this amount does not exceed 11.250,00 EUR (or 29.750,00) it will be treated as non taxable. Some other expenses paid by the employer are also considered as non taxable and are not part of the 11.250,00 EUR (29.750,00 EUR) above mentioned ceiling. We may mention as unlimited non taxable reimbursements of expenses incurred by the employee the moving costs on arriving to or departing from Belgium, the costs of setting up an household in Belgium, the schooling costs for children in primary or secondary belgian (international) schools.No use to mention however that these reimbursements must be within a reasonable bracket and properly supported. As far these costs are concerned they must be paid or reimbursed by the employer. They may not be part of the gross earned income and paid by the expatriate himself.

B.The way to compute the taxable basis
We now get to the first part of our computation of the taxable basis of an expatriate: We have the gross remuneration of e.g. 125.000,00 EUR (worldwide earned income no matter where it is paid and who pays it), the applicable social security of e.g. 16.338,00 EUR. We have computed that the non taxable items reach their ceiling meaning 11.250,00 EUR.

We have then:
 
Gross earned income:  125.000,00
Social security :  -  16.338,00

Non taxable items  :    
Housing allowance       
C.O.L.A.      
Tax equalization      
Home leave
TOTAL (assumption)=>   -  11.250,00
First taxable basis:             97.412,00

After having excluded from his gross remuneration that part of the earned income that will be treated as non taxable, the expatriate will then exclude the earned income deriving from the activities performed abroad for professional purposes.

This means that an employee traveling 10% of his business time abroad will be excluded 10% of his earned income when computing the taxable basis in Belgium. The requirement deriving therefrom is that to benefit from the Circular the expatriate working in Belgium must report in Belgium his worldwide earned income inclusive of all the reimbursements he can have been paid anywhere in the world to cover some of his expenses in Belgium .

To get to the second part of the computation of the taxable basis we take the computation already done (supra) and we apply the so- called travel exclusion: We have:
 
Gross earned income: 125.000,00
Social security : -  16.338,00

Non taxable items
Housing allowance
C.O.L.A.
Tax equalization
Home leave
Total (assumption)=>    -  11.250,00
First taxable basis:             97.412,00
Travel exclusion e.g:      -     9.741,00  (10%)
Taxable basis:                    87.671,00 (before lump sum or itemized deductions for professional charges)

C. The so-called travel exclusion
If an expatriate travels 60% of his business time while having established his family in Belgium (domus) and traveling in such a way that he does not stay more than 183 days in any tax treaty country,he will not pay any tax on 60% of his earned income (but for US expatriates who are still liable to US income taxes and for the ones who have maintained their residence or domus or family abroad).

D. The way to compute the percentage of business travels abroad
The percentage of travels abroad is computed on the basis of the working days spent by the executive in Belgium compared to the total (potential) working days of the year. So we have the following fraction:
Numerator = Worked days abroad
Denominator = Number of potential work days on a yearly basis.

For computing the total working days of the year we have to deduct from the total days of the year (365):
x) the week-ends (Saturdays and Sundays even if worked abroad),
x) the belgian legal holidays even if worked abroad,
x) the vacation days, holidays, days taken in lieu of a legal day, so-called replacement days,
x) the sickness days (justified by a medical certificate).

Please pay attention to the fact that the belgian tax authorities use a very specific way to compute the working days abroad:
If you leave Belgium at 5 a.m. to spend the whole day working in France as well as the day after where you return to Belgium at 11 p.m you can believe you have spent two work days abroad. This is not however accepted by the tax people as for them the day of departure is deemed to be a day worked in Belgium while the day of return (even at 8 a.m.) is deemed to be a day worked abroad. One day trips are deemed to be one day worked abroad. If you depart on monday morning to the US and return on the next Saturday this will make 4 working days assuming that in between both days we have not legal days or vacation. Indeed the day of return being Saturday is not counted as a foreign day as week ends are always deemed to be spent in Belgium.
When an expatriate departs from Belgium on Friday morning and returns to Belgium during the week-end,the tax people accept this may be considered as one day worked abroad. This may also be the case of the expatriate leaving Belgium Friday 2 p.m. for a meeting in Germany to return to Belgium on Sunday.Later departure e.g. at 5 p.m on friday (the ones which are considered suspicious by the tax people, especially, when the place of the meeting is not far away from the home country where the expatriate has maintained his family) will be duly scrutinized by the tax people and often rejected.

When travelling abroad for professional purposes the days worked during the week end and days corresponding to a Belgian legal days are not counted by the administration as days worked abroad. However an arrest of the Court of Appeal of Brussels (01.13.2000) has decided that such days worked abroad may be treated as foreign worked days when duly compensated by days of vacations in Belgium.

It is up to the expatriate to substantiate his travels abroad as well as their professional character. Up to now the tax people require the following elements of proof:
-  airplanes tickets with boarding passes (required)
-  invoices from the travel agency,
-  foreign meals tickets. Note however that you must be in a position to prove that you were present
   abroad meaning that the only way to support that is that you pay the lunch through a Visa,American
   Express or any other credit cards
- Hotels bills mentioning clearly the dates of stay. Indeed the tax people are more and more
   suspicious as a result of exaggeration from some expatriates. Consequently they require ,if you
   spend ten working days abroad, even if it is in Brazil, that you be in a position to support that you
   were effectively 10 days and each of the ten in Brazil. In case you have spent the nights in Brazil
   at an old friend this might create serious discussions with the tax people (no joke).
- For one day trip the proofs might be the following: gazoline tickets paid with a credit card (always
   to support that you and not someone else were abroad), lunch tickets, professional documents
   confirming the reality of the trip (faxes, letters confirming the meeting, agenda, expenses reports
   etc).

A new circular  has been published that puts some more burden on the expatriate as this Circular aims at supporting the professional nature of the trip.

We draw the reader's attention on the fact that the professional days abroad must be supported by readable documents during a three years period meaning that for income year 2006 these documents must safely be kept up to December 31st 2009 This means that as it is impossible to get a tax audit when you depart from Belgium and that up to three years after the tax people may start raising questions on the elements of proof you have collected to support your professional days abroad.

E. Administrative requirements - Procedure
The status of non-resident must be granted by the tax people meaning that you must get a certificate issued by the tax administration mentioning that you are qualified as a non- resident (2).

To get such a certificate you must file a request and fill in a standard tax questionnaire with a set of computations (see Example) explaining how you have computed the so-called non taxable indemnities .The request must be supported by documents such as the transfer agreement,the belgian rental agreement,proof of the ownership of a real estate property or personal property in the home country, proof of the continuous liability to a foreign regime of social security , proof of the maintenance of the family (spouse and children) in the home country ...etc.

The filing of the request must show the tax people that you are an eligible employee (3) and that you have maintained the center of your economic interests abroad (4). We have thus to prepare a file with your answers to an administrative questionnaire as well as with the computation of your non-taxable items (with the 11.250,00 EUR or 29.750,00 EUR (5) ceilings) that will be signed by you and the Belgian (or foreign) employer and sent to the tax people. This file must be in the hands of the tax people within a six months period starting the 1st of the month following the date of transfer in Belgium.

F.Social security
As an E.E.C expatriate you may presumably benefit from the continuos liability to your home country social security provided some requirements are met.The same for the US expatriate that may still benefit from the social security totalization agreement between Belgium and the United States. This being said and after years of Court of appeals arrests our Supreme Court has ruled recently that no belgian social security may be claimed on the indemnities paid by the employer to cover the additional expenses incurred by the expatriate as a result of his transfer abroad such as C.O.L.A., housing allowance, tax equalization reimbursements, schooling expenses provided they have been actually incurred. The belgian social security administration has followed this ruling and has decided not to claim the belgian social security on these reimbursements. This is also true for the reimbursements made in the context of the Circular. We recommend you however to mention explicitly in the transfer agreement that the expatriate will be reimbursed the additional expenses incurred as computed by the technical note issued by the tax people.

G.General
It is worth noting that an expatriate living in Belgium who has received his certificate qualifying him as a non- resident (or even before) is only taxable in Belgium on his earned income except if he owns real estate property in Belgium. Personal property income will not be taxed meaning that if you have a 1.000.000 Bf amount on a belgian account the interests resulting therefrom will not suffer any taxes if you mention the bank that you are a qualified non-resident for tax purposes.Private capital gains are also not taxable in Belgium as for any other taxpayer.
 
(1)as opposed to a transfer on a net take home pay basis as most of the American companies are doing.Usually and rather astonishing most European companies transfer their expatriates on a gross earned income basis.The employer pays a gross amount that is computed so to take into account the additional expenses incurred by the employee.
(2)exclusively for the application of the Circular.
(3)the special regime of taxation is only applicable to senior foreign employees or qualified executives who are either transferred to Belgium or hired directly from outside Belgium. The employees must have had a management position abroad before their arrival to Belgium or they must have the necessary academic background to assume a management position in Belgium. Practically speaking the tax people do not argue very much when the gross earned income amounts to at least 30.000,00 EUR per year and when the employee shows some specific skills.
(4)the non-resident status is only granted to the ones who have kept the center of their economic and social ties with a foreign country that will be qualified as home country. To analyze whether it is the case the tax people have drafted a questionnaire with questions whose answers must show the tax people that a foreign country is still the home country of the expatriate.

(5)the Circular considers that for the executives who are working in a <<control and coordination office>> , the so-called expenses incurred on behalf of the employer may be treated as non-taxable items when they do not exceed 29.750,00 EUR. The notion of <<control and coordination office>> is the one covered in the O.E.C.D. model double taxation convention and qualified as non permanent establishment (and thus non taxable one e.g. the maintenance of a fixed place of business solely for the purpose of carrying on activity of a preparatory or auxiliary nature. It is worth to mention that this concept of <<control and coordination office>> as per the Circular is not the same as the well known <<belgian coordination center tax status>> granted upon agreement of the Ministry of finance and economic affairs. This means that a belgian coordination center qualified as such in the context of the Royal decree n° 187 does not mean that all the expatriates working for this center will be granted the 29.750,00 EUR ceiling: they must indeed have activities that are of a preparatory or auxiliary nature within the center. If not they will be denied the 29.750,00 EUR ceiling.

Note 1 : Update of the 08.08.1983 Circular granting a special tax regime to the expatriates transferred temporarily to Belgium (Circ n° Ci.RH.624/460.080).
The bulletin of the income tax administration received on 11.23.95 has issued an update to the Circular with new requirements as to the proof of the reality of the days spent abroad as well as their professional nature.
Up to now indeed the tax audits required the expatriates to prove that they were abroad and the professional character was most of the time deemed. The update of the Circular puts and end to this.

Here are the following documents that may be required for the substantiation of the days spent abroad from december the first 1995 onwards:

- transport documents and other related documents mentioning the name of the expatriate
  and the dates of stay as well (boarding passes ... etc),
- invoices related to the stay (hotels bills,rentals of vehicles ... etc),
- proofs of the attendance to meetings,
- proofs of the stay in the foreign company visited by the executive (extract of a register ...
  etc),
- certificate from third parties.

The update stipulates that the documents that must be produced by the expatriates must form a set of proofs which adequately substantiate the professional stay abroad. In this context, adds the update, the tax audits will be more severe.

Note 2:
Brussels October 10 th 1997
Position of the Belgian social security administration regarding expatriate allowances.
We know that consequently to a decision of our Supreme Court (Arrest 17.05.1993) the Belgian social security administration has now accepted that the Belgian social security must not be computed on the expatriate allowances provided that: - the expatriate allowances cover actual and real expenses, - the additional expenses are incurred by the employee transferred on a temporary basis in Belgium, - the employer is contractually obliged to reimburse these expenses. The majority of the doctrine considers that the mere application of the technical note of the administration to compute the non taxable indemnities incurred on behalf of the employer might still be challenged by the social security administration (especially regarding the computation of the cost of living and housing allowances when they are not simultaneously supported by statistical information such as O.R.C. or Airinc tables).

To clarify my understanding I wrote to the Belgian social security administration on November 2nd 1995 and I received an answer on November 22nd 1995. It is my opinion that submitting these letters to your attention will be a plus for the expatriates and internet community.

My 02.11.1995 letter :
To the attention of the Belgian social security administration.

Dear Sir,

We know the problems that have arisen as to know whether the Belgian social security must be computed on the 450.000 Bf maximum amount of non taxable indemnities as accepted by the tax administration. I know the 17.05.1993 decision from our Supreme Court as well as the articles that were published on this question. I take the liberty to ask you what will be the position of the Belgian social security administration in the two following situations:

First one:
An executive is transferred in Belgium and the contract clearly stipulates that the executive will be granted the benefit of the 08.08.1983 Circular and that he will be granted indemnities to cover the expenses he will incurr on behalf of the employer and that these indemnities will be computed based on the technical note issued by the tax administration. These indemnities are the following:
- Cost of living allowance,
- Housing allowance,
- Tax equalization reimbursement.
Will the Belgian social security administration apply the Belgian social security on all or part of these
indemnities ?.

Second one:
An executive is transferred in Belgium and the contract does not stipulate clearly that the executive will benefit from the 08.08.1983 Circular nor that he will be granted indemnities to cover expenses incurred on behalf of the employer and that they will be computed based on the technical note issued by the tax administration.In other words the employee is transferred based on a gross remuneration withoutexplicit references to any indemnity. However the employer is involved in the request for getting the special non resident status (as it is the employer who must introduce the request) and both parties (employer and employee) have taken into account the special tax regime when defining the remuneration to be paid while in Belgium although this has not been confirmed in writing. Will the Belgian social security administration apply the Belgian social security on all or part of the indemnities ?.

The 22.11.1995 letter from the Belgian social security administration.

Dear Sir,

To answer your 02.11.1995 letter we inform you that from a general standpoint the remuneration on which the social security contributions must be computed includes all the advantage in species or valuable in cash to which the employee is entitled from the employer as a result of his hiring.

However an important exclusion is foreseen at section 19 par.2.4° of the 28.11.1969 Royal Decree and concerns the <<costs to be borne by the employer>>. One must add that to exclude from the remuneration these costs they must always be proved by the employer. The Supreme Court decisions of 17.05 and 29.11.1993 consider that the real additional costs that an employee must support consequently to his occupation in Belgium are to be considered ,if the employer must reimburse them, as costs in the meaning of article 19 par 2.4° above mentioned. The additional costs concerned are among others the area cost allowance (cost of living allowance), the housing allowance and the difference in the tax burden (tax equalization).

Consequently to the quoted case-law, the Belgian social security administration accepts that the mentioned additional costs,really proved, are not liable to Belgian social security taxes.

As far as the proof of the costs related to the cost of living allowance, the housing allowance and the difference in the tax burden is concerned, we treat them as liable to Belgian social security if they have been granted in the context of a global remuneration without any specification of the amount of each one of the three indemnities.

However if the transfer agreement foresees a specific indemnity for one or all of these indemnities, we will accept that we are facing additional costs not liable to Belgian social security contributions provided that the following requirements are met: 

a) As far as the cost of living allowance is concerned if it has been fixed by an independant consultant or based on other international studies, per country and individually by executive,
 
b) As far as the cost of living allowance is concerned and in the absence of proof as mentioned under a),as well as for the indemnity covering the higher tax burden and the housing allowance,if they are determined based on the technical note issued by the income tax administration without however being bound by this interpretation. These criteria are mentioned on a forfeitary basis in the technical note issued by the tax administration.