New impatriates regime: tax implications of the transition from non-resident to resident status
New impatriates regime: tax implications of the transition from non-resident to resident status
Why a change of status?
The former special tax regime automatically treated executives and researchers who benefited from it as non-residents.
From now on, the new taxation regime for impatriates/impatriate researchers stipulates that in order to determine the tax residence of an expatriate, the ordinary rules must be followed. The same will obviously apply to foreign executives and researchers who will lose the benefit of the former special tax regime by 01 January 2024 at the latest.
In other words, this means that if an expatriate who is domiciled in Belgium or who has the seat of fortune in Belgium and cannot provide a certificate of residency from another State, will be considered a Belgian tax resident.
Resident status: in practice, what will change?
Obligation to declare worldwide income
As a Belgian tax resident, the expatriate will be obliged to declare his worldwide income (Belgian and foreign source income) in Belgium.
The term ‘income’ refers to professional income (including remuneration but also pensions, profits, …) but also income from immovable property, income from movable property (interest, dividends) and diverse income (certain capital gains for example) etc.
Application of double taxation treaties
As a Belgian tax resident, the expatriate will be able to benefit from the double taxation treaties (hereinafter, DTT) concluded by Belgium, so that the declaration of their worldwide income in Belgium will, as a general rule, not involve double taxation.
Thus, where de DTT allocates the power to tax an income to another State (usually referred to as the Source State), Belgium, as the State of residence, will usually be obliged to exempt that income.
Belgium, the state of residence, will nevertheless be allowed to take the exempted foreign income into account when determining the tax rate applicable to other income (this is referred to in technical language as ‘exemption subject to progressivity’).
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A few examples:
- Immovable income : as a general rule, immovable income is taxable in the country where the property is located. For example, if you own a property in France, the French immovable income will be taxable in France. However, you will have to declare it in Belgium, and in Belgium it will be exempted with progression reserve.
- Professional income : under the DTT, the professional income of a Belgian tax resident is 100% taxable in Belgium. Only if the professional activity is physically carried out abroad and if certain strict conditions are met, this income could be exempted with progression reserve in Belgium. The expatriate will no longer benefit from an automatic exemption of a part of his remuneration due to the fact that it remunerates professional trips made outside Belgium (end of the ‘travel exclusion’).
- Income from movable property such as interest, dividends or royalties is generally taxable in the State of residence, i.e. by hypothesis, in Belgium, but it should be noted that most DTT’s allow the source State (i.e. the State from which the dividends originate) to levy a withholding tax, which is usually limited. Double taxation may therefore occur for this income.
What about tax rates?
The tax rates applicable to resident and non-resident income are identical. We would like to point out that the rules for determining the extent to which remuneration is taxable abroad require careful consideration in relation to the individual DTT involved.
However, the rate of the municipal tax, which was 7% for all non-residents varies for residents depending on the municipality of residence. Depending on the commune, this tax can vary between approximately 5 and 9%.
As a result, an increase in the municipal tax combined with the obligation to declare worldwide income may, in some cases, lead to higher taxation in comparison to non-resident taxation.
New tax reductions?
As a Belgian tax resident, the expatriate will be entitled to all federal and regional tax reductions regardless of the amount of his taxable income in Belgium, contrary to the rules that apply to non-residents.
In order to determine which tax reductions he will be able to claim, the expatriate will be located in one of the three Regions (Flemish, Walloon or Brussels-Capital), depending on the place of residence.
Procedure
In terms of formalities, residents are required to file an annual personal income tax return (hereafter, PIT). This form differs from the one to be filed by non-residents.
The deadline is usually late June/early July for residents filing their personal income tax return personally and end of October for those filing through an mandatary.
Points of attention regarding the PIT form:
- Obligation to indicate in box XIII of the PIT form the bank accounts of which the expatriate, his/her spouse/legal cohabitant or one of his/her minor children are or have been holders abroad during the year in question.
- The same applies to individual life insurance policies taken out abroad.
Other reporting obligations
With regard to real estate located abroad, as a Belgian tax resident, the expatriate who owns real estate abroad will be required to file a declaration via the MyMinfin electronic portal in which he/she will provide the Belgian tax authorities with certain information such as the date of acquisition of the real estate, its purchase price, etc., on the basis of which the Belgian tax authorities will attribute a theoretical rental value to the real estate (equivalent to the cadastral income in Belgium).
With regard to bank accounts abroad, the expatriate will also be required to communicate certain information to the Central Contact Point of the National Bank of Belgium.
Inheritance tax and death tax
In Belgium, a distinction is made between inheritance tax, which is levied on the worldwide income of a Belgium resident, and death tax, which are levied on real estate located in Belgium belonging to a non-resident.
A Belgium resident is a person who, on the day of his death, has established his domicile (effective and permanent residence) or the seat of his fortune in Belgium (place from which his assets are managed). It is important to specify that the former circular of 1983 was not decisive for the treatment of the estate of an expatriate (it was possible to have the status of non-resident for the purposes of the circular and inhabitant of Belgium according to the inheritance legislation).
It is useful to draw the attention of expatriates to the inheritance tax consequences of their particular status. In many cases, their country of departure may still be competent to tax their assets on the day of their death, bearing in mind that in Belgium, the marginal rates of inheritance tax vary between 30 and 80% depending mainly on the degree of relationship between the deceased and the inheritors. If the duration of the stay in Belgium lasts, a little planning is required…
Inform our expatriates of the main changes
We recommend that you inform your expatriates of the main changes listed above.
It goes without saying that the BDO International Mobility Team is at your disposal to assist you in communicating these practical changes, e.g. by organising information sessions, whether on site or virtual, individual meetings, but also in preparing all the formalities involved in this new special tax regime.