Belgium: new regional tax system impacting both resident and non-resident taxpayers

1. HR and tax alert
Belgium
Executive summary
On 22 April 2014, the Belgian Parliament passed a
law passing greater fiscal autonomy to the Regions,
with specific implications for individual income tax.
This is part of a wider reform generally referred to as
the ‘Sixth Belgian State Reform’.
The impact in the field of personal income taxes can
be summarized as follows:
 Levy of a regional additional tax under the
jurisdiction of the Brussels, Flemish or Walloon
Region for resident tax payers.
 Shift of specific tax reductions, currently under
the Federal authority, towards the Regions.
 Application of the Regional tax system to
specific groups of non-resident taxpayers.
This law, together with the Special law of January 6,
2014, enables the tax
Bullet points components of the Sixth Belgian State
Reform to enter into force for 2014.
Key developments
Levy of a regional additional tax under the
jurisdiction of the Brussels, Flemish and Walloon
Region.
Under the current tax system, personal income taxes
are imposed solely at the Federal and Municipal
levels. Now an additional Regional tax will be installed
as of income year 2014 for resident (and under
certain conditions non-resident) tax payers. Unlike
the Federal taxes, which are calculated on taxable
income, the Regional taxes are calculated on a
‘preliminary’ tax liability. This system is comparable
to the current calculation method for Municipal
taxes.
Under the current conditions, such an additional tax
should however, not result in an increase of the
New Regional tax system impacting both resident and non-
resident tax payers
overall tax liability.
To realize this, the Regions will initially impose a tax
equal to the amount of taxes relieved at the Federal
level. Going forward, the Regions can decide
individually and autonomously to adjust, within
certain limits, the regional additional tax percentage
and differentiate as such their fiscal policy compared
to the other Regions.
Critical under the new methodology is the localization
of a tax payer in one of the three Regions. For
resident tax payers, the law foresees in a localization
criteria based on their ‘fiscal residence’ on January
1st of the tax year (i.e. year following the year in
which the liability arises). This principle confirms the
current approach towards residency as applied by the
Belgian tax authorities and mainly focuses on the
location of a resident’s abode.
Shift of specific tax reductions from the Federal
level towards the Regions.
Following the transfer of competences, the Regions
will receive full authority on a specific number of “tax
incentives”. Regional Authorities may grant tax
reductions for the following types of item:
 Loans for a taxpayer’s own dwelling
 Expenses for energy saving
 Service vouchers and local employment agency
vouchers (PWA – ALE)
 Expenses for protection of a private home
against fire and burglary
 Contributions to the maintenance and
renovation of protected monuments and
buildings
The scope and conditions to benefit from the above
tax reductions as currently defined remain unchanged
May 2014

2. HR and tax alert
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until the Regions have amended or implemented their own legislation in this respect. Other
deductions, including the standard deductions and tax deductions for dependents, remain under the
Federal jurisdiction.
New categorization of non-resident taxpayers
The shift of specific tax reductions to the Regions created the need for a new categorization of non-
resident tax payers. Under EU regulations, the Belgium government is required to ensure that
resident taxpayers from another EEA member state, earning the majority of their income in
Belgium, have access to the same tax benefits as Belgian resident tax payers.
The old categorization, mainly based on the concept of having an abode in Belgium, has been
abolished and the new categories of non-residents are now defined as follows:
1. Non-resident tax payers, resident in the EEA, who earn at least 75% of their income in
Belgium
2. Non-resident tax payers, residing outside the EEA, who earn at least 75% of their income
in Belgium
3. Other non-residents
Although the taxation of non-resident tax payers remains in principle a Federal competence, the
rules of the Regional tax systems will also be applicable to the first category of non-residents to
ensure this group is entitled to the same tax benefits as resident tax payers. Taxpayers in the scope
of the second and third category, cannot claim any regional tax reduction although the second
category can still claim some Federal tax benefits such as a tax deduction for alimony payments and
some tax reductions with respect to the expenses for mortgage loans.
Consequently, individuals entitled to full tax benefits based on the condition of having an abode in
Belgium under the old categorization, are not necessarily entitled to the same benefits under the
new rules. Losing these benefits could impact an individual’s final tax liability.
A fourth category of non-resident tax payers, providing pro-rata tax benefits to residents of The
Netherlands, Luxembourg and France based on the non-discrimination clause in the double tax
treaties, remains in place (privileged non-residents). The Regional rules will be applicable also to
this category of non-residents.
Resident tax payers will be viewed as localized in one of the three Regions on the basis of the
concept of ‘fiscal residence’ but other criteria are required for non-residents as they will typically
not have a residence in Belgium. In principle a non-resident, subject to a Regional tax system (i.e.
category 1 or 4), is localized in the Region in which the income was received. In the event income
was received in multiple Regions, the individual will be subject to the regional rules of the Region in
which the highest net professional income was realized. Especially in this context an internal
allocation of the income over the Regions might be required. In order to increase the consistency
over various income years, the law foresees certain presumptions which should facilitate the
internal allocation. As an example, employment income is deemed to be received 100% in the
Region where the employee has his or her habitual place of employment.
Next steps
Employers should review the effects of the new provisions on their assignment processes and cost.
Typically the new tax calculation method could impact outbound employees under a tax equalization
program, especially in the context of the calculation of hypothetical taxes. For inbound employees
the loss of specific tax deductions could immediately result in an increased tax equalization cost for
expatriates paid on net terms or a decrease of the net in pocket for those paid on gross terms.
In addition, we recommend employers review the payroll data process to make sure that all the
required data is available to enable the localization of the income in the specific Regions. These
Mobility related considerations will be in addition to the wider process of updating normal payroll
procedures to accommodate the changes with regard to domestic employees.
For further information, please contact your local EY advisors or the professionals listed below.
Jean-Nicolas Lambert
Tel : +32 (0) 2 774 9264
Email: jean-nicolas.lambert@be.ey.com
Jo Bellens
Tel: +32 (0) 2 774 9414
Email: johan.bellens@be.ey.com
Filip Verlinden
Tel: +32 (0) 3 270 12 62
Email: filip.verlinden@be.ey.com