New reporting and withholding obligations
Last Friday, March 22, 2019, a Law was published in the Belgian State Gazette introducing a new income tax reporting and a tax withholding obligation for all Belgian employers with regard to remuneration paid or granted by a foreign company linked to the Belgian employer.
Up until now, Belgian employers did not have a tax withholding or reporting obligation for remuneration granted by a foreign parent or affiliated company, if the Belgian employer was not involved in granting that remuneration. The only exception to this rule was the obligation to report stock options meeting the conditions of the Stock Option Law of March 26, 1999. The employee however was obliged to report the foreign income in his personal tax return. The current introduction of the withholding obligation with the taxes being paid at source through payroll should be seen in the scope of the battle against social and tax fraud.
Where in the past Belgian employers sometimes weren’t even aware of foreign remuneration (mostly equity) being granted to their employees by a foreign affiliated company, more communication between the Belgian employer and its foreign affiliated companies will be necessary in the future.
Starting retroactively on March 1, 2019, all taxable remuneration paid by foreign parent companies and/or affiliates will need to be taxed through payroll as it becomes subject to withholding taxes. Withholding taxes are to be declared on a monthly basis and to be paid on a monthly or a quarterly basis.
Given the fact that the Law has entered into force on March 1, there is no withholding obligation for the foreign remuneration granted in January and February 2019. Please note however, that the taxable benefits of these months will need to be reported in the 2019 tax forms that need to be submitted to the Belgian tax authorities before March 1, 2020.
All remuneration paid by foreign parent companies and/or affiliates to Belgian employees will need to be reported by the Belgian employer to whom the foreign company is linked.
The reporting will take place via the yearly tax form “281”. This form includes the taxable earnings of employees/directors. The employer is obliged to provide the form to his staff, that should use the details mentioned on the form to file their tax returns.
Belgian social security on foreign remuneration
As a general principle in the Belgian legislation, social charges are due on salary. One of the conditions that needs to be fulfilled for a benefit to be considered as salary is the fact that the benefit needs to be chargeable to the employer. This condition is laid down in the Act of 1965 on the protection of salary. Up to the 3rd quarter of 2018, the Belgian social security authorities believed that benefits were not “chargeable to the employer”, if the employee could not claim the benefit from the Belgian employer in a financial or legal way (e.g. because the right to the benefit was contractually agreed upon). In other words: if the advantage was granted to the employee by a foreign affiliated company without any intervention of the Belgian employer, no social charges were due.
However, according to the administrative instructions of the National Social Security Office (NSSO) issued in the 3rd quarter of last year, social security contributions are now due on all benefits that relate to the work performed by the employee in the execution of his/her employment contract with the employer or that relate to the function of the employee carried out for the employer. This principle applies even without any intervention of the (Belgian) employer in the payment/grant of the benefit.
According to most of the Belgian authors specialized in the matter, this point of view of the NSSO is too much, as it interferes with the definition and notion of salary as laid down in the Act of 1965 on the protection of salary.
However, as this new point of view has been published in its recent instructions, chances are that the NSSO will enforce its point of view and that we’ll have to wait for the first court cases before any changes might be introduced.
- Belgian employers should inform their foreign headquarters or affiliated companies of the change in the Belgian regulations even if they are currently not aware of any remuneration granted or paid to their Belgian employees by a foreign affiliated company;
- Employers should inform Pro-Pay or their payroll office of the foreign remuneration that will be subject to withholding taxes. In case of doubt about the taxability of certain remuneration or the timing of taxation, employers should seek the advice of a specialized tax consultant;
- Employers need to inform Pro-Pay or their payroll office of the remuneration paid by a foreign linked company to the Belgian employees in January and February 2019, in order to ensure correct reporting on the tax form 281 next year.