During the discussions on the budgetary agreement in the summer of 2018, the Minister of Finance announced that a reporting obligation would be introduced regarding remuneration granted by foreign group companies to employees employed by Belgian subsidiaries (see Eubelius Spotlights September 2018). This measure has now been introduced in an act containing tax, anti-fraud, financial and other provisions. The new rules impose a reporting and withholding obligation on Belgian employers if their employees receive remuneration from a foreign group company without the employer's intervention.
Principle
It is common practice for employees of a Belgian company to receive remuneration from a foreign company which is affiliated to their employer, without the intervention of the latter. For example, an American parent company may grant restricted stock units ("RSUs") to the employees of a Belgian subsidiary. In principle, such benefits are taxable in Belgium as a benefit in kind in the hands of the Belgian employee.
Current regime
Until recently, as the Belgian employer did not intervene, it did not have to withhold professional withholding tax, nor did it have to draw up tax forms (except in the case of stock options granted in accordance with the Stock Option Act of 26 March 1999). Consequently, these salaries generally stayed below the radar of the Belgian tax authorities and the employees often forgot to include them in their tax returns, resulting in a loss of tax income for the Belgian authorities. This loophole has now been closed by means of the introduction of a legal fiction.
New regime
As regards remuneration paid or granted as from 1 March 2019 in the situation described above, the Belgian employer will be deemed to have granted the remuneration received by its employees from an affiliated foreign company. As a result, it will be obliged to draw up tax forms and remit the withholding tax on their professional income to the Belgian Treasury.
The initial intention was for the obligation to draw up tax forms to also apply for income year 2018, but at the last moment this was replaced by a specific transitional regime for remuneration paid or granted between 1 January 2019 and 28 February 2019. A special tax form must be drawn up for such remuneration and must be submitted electronically to the Belgian tax authorities before 1 March 2020.
Practical considerations
Although the new regime provides for a clear legislative framework, it also raises a number of questions.
For example, the law explicitly allows the employer to deduct the withholding tax due from the employees' wages. However, this basis for deduction will not always be sufficient. Hence, practical arrangements will have to be made with the employees regarding the pre-financing of the withholding tax on income earned. Furthermore, the new legislation assumes that there will be a certain flow of information between the foreign group company and the Belgian employer.
Finally, consideration should also be given to the fact that the new rules may also impose obligations on Belgian employers regarding plans which have already been implemented. For example, a Belgian employer will have to withhold professional withholding tax on RSUs vesting as from March 2019, even when the plan was implemented by the American parent company before that date. It is therefore important that Belgian employers review their current international remuneration policy in the light of these new rules.
