Contracting in Belgium - A Short Guide to Tax and Social Security

[Brussels Slumdog]

Vote Flemish Independence or a Swiss Canton system

And then he awoke from a beautiful dream...


Problem 1. Those that make the laws, or rather enforce them, are low paid high taxed employees who hate us all with a passion. Why would they support a preferential scheme for us?

Problem 2. Belgium as an unstable political system, and changes government as rapidly as some of us change contracts. Until such time as there is a stable, progressive and commercially oriented government with majority power, it ain’t ever going to happen.

Problem 3. Belgium’s debt is set to be greater than 100% of GDP in the coming months, and they are just behind Greece in their fiscal poo poo. Grasping everything they can is likely to be the name of the game for sometime to come.

The only way to change the high tax system would be an independent Flanders or a canton system.
Each region would control their own tax and social benefit system. This is what the Flemish want but the French socialists are dead against. The problem is who will inherit the Debt that is accumulating daily?

[Sergeant Murphys Cosh]

And then he awoke from a beautiful dream...


Problem 1. Those that make the laws, or rather enforce them, are low paid high taxed employees who hate us all with a passion. Why would they support a preferential scheme for us?

Problem 2. Belgium as an unstable political system, and changes government as rapidly as some of us change contracts. Until such time as there is a stable, progressive and commercially oriented government with majority power, it ain’t ever going to happen.

Problem 3. Belgium’s debt is set to be greater than 100% of GDP in the coming months, and they are just behind Greece in their fiscal poo poo. Grasping everything they can is likely to be the name of the game for sometime to come.

Okay, so you don't like my plan of legitimacy, and assuming the 'Nodric Lower Tax Alliance' party doesn't see an emergence in the coming months, these insurance/pension plans seem opportunistic.

Perfectly legal to invest in, the only problem you say is when you come to withdraw from it you then owe tax in the jurisdiction you are currently tax-resident.

Simples! Work for a few years here & invest in your scheme of choice; de-register from Belgium for a year (ensuring you are also not tax-resident in the UK; the rules have changed recently), but don't become tax-resident on world-wide income elsewhere for the same year you took your scheme proceeds. Ie; < 183 days in country x, < 183 days in country y, et voilà! Bob's your uncle, and Fanny's your aunt.


The other schemes that are being discussed on here are all very well, but if one screw comes loose the whole lot comes tumbling down. At least this way, you can be certain your doings are 100% legal, and there is no potential of getting fined etc.

Go on, now tell me where my cunning plan falls down.......

[nodric]

'Nodric Lower Tax Alliance' party

I like that a lot! Made me smile much

Simples! Work for a few years here & invest in your scheme of choice; de-register from Belgium for a year (ensuring you are also not tax-resident in the UK; the rules have changed recently), but don't become tax-resident on world-wide income elsewhere for the same year you took your scheme proceeds. Ie; < 183 days in country x, < 183 days in country y, et voilà! Bob's your uncle, and Fanny's your aunt.

As long as you deregister, go live in a non OECD country for 6 months, transfer your loot there, then move to a new OECD location and become a resident.

Normally, and this includes the UK, if you enter a country and become a tax resident (assuming you’d stop being one there sometime ago, or never were to begin with), they will not question any funds you bring into the country, and will consider it earned income from previous work before you became a tax resident with them. In fact there are no filing requirements for these funds, as they were earned before you were liable for their taxes!

I think the UK has rules that you have to have been gone for 2 years, to bring the lolly back with you. i.e. Worked in Saudi or Dubai for 2 years and earned tax free loot.

So work in Belgium, stash it all away in a pension. Leave Belgium, holiday in the BVI or similar, register as a resident and open a bank account. Have the pension fund pay out to that account. Head back to the UK with the funds you earned as a resident in your island home. As there are no filing requirements in the BVI or similar, you won’t have to show how you made it, but could concoct some ‘I taught diving on the beach to wealthy fools for 6 months’ story.

Only problem I see is: Can you afford to take 6 months of work and become a resident of this island paradise?

Alternatively simply become a resident of the IOM or Jersey, and commute to and from the mainland. Ah, but don’t they have some minimum wealth criteria? Bugger!

[Sergeant Murphys Cosh]

As long as you deregister, go live in a non OECD country for 6 months, transfer your loot there, then move to a new OECD location and become a resident.

Normally, and this includes the UK, if you enter a country and become a tax resident (assuming you’d stop being one there sometime ago, or never were to begin with), they will not question any funds you bring into the country, and will consider it earned income from previous work before you became a tax resident with them. In fact there are no filing requirements for these funds, as they were earned before you were liable for their taxes!

I think the UK has rules that you have to have been gone for 2 years, to bring the lolly back with you. i.e. Worked in Saudi or Dubai for 2 years and earned tax free loot.

So work in Belgium, stash it all away in a pension. Leave Belgium, holiday in the BVI or similar, register as a resident and open a bank account. Have the pension fund pay out to that account. Head back to the UK with the funds you earned as a resident in your island home. As there are no filing requirements in the BVI or similar, you won’t have to show how you made it, but could concoct some ‘I taught diving on the beach to wealthy fools for 6 months’ story.

Why have you got to go to some non-OECD country? Surely by being non-tax resident (for world-wide income) in any country, you have no liability to tax (on your world-wide income) in any country ?!?

[nodric]

Why have you got to go to some non-OECD country? Surely by being non-tax resident (for world-wide income) in any country, you have no liability to tax (on your world-wide income) in any country ?!?

I use non OECD to signify any tax friendly state

Would it be possible to leave EU state 1, take 2 weeks hols in the Seychelles while moving the funds, and then head back to the UK with stash in hand. Hmmm. I wonder if there are some minimum time away from the EU rules that would creep in somewhere to scupper your plans. A bit like the UK 2 year rule. i.e. No 6 month gig tax free in Dubai, and bring all the wonger back home. Tax will be due.

Unless you become a tax resident of the Seychelles in this example, you would remain a tax payer in the country you were leaving, even if you had handed back your id card.

However, just because you leave a country, does not end your tax liability. You have to become a tax resident somewhere else for that to happen. You are still required to file returns in the years after you’ve left, until such time all accounting in arrears have elapsed as zero returns, and so unless you are resident somewhere else, and declare that money into that somewhere else, the previous tax residency could lay a claim to the taxes due. Ask anyone whose left the UK how hard it is to stop having to file self assessment returns, or to loose that stupid concept of being domiciled.

All tax forms in Europe will demand to know about Worldwide income, and if you are still required to file, you have to tell them about your recent increase in wealth

Only if you are tax actually resident in a tax haven, and can prove it, and then show the funds as income to that location, will you truly be OK. Now residency may be very easy to obtain, and rent a pad for a few months, even if you don’t use it, and show some trips to and from said location, and you might get away with it. Question is, how much of the war chest will all these shenanigans erode?

AND, if there is no double taxation treaty with said location, you may still get burnt.

In reality, most folks take the cash into their new home country, or when they move back to the UK, and for the most part, no one notices, looks, or even cares. They only care about you from the date when you become a taxpayer again. The money you had before then is not reported. The country you left doesn’t follow up to see if your UK bank account suddenly swelled just after you left.

All this comes back to avoidance/evasion. Hence the desire to find the optimum solution for individuals, or a collective, to avoid the tax liabilities without the cloak and dagger antics. The solution is out there.

Can anyone spot the X-Files and Star Trek references

[Sergeant Murphys Cosh]

All this comes back to avoidance/evasion. Hence the desire to find the optimum solution for individuals, or a collective, to avoid the tax liabilities without the cloak and dagger antics. The solution is out there.

How about taking out a 0% loan against said insurance/pension policy ?

[nodric]

How about taking out a 0% loan against said insurance/pension policy ?

EBT and Loan Schemes have been around for a long time. BN66 is a cautionary note about some of these type of schemes.

If a scheme is seen by Hector as simply a mechanism to evade/avoid tax, even if it’s not illegal, he seems to be prepared to rule it so, and demand back taxes. Maybe post Gordon things will change, but I doubt it. Even with the new boys, they need the cash, and are unlikely to allow such avoidance. Depends how many powerful (read rich) Tory backers still have influence. Time will tell…

[Sergeant Murphys Cosh]

EBT and Loan Schemes have been around for a long time. BN66 is a cautionary note about some of these type of schemes.

If a scheme is seen by Hector as simply a mechanism to evade/avoid tax, even if it’s not illegal, he seems to be prepared to rule it so, and demand back taxes. Maybe post Gordon things will change, but I doubt it. Even with the new boys, they need the cash, and are unlikely to allow such avoidance. Depends how many powerful (read rich) Tory backers still have influence. Time will tell…

But what's that got to do with Belgium? I just Googled 'BN66', and found this straight away.

"These schemes work by diverting income earned in the UK through a foreign company/bank account which is then routed back to the UK resident and thus avoids the UK taxation system".

“UK residents are taxable on their income wherever it arises. A wholly artificial scheme seeks to avoid UK tax by artificially diverting income of a UK resident individual to a foreign partnership comprised of foreign trustees.” - Extract taken from HMRC website".

“If you would have been liable to UK tax and NICs had you been employed directly by the client, you must pay UK tax and NICs under these rules, whether or not your service company is located in the UK.” – Extract taken from HMRC website".


If a person isn't tax resident in the UK, BN66 won't apply.

[nodric]

If a person isn't tax resident in the UK, BN66 won't apply.

True. The reference was given to show the risks of such schemes.

There are several companies operating that will split your income through their structure, and legally separate you from the income. The balance, and it’s usually limited to about 30%, gets paid into an insurance fund that they managed. You are listed as the beneficiary. Structures vary, but that’s the basic construct.

Alpha Resourcing in Overijse Belgium operate a scheme like this. However, they won’t let you put more than about 30% into the fund to avoid you declaring too lower an income, and therefore arousing suspicion of the local inspector. This leaves you with 70% of your rate to declare, still a major problem for those on a decent whack. You also have the problem with their scheme of withdrawals. Once you take it out, you have to declare it with consequences discussed in early posts.

My accountants have said that the Alpha scheme is non compliant in Belgium, and it’s only a matter of time…

Some schemes then allow you to take interest free loans from this fund, that never have to be repaid, or at least no one will ever ask you to repay it. As the fund is held in an offshore location (Channel Isles or somewhere warmer) there is no governance on these funds, so no regulation over their operation, hence they can do what they want.

Other structures use trusts, or memberships, or blah blah blah. They all amount to the same thing. Separate the funds (this bit is legal, at least for those who operate the scheme), and then make loans/payments back to you.

The grey area (and it’s very blurry indeed), is how ‘legal’ this is as a tax avoidance mechanism. Hector is quite veracious when it comes to examining these schemes, and if he deems it non compliant, it is the individual that is buggered.

These schemes still operate. However, lots have failed recently, and many contractors have lost a lot of their ‘invested funds’, and have received a tax demand or worse.

Will the Belgies allow an EBT or similar setup. To be tested. Hence my posts asking for those who want to join the fund to seek expert advice from E&Y or KPMG etc.

Another aspect is the frequency of the loans. If you need a monthly loan, or desire one, to extract most if not all of the balance of your funds from the scheme, either to live on them, or you don’t like leaving the dosh with someone else, then this is likely to be seen as income, and a straight tax avoidance. To be tested of course if anyone wants to volunteer to talk to their tax man :-)

If however, you leave your cash in the scheme for longer, planning to dip in now and then for a loan, you risk the scheme vanishing with your loot safely in their vaults, as happened very recently with one of the old names in this game.

There will always be someone offering a way to avoid tax on your funds, and while they’re running and no one is looking you can bob along enjoying transfers. The problems come when the scheme goes belly up, taking your cash. If they go belly up due to a tax investigation, as Connexions did, then it will be you left explaining to the inspector all about the funds that were involved.

How to setup your own Scheme

• Set up a Cypriot company with nominee directors
• Set up a BVI or similar ‘sham’ company, again with a nominee director.
• Issue invoices for ‘sham’ services from the BVI to Cyprus
• Get power of attorney over the company bank account in Cyprus
• Pay the ‘sham’ invoices to the BVI company
• Get power of attorney over the BVI company bank account
• Use the funds in the BVI company to fund your lifestyle.

As long as the Cypriots are happy with the ‘sham’ invoices to the BVI, you’re home and dry. This is more of less the model that Connexions used & others still do today.

Where the issue was for the individual with Connexions and similar, was the contractor received the funds into an account in their name. Worldwide income

Downside, costs a fortune to set up and run. Need to retain some profits in Cyprus to fund costs and pay local staff to establish a Centre of Economic Interest.

For a normal contractor, his rate doesn’t justify this cost.

Benefits over Costs = Questionable ROI.

If several contractors do it together, who controls the BVI bank, and how do they all manage the pot? Lots of company bank accounts with each contractor having power of attorney? Very messy and unworkable.

If you pay the money out from the BVI to each contractor, it becomes Worldwide Income!

[Sergeant Murphys Cosh]

Back to Politics

Ok, how about extending the Expat Status to temp. contractors?

I've gotta say I was pretty miffed when I discovered that foreign employees seconded by foreign companies with a presence in Belgium, are entitled to this favorable Expat Status tax status, whereas a self-employed foreign person isn't !