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

**nodric** · 17 November 2009, 13:34

Part 2

Your Own LTD CO

If you intend to be here for any length of time, or if you have been self employed for longer than a year and are worried about the Social Security Trap, then forming your own company is highly recommended. Much as in the UK, your company earns the daily fees, pays you a salary, and pays for many of the necessities in life (cars, office etc).

In Belgium the list of deductibles is far more generous than in the UK. However, it's not the Holy Grail! You can though, get away with claiming for a whole multitude of things, many you would never expect. You can rent part of your home to the company as an office, claim part of all your domestic bills etc.

However, to set up a company, you need to be resident (rented flat is fine), have between 6K and 12K Euros in the bank to open the business account which, gets frozen in the business account for a couple of weeks while the company is formed, and have a University degree! The cost for creating a company is about 2K Euros. NO shelf companies here!

As everything has to be in Dutch or French, unless you are really fluent and understand local company and tax law, you need an accountant to do it all for you, and run the monthly books and payroll etc. Expect to pay 350 Euros a month for this service if you want someone who is good!

The key benefits of a local company.

You pay yourself a low salary to reduce Social Security and avoid the dreaded SS Trap.

Modest company profits are taxed at 23%.

You can get away with most things as expenses.

Almost no company car tax.

You can get a mortgage through your company, which can them claim the majority of all costs as a business expense. (Details too complex for this post)

The Pitfalls

Expensive to set up and impractical for a short term contract as closing the company is complex.

Complex rules necessitating a good accountant to do everything for you.

Not all landlords will allow you to run a business from your rented digs.

The VAT Game

Working in the EU for a UK Agency means you become a Net Receiver for VAT purposes. Working in Belgium requires you to be VAT registered, even if self employed, and regardless on income levels.

As an EU business when you issue an invoice to a company in another member state, e.g. the UK, you do not charge VAT. However, as a VAT registered business in Belgium you are entitled, indeed compelled, to claim all your VAT expenses.

In short you get all your VAT paid out back every 3 months.

Centre of Economic Interest

Can you avoid paying tax in Belgium? Legally NO! However, there is a loophole in Belgian (and most countries) tax law.

If you can prove your centre of economic interest lays outside of Belgium, then you are only liable for income actually sourced in Belgium.

Soooooo, if you have a UK LTD, send your employee (you) to Belgium to work clutching his LIMOSA paperwork, he will have to pay tax and SS based on his local salary. Your company however, having its centre of economic interest in the UK will only have to declare its income to Gordon and his mates. You of course may have to demonstrate that this is so, but assuming your wife/daughter/son/partner/dog is also a director, and you issue an odd invoice for some other work to a.n.other company, you can then show that indeed your UK LTD is in fact a bona fide UK based company with a clear centre of economic interest in the UK. You may however, have problems if you are a sole director, live in a bedsit, and never do any other work.

This way of working is something the old Itecs used to offer. By using their LTD status you worked for them as an employee. As an expat you paid your SS (NI) back in the UK, and drew a small salary in belgium, on which you paid tax. You could then claim some expenses to get a little extra tax free. The rest went into an (insert any name for it you like here investment trust fund), which you could draw on at a later date. Problem was that once you drew from the investment you were supposed to tell the tax man.

It is perfectly legal (I have checked and had it confirmed by Securex in Belgium) to operate as an expat employee through a UK LTD and maintaining your Centre of Economic Interest in the UK. Securex are one of the main bodies that administer and collect Social Security for the Belgian Government.

This can also work on an individuals basis, but might be a lot harder to do. On top of showing that your main residence, wife kids etc, are all based economically in the UK, and that Belgium is a temporary assignment, you would also need a legal mechanism of separating the income from you! As self employed, all your income is yours, and by definition you earned it in Belgium, so it's all 100% sourced in Belgium, and taxes and SS are due on the full amount. Oh, I'll use an umbrella company or management company and do a split income scheme, I hear you scream. Hmmmm, read about that later.

As Belgium is a self assessment society, it's up to you, or your accountant, what you fill in on the tax return. So you declare what you believe you have to declare. However, the section that asks for details or other Worldwide income does exist, and as an individual you are supposed to fill it in truefully.

**nodric** · 18 November 2009, 12:50

Part 3

Management Companies/Schemes

This brings us to the most common way to avoid paying tax and SS in Belgium. Connexions, Access Financial, Itecs and many more. Those of you who use the forum may have read all about Connexions. STAY AWAY from them!

Let's be clear here. None of these schemes are compliant. NONE. There is no such thing. No really, there isn't.

They all work by funnelling your money through another country or jurisdiction, many offshore, and then having you invoice for a low amount from Belgium. This amount they pay into Belgium and you pretend this is all you earn. The rest of the money is sent to your offshore bank account. This is Worldwide income! Unless you declare that 'extra' income somewhere you are breaking the law.

If you cannot successfully demonstrate that your centre of economic interest lays out of Belgium, and that you are declaring that 'extra' income into your home country, where you claim your centre is, then you are non compliant. It does not matter what sales pitch you are given, this is a fact!

Undeclared income is illegal.

Some management companies may pay your ‘extra’ income into a trust or other vehicle, such as an investment or pension scheme.

Warning 1. It is then not your money. The money they invest is considered their income, otherwise you would be liable for tax. Obvious really!

Warning 2. If you receive this money at some point, you must declare it for tax purposes wherever you are purportedly paying taxes. Social Security will also be due on the monies.

Most schemes suggest you take the money while you are in flux between country A and country B, for instance, when you move back to the UK from Belgium. OK if you never get caught, or keep it all offshore hoping no one will ever find it.

Taxes

This is an extract from the official tax guide.

An individual resident in Belgium is liable to personal income tax on his worldwide income and on certain capital gains. Special rules apply
to foreign employees temporarily resident in Belgium.

An individual is regarded as resident only if he spends a certain period of time in Belgium and has his main home or his centre of economic interest in Belgium.

A non-resident individual is liable to tax on his Belgian-sourced income only.

Total taxable income is the aggregate of net income or profits arising
from an occupation or business, real estate, personal property, and
Belgium 5 miscellaneous sources, reduced by deductions that may be set against total income.

The personal tax rates for the assessment year 2009 (i.e. on 2008 income)
are:

Annual Income (Euros) Tax Rate (%)
0 to 7,560 25.00%
7,560 to 10,760 30.00%
10,760 to 17,920 40.00%
17,920 to 32,860 45.00%
Income above 32,860 50.00% <---- yes that's half of everything you earn

Municipalities (local government areas) are entitled to levy an additional tax
on taxpayers resident in their area which generally varies from 5% to 8% of
income tax payable, with a few municipalities levying no additional tax at all.
Individual resident taxpayers have to report the existence of accounts with
financial institutions in foreign countries annually.

In addition you also have to pay up to 15% of dividends earned from a foreign company. So, if your UK LTD pays you a dividend as a director, and you are on local assignment in Belgium, you have to declare said dividend.

What Happens if the Walls Coming Crashing Down?

If you get caught the penalties are harsh. In the UK you can go to jail. Tax fraud in the UK is a criminal offence, and if you get caught blatantly avoiding taxes you run a high risk of being accused of tax fraud.

In Belgium the financial penalties are enormous. If you are found to have avoided taxes, and/or salted funds offshore having not declared them anywhere, then you will be fined. Penalties are all back taxes and social security plus a fine of 100% of all back taxes and social security. This is your starter for 10. It can get worse.

Then remember that social security trap? Suddenly your subsequent years SS will be based on this new information, even if your current income is well below that of the good years!

In short, run! Leave town, head home, hide. The alternative is bankruptcy, or forever paying a large chunk of your income to service this debt into retirement.

But I have a Contract, What should I do?

Seek advice from an expert. Talk to a local accountant. Talk to your home accountant.

Ignore agency waffle. Ignore sales pitches from management companies who want a percentage of your income.

In short the only way to work in Belgium legally is to declare all your Belgian source income. The only legal way to mitigate your taxes and SS is to maintain your centre of economic interest in the UK (or other country) and pay yourself a small salary working for your own LTD CO, ensuring all remaining income is properly declared through your company.

**nodric** · 18 November 2009, 14:10

Part 4 - Being an Expat in Belgium

The following is from the HR Site of PWC (Price Waterhouse Coopers)

This memorandum is based on the administrative circular of 8 August 1983 (n° Ci. RH 624/325.294).

In principle assignees who move to Belgium will be considered as tax residents of Belgium. Consequently they will be subject to Belgian individual income tax on world-wide income. However almost all assignees will not be subject to resident individual income tax but to non-resident income tax by applying the special tax regime introduced by the Belgian authorities to make it easier for multinational companies to transfer executives and specialists to Belgium.

The Belgian Tax Administration grants special tax concessions to non-Belgian executives and employees who "temporarily" exercise an activity in Belgium. Those who are entitled to benefit from the special concessions are treated as non-residents for tax purposes.

They must declare their world-wide earned income and their income from real property located in Belgium.

Foreign source investment income is not taxable in Belgium except when collected through a Belgian financial institution, when it would be subject to a withholding tax of 25 percent (dividends) or 15 percent (interest).

Belgian source investment income is also subject to a 25 or 15 percent withholding tax.

The investment income of non-residents is not subject to any Belgian taxation other than withholding tax.

Except for capital gains realised for certain real estate situated in Belgium the assignee will not be subject to any capital gains tax.

Nationality : the executive may not have the Belgian nationality.

Responsibility : the executive should exercise exclusively activities which require a special knowledge and responsibility.

Temporary assignment : to determine whether or not a foreign executive or specialist has a temporary activity in Belgium, the tax authorities take into account a lot of precise circumstances such as if his children continue to be educated outside Belgium or if he has an employment contract specifying a limited period or a mobility clause.

Non-resident status

Eligible persons who must have been resident outside Belgium before their employment in Belgium are considered as non-resident for Belgian income tax purposes, unless a subsequent change in their status shows that they have transferred their permanent base or the centre of their economic interest to Belgium. Executives and specialists already living in Belgium before their employment in an eligible enterprise and who have already benefited from the special tax system are, in principle, considered as resident. However, their non-resident tax status will be investigated on a case by case basis.

To determine whether or not a foreign executive has his permanent home or the centre of his economic interest established outside of Belgium, which is compulsory, all circumstances will be taken into account.

Typical characteristics will be taken into account when determining the non-resident tax status of eligible persons :
1 Their spouse or children continue to reside outside Belgium.
2 They continue to have a dwelling outside Belgium, movable property outside Belgium.
3 Their children continue to be educated outside Belgium.
4 They own real estate or personal property outside Belgium or they have a house at their disposal outside Belgium.
5 They have a life insurance policy outside Belgium.
6 The fact that they remain covered by a group insurance policy or a pension or savings plan outside Belgium.
7 The existence of a diplomatic clause in their rental contract in Belgium.
8 The fact that they continue to belong to a social security scheme outside Belgium.
9 They have an employment contract specifying a limited period
10 They are temporarily employed in Belgium for the purpose of establishing or restructuring an enterprise.
11 Because of the ties they have with the foreign enterprise or because of their contractual obligations, they may, at any time, be transferred to another country.
12 Any other similar circumstances

In the following circumstances, a foreign executive will not be considered, ipso facto, as a resident:
1 If he acquires a house in Belgium, with or without a mortgage from a Belgian financial institution.
2 If no written employment contract exists.
3 If a written employment contract exists, but for an indefinite period.

When for a certain tax year a foreign executive loses his non-resident income tax status, he will be taxed as :
1 Non-resident up to the date he lost the status.
2 Resident as from the date he lost the non-resident income tax status.

Secondment

The foreign executive should reside in Belgium because of one of the following reasons:

posted to Belgium by a foreign corporation to work temporarily, either in one or several establishments of the enterprise or in one or several companies which are controlled by the foreign corporation;

posted to Belgium by a foreign enterprise belonging to an international group, to work temporarily in one or several Belgian companies which form part of that group, or in a control or co-ordination office established in Belgium;

recruited directly outside Belgium by a Belgian subsidiary or branch of a foreign enterprise or by a Belgian company which forms part of an international group, to work temporarily with the Belgian company or enterprise itself, or with a control or co-ordination office established in Belgium by the international group.

Procedure

To obtain the application of the special tax regime, the employer must submit a onetime request to the Directeur du Service Etranger in Brussels.

This request must be submitted within six months following the starting date of the Belgian assignment.

The request must contain sufficient information in order to :
verify the international character of the enterprise employing the executive

establish the non-resident income tax status of the executive

**nodric** · 18 November 2009, 14:12

Part 5 - Being an Expat Continued...

The foreign executives and specialists who obtain the non-resident status have to declare their professional income in Belgium. However, in fact, they are only taxable on their professional income earned from the group (worldwide) and related to activities performed in Belgium.

They are not taxed in Belgium on :

the reimbursements of expenses attributable to the employer

the income relative to business activities performed outside Belgium : the travel exclusion.

Reimbursements of expenses attributable to the employer

In the event that foreign executives or specialists, because of their transfer to or employment in Belgium, are exposed to additional expenses, those expenses may be borne by the employer, either directly by reimbursement of the actual amounts, or by paying lump sum allowances.

The reimbursements or allowances will not be considered as the employees' taxable remuneration or as a benefit in kind, but will be considered as the reimbursement of business expenses which are tax deductible for the employer.

"Additional" expenses incurred should be calculated with reference to the immediately previous country in which the employee was resident for tax purpose, or the country in which the executive can demonstrate that he has maintained the centre of his economic interest.

The following additional expenses can be reimbursed :

On-going expenses :

Housing and cost of living allowances to cover the difference between expenses incurred in Belgium and the country of origin. (To compare the housing costs in Belgium with those of the country of origin, either the rent and rental charges, or for house-owning executives 100/60 of the deemed rental value (revenu cadastral - kadastraal inkomen) of the house are taken. These costs can only be considered to the extent that they are normal, i.e., no "status" expenses can be taken into account. Heating, electricity, gas, water and other normal household expenses are excluded).

School fees and costs for children attending primary or secondary school. Education expenses cover fees payable by foreigners to Belgian state schools (minerval); school fees, travel to and from school and other expenses required by the school for children attending primary or secondary education in Belgium at an international or private school, to the extent that these costs are reasonable. However, boarding expenses (food and living costs); travel, other than to and from school; and special lessons (horse riding, skating, language lessons for the spouse, etc.) borne by the employer will be treated as taxable remuneration. For children who continue their primary or secondary education outside Belgium, the costs to be considered as additional expenses resulting from the transfer to or the recruitment in Belgium will be determined on a case by case basis.

The cost of an annual trip to the country of origin (in the case of air travel, economy class return) for all the members of the family.

Tax equalisation and tax protection payments.

Travel expenses of children studying outside Belgium for a maximum of two trips per annum to visit their parents in Belgium.

One-time expenses :

These include moving expenses to and from Belgium and the costs of setting up house in Belgium.

If foreign executives are paid on a gross basis without distinction between the salary and the reimbursement of the additional expenses, the cost of living and cost of housing allowance and the tax equalisation allowance will have to be computed according to the instructions of the Tax Administration which are detailed in the so-called technical note. Expenses, excluding the school fees and one-time expenses borne by the employer, will only be considered reasonable if they do not exceed EUR 11,250.00 (for commercial and operational functions) or EUR 29,750.00 (in the case of an eligible employee working at a control and co-ordination office, research centre or scientific laboratory).

Exemption for activities performed outside Belgium : the travel exclusion

An important feature of the concession is the rule that only remuneration relative to activities exercised in Belgium is taxable in Belgium. Such remuneration could be stated in the employment contract but should be substantiated by the actual facts.

If income relating to the activity exercised in Belgium is not defined, it should be determined as follows :

remuneration taxable in Belgium =

total remuneration x travel exclusion

travel exclusion = number of working days spent abroad / total working days of the period

Total working days of the period : period less Saturdays, Sundays, public holidays, sickness days and vacation days.
Day of departure is considered as being spent in Belgium, day of return is considered as spent abroad (regardless the hour of arrival in Belgium).

Severance pay, salary arrears, holiday pay on termination, and directors' fees that do not relate to the director's actual and permanent function are considered Belgian remuneration.

**cojak** · 19 November 2009, 08:38

Well done that man!

**SueEllen** · 19 November 2009, 13:01

Thanks.

**Brussels Slumdog** · 22 November 2009, 11:09

Live in Belgium but hardly any work in Belgium

This Guide is five star advice for contractors who are:-
(a) Married to a Belgian or want to marry a Belgian
(b) Have a degree
(c) Always have long term contracts in Belgium and don't want to work outside Belgium.

My situation is as follows:-

I am married to a Belgian
I have a degree
I do not speak fluent French and Dutch which means that I cannot apply for
90% of contracts in Belgium as a SAP consultant.
The contracts that are available average about 6 months.

Last year I worked in Germany and Switzerland and I am currently working
in the Netherlands.

Setting up a company and self employed status for short term contracts in Belgium just does not seem practical.

In my case it might just be better to keep working anywhere except Belgium and declare my worldwide income,which I am currently doing.
I end up with zero Belgian income + foreign income.

What I need in Belgium is a Manco which deducts full social security plus full tax for short term contracts

Working outside Belgium I pay travelling costs but I don't have to worry about
the complications of being a Belgian self employed

**nodric** · 23 November 2009, 09:57

Originally posted by Brussels Slumdog View Post

This Guide is five star advice for contractors who are:-
(a) Married to a Belgian or want to marry a Belgian
(b) Have a degree
(c) Always have long term contracts in Belgium and don't want to work outside Belgium.

Point (a) whilst maybe applicable does suggest that this is a pre-requisite, which it is not. My advice is mainly focussed on non Belgians who want to contract in Belgium.

Point (b) A degree is essential for working in Belgium if you want to setup here as a LTD CO or Independent Contractor. If you continue to work via your foreign LTD CO then this is not necessary.

Point (c) If you only intend to do the odd short contract in Belgium, then you either need to work as Independent in Belgium (degree needed), or work through your foreign LTD CO. In the latter case do heed the advice to consult the right financial and accounting experts to ensure you comply with all requirements of both your home country, and those of the BTA.

Originally posted by Brussels Slumdog View Post

Setting up a company and self employed status for short term contracts in Belgium just does not seem practical.

I agree. Setting up a company in Belgium for short term contracts is expensive and complex, especially if you want to make it dormant 6 months later. Again the only advice is to either work as an Independent, or through your foreign LTD CO.

Originally posted by Brussels Slumdog View Post

In my case it might just be better to keep working anywhere except Belgium and declare my worldwide income,which I am currently doing.
I end up with zero Belgian income + foreign income.

Good advice if you live in Belgium, otherwise the advice would be not to come here at all... My advice is aimed at those who currently live elsewhere, and seek to accept a contract in Belgium. Maybe I will follow your lead if I can find the contracts

Originally posted by Brussels Slumdog View Post

What I need in Belgium is a Manco which deducts full social security plus full tax for short term contracts

It's on the cards. Watch this space!

**Brussels Slumdog** · 23 November 2009, 14:50

Can you take a gap year

Originally posted by nodric View Post

Introduction

Now back to that paying the minimum for the first 2 years. You bob merrily along getting renewals and loving the life here in Brussels. You then enter year 3. The social security police then check back and bam, please pay the shortfall for year 1. Then year 4 comes and bam, please pay the shortfall for year 2. Then year 5 comes and bam, please pay the shortfall for year 3.

In addition, the social security for year 4 onwards is no longer estimated, it's calculated for you by the social security Gestapo. So, your year 4 social security is now based on what you should have paid in year 1, year 5 on year 2 etc. Even if your income falls below what you earned in year 1,2,3 etc, you still pay the new calculated amount!

CO.

What would happen if after the first 2 years you deregestered got a one
year contract in say the Netherlands so year 3 becomes non-Belgium
Re regestered in year 4 again. Would they calculated your new first year
based on your old first year.

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