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

[nodric]

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.

It would be logical for them to do this, as they use your year 1 figure for year 4. Your new 1st year would in fact be your 4th year in Belgium. The income earned in year 3 in the Netherlands could also be used by the BTA to assess your SS for year 6, with year 5 being based on your year 2 in Belgium figure.

The problem is once you are in the system, you never truly leave. You de-register but you still owe your dues and demands in Belgium. They will continue to accrue for as many as 3 more years. Then when you come back and re-register, your history will be there to haunt you.

However, it is a very interesting point you raise, especially for non Belgian nationals who drop in and out of Belgium over the years on different contracts, with periods of de-registration (assuming they were properley registered each time ). I'll ask an expert and write more once I get an official answer.

[skubidoo]

Nodric, your post could not have come at a better time! I could really do with your two pennies! I'll do my best to keep this breif!

I've a new contract starting in Brussels very very soon.

Background and my situation
Up until now I've been contracting in the UK via my UK Ltd company. I'm the Director and in a sense my outfit is "one man band-ish". I do however, have 3 clients and a number of advertised service offerings. Anyway, this new opportunity has come up. It's a 6 monther with a view to extend by perhaps 3 months and maybe longer

Investigation
My agent recommended a ManCo in preference to my UK Ltd. This spurred me on to investigate further. I've since looked into a number of umbrella/managed solutions most of which profess to be compliant however, I still do not feel 100% comfortable using them. Here's a brief summary:

• One wants me to become Self Employed in Belgium and ultimately a Belgian tax res (which as you know, will mean working until April 2011)
• Another wants me to operate via Cyprus based company, pay social tax there, income tax in Belgium and pay 30% each month into a pension fund retainable at the end of the tenure
• Another wants to pay me a basic Belgian salary, a basic UK salary and give me a cut of its dividends
• Another wants me to declare everything but max out on expenses

I'm just not getting that "warm fuzzy feeling" from any of them! I'm trying to sift through this quagmire and have been given advice from a number of objective areas most of which pointed towards sticking with the UK Ltd.

So, since I'm most comfortable in this space, I decided it best I speak to the HMRC and their equivalent in Belgium and this is what I found:

• The UK and Belgium have a double tax treaty which means as an individual or company I shouldn't have to pay the same type of tax twice
• As a company, by completing an E101 submission to HMRC, I can second an employee i.e. myself to any EU country for (guidance given was 12 months) up to 5years and continue to be a tax resident in the UK
• So effectively, with E101, I should be able to operate using my existing structure: My UK Ltd invoices the Agent who invoices the Customer in Belgium; the funds paid into my UK (euro) business bank account and my salary paid from there; Employee/Employers NIC, PAYE, Corp tax, Income tax all paid to the UK tax man and his mates
• However, I then spoke with the Belgians and was told the following:
• As an individual, if I am deemed a resident i.e. have registered with a commune and have a fixed address, I am liable to pay Belgian tax on the salary (note, not the gross income generated from the client)
• Also, as an individual, this can work for 6-9 months after which regardless of having a fixed address, I will be deemed resident
• As a company (and according to the treat), if I operate in Brussels for over 6 months at the Customers offices, it can be construed as being a permanent base for my company (seat of the company, etc) and therefore, any profits (gross earnings minus social, income, corp taxes and approved expenses) will be taxed at 33%

Here's what I'm thinking now:

• Start the contract using my UK Ltd company
• Rent a B&B or sub-let a flat and therefore have no fixed address (I think this means I skip LIMOSA too?)
• Ensure the contract comes to a hard stop at the 6 month point (but what if I want to renew?)
• If required, evidence that the company is not running from Brussels (show other UK client invoices, use a UK accountancy firm, show that the contract was obtained in the UK -anything else I can do?)

I'd really appreciate it if you would weigh in here. Have I got anything wrong? Are there better things I can do to continue to use my UK Ltd? What should I do if I want to renew at 6 months? Do I still register LIMOSA if I am staying in a B&B?

Thanks ever so much in advance

[nodric]

This reply assumes you have a degree? If not, the only way you can work in Belgium is as an employee.

• One wants me to become Self Employed in Belgium and ultimately a Belgian tax res (which as you know, will mean working until April 2011)

Read the section again on Social Security and head my warnings. I have had to pay €16K just in social security in 2009 due to being independent in 2006! Add the €35K I paid over in 2007 and 2008 and you can see how painful it can get. Those amounts were charged on a modest annual income of around €50K. Imagine if you start declaring €100K a year, or more!

Now I have a company I will avoid this problem, but it’s taken me 3 years to escape the Social Security Trap.

The only time I would recommend being independent is for a very short contract, when you will have legged it before a tax return or social security bill is due. Of course I would never suggest that someone work in the black and not declare their earnings, even if they are very unlikely to get caught on a short mission

Biggest problem comes when you start getting repeated extensions. If you continue as an independent you will fall foul of Social Security, and of course don’t forget the 50% tax rate! It is at this time the only option will be to form a LTD CO equivalent.

• Another wants me to operate via Cyprus based company, pay social tax there, income tax in Belgium and pay 30% each month into a pension fund retainable at the end of the tenure

To pay Social Security (NI) in Cyprus you would have to be tax resident there. It is easy to be tax resident in several locations, Hector will hang on to you for years even if you leave the UK (Domicile etc), but to be tax resident in Cyprus you would have to actually have to show your ‘Centre of Economic Interest’ was there, or to spend enough days per year in Cyprus to qualify as being tax resident.

There are schemes that just about stand muster that allow you to earn a wage in Belgium, paying your dues here, and then invest X in a pension. You then take the lolly when you leave Belgium. However, you are supposed to tell someone somewhere that you’ve taken the cash. As you are a Director of a UK LTD CO, Hector will expect you to be honest enough to tell him of this income, and he will determine if it is taxable by him.

There is a local Belgian MANCO who operate a system like this. It is just about OK under current rules, but there is always a risk. I can tell you that they are honest, have reasonable fees, and will let you have access to your money at any time. However, times are hard for us all, and there is no guarantee that these schemes won’t collapse leaving your money trapped. If you want the details of this MANCO PM me.

My only concern is Hector will want to know what you’re living on when skubidoo LTD is not earning much, if anything. He’s going to ask what Mr Director has been living on. Back to declaring all foreign source income…

• Another wants to pay me a basic Belgian salary, a basic UK salary and give me a cut of its dividends

Dividends are payable only to Directors. Would you be a Director of this company? Unlikely, and that would add a whole host of other problems anyway. If it is a disguised bonus or salary payment, the usual dues would be demanded by Hector, and/or the BTA. Both would claim you owed it to them, and yours would be the problem to show were it was earned.

• Another wants me to declare everything but max out on expenses

Back to being independent short term, but max out on what? If you spend it all on needless expenses you may has well pay it as tax. The list of expenses an independent can claim is limited to those direct costs associated with running your service. How do you retain income if you spend it all and pay an unhealthy amount in Social Security and Tax?

I'm just not getting that "warm fuzzy feeling" from any of them! I'm trying to sift through this quagmire and have been given advice from a number of objective areas most of which pointed towards sticking with the UK Ltd.

This would be my preferred option, at least initially. You are permitted to send an employee on a foreign mission as long as your company retains its Centre of Economic Interest in the UK. Easy when you employ 50 people, but much harder to demonstrate when it’s just you! If you have a 2nd director who conducts ‘real’ work on behalf of the company, have additional ‘real’ clients in the UK, and perhaps have a ‘real’ office or similar in the UK, you can show your permanent base, or seat as you call it, is the UK. The problem is this will be challenged by the Belgians. Yours is to prove otherwise, not theirs.

However, be aware that if you intend to send your employee to Belgium for more than 5 days per month, you will have to apply for LIMOSA. This will put you personally into the Belgian system, and once you pass the 183 days rule, you will have to start paying Belgian SS and Tax on your salary. To avoid paying Belgian SS you will need to register as an ex-pat executive or specialist on a temporary mission in Belgium. See my whole section on that, and the information from PWC. You can then pay NI in the UK, tax in Belgium, and retain the profits in the UK LTD CO, and give Hector his slice.

• The UK and Belgium have a double tax treaty which means as an individual or company I shouldn't have to pay the same type of tax twice

Correct. Difficulty is proving who taxes you on what. Good accountant essential.

Tax and SS is hideously complex in Belgium, not to mention in a foreign language, so unless you are a tax expert, and fluent in French, Dutch or German, YOU WILL need a local accountant on top of your UK expert.

• As a company, by completing an E101 submission to HMRC, I can second an employee i.e. myself to any EU country for (guidance given was 12 months) up to 5years and continue to be a tax resident in the UK

All to do with the UK concept of being Domiciled.

• As an individual, if I am deemed a resident i.e. have registered with a commune and have a fixed address, I am liable to pay Belgian tax on the salary (note, not the gross income generated from the client)
• Also, as an individual, this can work for 6-9 months after which regardless of having a fixed address, I will be deemed resident

Not if you have registered as an ex-pat. You then are classed as a Third County National. You can apply for registration as an ex-pat even after you have started the contract. It will normally be granted provided you meet all the criteria. If it’s refused your back to be a tax resident of Belgium for your salary.

THIS IS WHY YOU NEED A LOCAL ACCOUNTANT.

He will apply on your behalf and ensure you obtain approval. Then your SS becomes UK NI, and you save a small fortune. You also then avoid the issues of residency.

• As a company (and according to the treaty), if I operate in Brussels for over 6 months at the Customers offices, it can be construed as being a permanent base for my company (seat of the company, etc) and therefore, any profits (gross earnings minus social, income, corp taxes and approved expenses) will be taxed at 33%

33% is the higher rate. Unless you are raking in 300K profits a year, you’ll be looking at 25%. However, this comes back to the whole burden of proof of your companies Centre of Economic Interest. If it’s just you, with 1 real client, and you base yourself 100% of the time on their site, then you’ll be ultimately buggered.

This also then opens a whole can of worms. You’ll have to deal with Hector explaining that your company has now relocated to Belgium and… Let’s not even go down that road. You either do all you can to demonstrate that it is a ‘real’ UK based company, or you open a Belgian branch, or separate local LTD CO.

Here's what I'm thinking now:
• Start the contract using my UK Ltd company
• Rent a B&B or sub-let a flat and therefore have no fixed address (I think this means I skip LIMOSA too?)
• Ensure the contract comes to a hard stop at the 6 month point (but what if I want to renew?)
• If required, evidence that the company is not running from Brussels (show other UK client invoices, use a UK accountancy firm, show that the contract was obtained in the UK -anything else I can do?)

Almost right. LIMOSA is mandatory if you are not resident, and intend to be here for more than 5 working days a month. This then forces you to seek help from a local accountant to ensure you are registered as an ex-pat, and avoid dropping straight into the Belgian money extraction machine.
Once you are sorted as an ex-pat, worry not about the renewals as your status is confirmed.
Do all and everything you can to maintain the evidence that your UK LTD CO is exactly that, a UK based company.

Next Steps
1. Decide on how you are going to operate.
2. Seek the services of a local accountant (additional costs)

Summary

Operate as a foreign employee sent on a temporary mission to Belgium.

Register as an ex-pat in Belgium and obtain the tax and SS concessions/dispensations allowable as an ex-pat. i.e. NI in UK and lower personal tax rate in Belgium.

Retain profits in UK LTD CO and maintain its Centre of Economic Interest in the UK.

If Belgium becomes a long term gig, consider a Belgian subsidiary for your UK LTD CO, or form a local company separate from your UK affairs. Bear in mind that as a director of a UK and Belgian company the personal tax situation gets even more messy, declaring incomes from both!

[nodric]

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.

I received official confirmation today of what would happen in this scenario.

If the contractor leaves (fully de-registers), and then comes back again, the calculation starts over as if he was here for the first time. However, any previous dues are still due The time between leaving and coming back is immaterial.

If the contractor has a company, and doesn't want to wind it up, he can take a lower wage, and for this period he will then only have to pay the minimum social security.

.

[skubidoo]

Nodric, you've been a God send!

I'm taking your advice and going UK Ltd for now. Of course, I need to build up a store of ammunition to cover off the queries that are likely to come my way from "Hector"... (Incidentally, where did that term come from?)

A few more queries:

• How do I register as an ex-pat? By doing this, does this mean I can rent directly without being considered a domicile? Or do you recommend I go the B&B/sublet route?
• Can you recommend a good Brussels-based accountant?
• Can you recommend a good bank (need euro business and personal accounts)?

This thread has been absolutely awesome!

Cheers,
skoobs

[nodric]

Nodric, you've been a God send!

"Hector"... (Incidentally, where did that term come from?)

As far as I know, it comes from the little man who used to do the self assessment adverts on British TV. His name was Hector. However, I'm sure the forum regulars will correct me if I'm wrong

A few more queries:

• How do I register as an ex-pat? By doing this, does this mean I can rent directly without being considered a domicile? Or do you recommend I go the B&B/sublet route?
• Can you recommend a good Brussels-based accountant?
• Can you recommend a good bank (need euro business and personal accounts)?

The ex-pat registration is best handled by your Belgian accountant. I'll send you a PM with some recommendations. He will prepare the forms, and present the supporting information to gain you ex-pat status.

I can also pass you the details of a business banking advisor at ING who has helped quite a few ex-pats, and of course they all speak fluent English They'll give you the appropriate accounts, an overdraft, and all the plastic cards simply on presentation of your passport.

You can rent a flat, or stay in a B&B. The latter will be more expensive. Just don't rent a house. According to PWC, a house says permanent resident and you'll loose the ex-pat status.

For a quick solution Google aparthotels, but they aren't cheap. Longer term try and find a good furnished apartment. I'll drop you some websites in a PM to try. Renting an unfurnished place is much cheaper, but of course it's a bit bare

Rental contracts are also a minefield. In Belgium it is normal to place the equivalent of 3 months rent as a deposit into a bonded bank account. When you rent a place, an inspection is carried out by an independent expert. This is very detailed and costs anything up to 500 Euros, and it's normal you pay half! When you leave the expert does another inspection. The two are compared, and this is the basis of deciding how much of your dosh you get back!

Furnished rental contracts are either 1 or 3 years. Warning though! You have to rent for the full period! If you leave sooner you either pay the remaining rent, or have to find a tenant. Unfurnished contracts are normally for 9 years! However, you can leave any time you want, but you have to give 3 months notice. BUT, if you leave in the 1st year you have to pay 3 months rent penalty, 2 in the 2nd year and 3 in the 3rd year. It's known as a 321 lease.

Having said all of this, landlords will be flexible for short term lets, and often will advertise such terms. Just be careful and ask lots of questions, and be 100% sure of the lease terms. If going through and estate agent (IMMO) ask for an English translation of the lease. While not a legal document unless in French/Dutch it will give you a fighting chance to get it right before you sign anything.

Now, the bank can save you a lot of money. Instead of putting 3 months rent into a locked account, they will issue a bank guarantee to the landlord. This basically says, if you leg it they will pay him this money, and recover it from you. The fee is around 100 Euros a year for this service. If you leave in a correct manner, and agree with your landlord that the condition of the property is fine, the landlord will agree for the bank to release the bank guarantee and your liability. Good thing is, while you and the landlord slug it out about how much he wants for those picture hooks you hammered in, it's not your cash in the bank

So, best advice is. Get a decent B&B or cheaper aparthotel. Check out Citedines location here and here. The latter is more central and right next to the Metro (underground) and 2 mins from the Irish ex-pat bar.

Once you are settled, hunt for a flat. Loads of ads locally, and you can also pic up the local ex-pat weekly magazine, The Bulletin. Brussels and surrounding areas are also littered with estate agents with plenty of rentals in their windows. With the EU/NATO and most international companies here it really is a renters market.

[Brussels Slumdog]

Better news than expected

I received official confirmation today of what would happen in this scenario.

If the contractor leaves (fully de-registers), and then comes back again, the calculation starts over as if he was here for the first time. However, any previous dues are still due The time between leaving and coming back is immaterial.

If the contractor has a company, and doesn't want to wind it up, he can take a lower wage, and for this period he will then only have to pay the minimum social security.

.

What now happens if I work during a year in Belgium using a SPL plus self
employed and in the Netherlands using a payroll company.
ie €11, 000 Belgium
€ 89,000 Netherland
From a taxation perspective I would declare €100,000 to BTA
and my tax liability in Belgium would be 11/100 of the tax payable on €100,000.
This is based on my Belgian accountant.
Would my social security payment only be based on €11,000

[ASB]

I know that there are hoops to jump through but would it not be better to continue to pay NI in the UK for the 5 years you are allowed to rather than get embroiled in the Belgian SS system (even if you do have to get embroiled in the tax system).

IME experience in continental europe tax levels are often lower, it's the social security that usually crippling.

[nodric]

I know that there are hoops to jump through but would it not be better to continue to pay NI in the UK for the 5 years you are allowed to rather than get embroiled in the Belgian SS system (even if you do have to get embroiled in the tax system).

IME experience in continental europe tax levels are often lower, it's the social security that usually crippling.

This is my recommendation. By registering as an ex-pat, you can avoid local SS and pay NI back in the UK. However, tax will be due locally on personal income. You can only register as an ex-pat if you are working for a non Belgian company, and are sent on an assignment to Belgium.

The company can be your own, but see my notes on establishing and maintaining your companies Centre of Economic Interest, or another company, for instance some sort of Umbrella operating for this purpose.

Personal tax in Belgium is significantly higher than in the UK btw

.

[nodric]

What now happens if I work during a year in Belgium using a SPL plus self
employed and in the Netherlands using a payroll company.
ie €11, 000 Belgium
€ 89,000 Netherland
From a taxation perspective I would declare €100,000 to BTA
and my tax liability in Belgium would be 11/100 of the tax payable on €100,000.
This is based on my Belgian accountant.
Would my social security payment only be based on €11,000

Have you paid any SS in the NLs? i.e. The payroll company should be deducting Dutch SS on Dutch income?