In the current economic climate, there are indications that foreign companies, for example in the construction sector, are applying a strategy where employees are sent to Belgium for a limited period (under 183 days) to avoid personal income taxes /wage withholding taxes in Belgium under the assumption that the foreign employer does not have a permanent establishment (PE) in Belgium. However, this practice raises serious concerns, both fiscally and ethically.
Competitive Disadvantages for Belgian Companies
For members of the In-House Tax Forum (IHTF), this situation is particularly frustrating. Belgian companies that comply with local tax laws feel disadvantaged by foreign competitors who benefit from tax avoidance. This not only leads to an uneven playing field but also erodes the tax base in Belgium. While local companies fulfill their obligations and pay their fair share of taxes (on a corporate or personal level) in Belgium, foreign enterprises, with their short-term stays and rotation of foreign employees, can take advantage of lower tax pressures, significantly enhancing their competitive advantage.
Loss of Tax Revenues for the Belgian Treasury
The problem extends beyond just the direct impact on competition. The Belgian state is losing substantial tax revenues (income tax of non-residents physical persons, non-resident corporate income tax, and potentially even VAT and/or social security). This revenue loss not only affects government finances, but also has broader economic implications, as these funds are crucial for public services and infrastructure.
Fiscal Implications and Legal Aspects
According to the OECD Model Tax Convention and most tax treaties with Belgium, the “183-day” rule no longer applies when there is a permanent establishment in Belgium.
The foreign employer must then withhold payroll tax from the first day the foreign employee physically works in Belgium, and the foreign employee must file a personal income tax return in Belgium (more specifically: an income tax return of non-residents physical persons).
Furthermore, Belgian legislation has a broader concept of a “permanent establishment” than most double taxation treaties with other countries.
Consequences of a Permanent Establishment
If there is a permanent establishment according to Belgian legislation and the relevant treaty, mandatory withholding of payroll tax (and possibly social security contributions) must be done for these foreign employees that physically work in Belgium on the salary they earn (including benefits in kind) as from day one, regardless of the number of days present in Belgium (and can thus not rely on the so-called 183 day rule). Of course, also other declarations and administrative registrations must be considered, e.g. Limosa, etc.
In that case, the (foreign) employer will be required to set up a Belgian payroll administration and withhold and remit Belgian payroll tax to the Belgian Treasury on the remuneration paid to these foreign employees for the work taxable in Belgium.
Regarding social security, different rules apply (EU Regulation), so it’s possible that these employees remain subject to social security in their home country and not in Belgium.
Call to Action
It is time for a joint effort between the Belgian government, IHTF and the relevant sectors to address this issue. Clear guidelines and enforcement are necessary to ensure that all companies, both domestic and foreign, operate on equal footing. This will not only protect the tax base, but also contribute to a fairer economic environment.
Let’s work together towards a transparent and equitable tax landscape where everyone adheres to the rules and contributes to the community. Your opinions and experiences are crucial in this discussion, so please share your thoughts below or contact us at info@ihtf.be.
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