The law tends to introduce 2 new categories of taxable income for non-resident income tax purposes.
The first category includes the income for which a tax treaty allocates to Belgium the taxing right but which were, until now, not subject to tax according to Belgian internal tax rules when paid or attributed to non-residents, while they were taxable in Belgium when received by Belgian resident taxpayers.
The income of this first new category must fulfill the following conditions:
- Income is not mentioned as taxable income in the other provisions of the Belgian Income Tax Code applicable to non-resident taxpayers, while it is considered as taxable income for resident income tax purposes;
- Income is borne by a Belgian resident (individual or legal entity), by a public body (State, Regions, etc.) or by a Belgian establishment of a non-resident;
- Income is taxable in Belgium according to the applicable tax treaty.
The Memorandum of Understanding of the law lists the income concerned, which are mostly payments for technical assistance or consulting services, as mentioned in the tax treaties with Argentina, Brazil, Ghana, India, Morocco, Romania, Rwanda and Tunisia. It is also mentioned that according to the Belgian internal tax law, these income are considered as business profits or proceeds from a liberal profession. The list of income falling within the scope of the new category will be published every year in the notice to the debtors of income.
The second new category of income that will be subject to non-resident income tax further to the adoption of the law concerns situations where no tax treaty is applicable. The income of this category must fulfill the same first 2 conditions as mentioned for the first category and a third condition: the income will only be taxable in Belgium if it is not actually taxed in the beneficiary’s residence state.
This new measure will apply as from January 1, 2013.
Belgian taxpayers paying such income will have to withhold a wage withholding tax on this income. Withholding tax rate should be fixed at 33% by a Royal Decree and should be applied after deduction of a lump sum of costs of 50%.
Furthermore the rate will be reduced according to the applicable tax treaty (5 to 11% depending on the tax treaty). This will apply as from January 1, 2013.
The withholding tax will in principle be the final tax due on the income. As from assessment year 2014 (income year 2013), the non-resident will however be able to opt for the globalization regime, allowing him to deduct his real business expenses.
It is important for those who pay or receive income that could be subject to the new rules to review their situation, especially as regards wage withholding tax.
- Non-residents who received more than 75% of their professional income from Belgian sources will have the possibility to deduct the alimony paid to non-residents. It is important to note that the Memorandum of Understanding explicitly confirms the administrative position according to which the 75% threshold applies to the complete taxable year (applicable as from January 1, 2013).
- A more uniform reference to the concept of permanent establishment is introduced in the Belgian income tax code (applicable as from January 1, 2013).
- The law will confirm the administrative practice according to which remunerations are subject to non-resident income tax when borne, directly or indirectly, by Belgian residents or Belgian establishments of non-residents. The Memorandum of Understanding provides an exhaustive overview of situations where the remuneration is considered as indirectly borne by a resident.
- Belgian internal tax law is brought in line with the treaties according to which services provided by an individual in Belgium, without a fixed place of business, constitutes a permanent establishment when the services are rendered during one or more period exceeding 30 days in any period of 12 months (applicable as from January 1, 2013).
- An anti-abuse measure will be introduced in order to avoid that building sites, constructions or installation projects are divided in different contracts of a duration shorter than the one provided for by the tax treaty to constitute a permanent establishment and attributed to different group companies. This rule will not apply if the taxpayer demonstrates that the division into different contracts is justified by other reasons than the avoidance of the term after which the activities constitute a Belgian or a permanent establishment (applicable as from January 1, 2013).
1 Belgian Official Gazette of December 20, 2012.