New position from the Belgian Social Security Ministry relating to Social Security exemption available for expatriates

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Executive summary

The Belgian Social Security Ministry is expected to adopt a new approach in relation to the exemption of Belgian social security contributions on expatriate allowances for certain expatriates assigned to Belgium. The new position could result in additional social security savings.

Background

Belgian expatriate tax and social security concessions are available for certain foreign executives working in Belgium provided the foreign executive meets the following qualifying tests:

  • They are engaged in an executive role (so called a “highly qualified” specialist).
  • They are working temporarily in Belgium.
  • They keep the centre of their personal and economical interests outside of Belgium.

The main benefit available under the concessions consists of a “foreign duty relief” mechanism whereby Belgian tax is levied only on the proportion of the expatriate package associated with duties performed in Belgium and the rest is exempted from Belgian tax.

There is an additional benefit which provides for the exemption of expatriate allowances from Belgian tax and social security up to a general annual cap of EUR 11,250, which increases to EUR 29,750 for those occupying a headquarter function or employed in a research centre in Belgium. For employers using a balance sheet approach, allowances are based on the cost of living differential, housing and tax equalization costs derived from the balance sheet. For those paid on gross terms, allowances are determined based on a formula provided by the Belgian Tax Administration and referred to as the “Technical Note”.

Although this calculation method was provided by the tax authorities, the Social Security Administration had previously applied the same formula and the same ceilings to determine the basis for social security contributions.

New position from the Belgian Ministry

The Belgian Ministry has recently decided to extend the exemption available on those allowances by allowing employers to “gross up” the amount exempted from social security by the foreign duty relief percentage. This new approach has yet to be officially published but it is anticipated that it will take effect from 1 January 2012. The change in methodology is very likely to generate additional social security savings from companies assigning certain expatriates to work in Belgium.

For example, an expatriate who qualifies for a 25% duty relief and where the total value of expatriate allowances is EUR 15,000, the portion of his or her package exempted from social security charges in Belgium will be EUR 20,000 per annum (i.e. 15,000/0.75). The overview below offers a direct comparison of the old and new positions.

  Previous position New position
Gross salary
Non-taxable allowances
Base for social security
Employee contributions(@ 13.07%)
Employer contributions (@ 35%)
75,000
-15,000
60,000
7,842
21,000
75,000
-20,000
55,000
7,189
19,250
Total saving 2,403

Next steps

Employers with expatriates assigned to Belgium should consider the relevance of this change in approach in respect of expatriates working in Belgium. Employers should initiate discussions on how best to integrate this new development in their compensation and benefit policies and incorporate it in their year-end payroll processes to take full advantage of the additional savings opportunities.