After all, in practice we still see the fiscal rules not being followed all too often when re-invoicing expenses. This can lead to some nasty surprises in the event of a fiscal audit. We will now give a short overview of the basic principles regarding direct taxation, including some concrete examples as they occur in practice. The basic principles regarding VAT can be found in this article.
Re-invoicing of expenses - income tax
The main principle here is that the deduction restriction is applied on the part of the entity incurring the costs and including them in their professional expenses, regardless of whether the expenses recharged appear separately on an invoice. Therefore, the deduction restriction is not applied on the part of the company to which the goods/services are supplied. After all, for this client company, these recharged expenses are considered to be compensation for the goods/services supplied.
We will now expand upon 2 specific types of expenses in more detail:
Until the end of the 2018 tax year, the deduction restriction for motoring costs had to be applied in accordance with the aforementioned principle at all times. Therefore, the deduction restriction had to be implemented for the entity incurring the expenses, even when these motoring costs were recharged to third parties, such as clients for example.
Since the 2019 tax year, specifically from the taxable period beginning on 1 January 2018 at the earliest (via a change to article 66, §2 of the Income Tax Code, whereby 4° was added), the deduction restriction does not apply to motoring costs for which expenses are recharged to third parties, provided that these expenses are explicitly listed separately on an invoice.
Consequently, this recent change in the law allows for an exception to the aforementioned main principle. The fiscal deduction restriction for the (recharged) motoring costs should no longer apply for the entity incurring the expenses and recharging these, but it should for the third party to whom the expenses are recharged.
However, this is subject to some conditions in order that the deduction restriction is not applied for the entity that is recharging. In particular, it must relate to motoring costs that are invoiced for the same amount and by means of explicitly appearing separately on the invoice to third parties. One could infer from this that it must involve 1-to-1 recharging, such that the exception to the general principle could not be applied for a fixed-rate recharge, as these are known.
It will also be mandatory for the CO2 emissions and the fuel used to appear on the invoice, so that the third party to whom the motoring costs are being recharged is able to apply the correct fiscal deduction restriction with regard to the expenses (being recharged) to them.
Another exception, which has existed for a long time now, is the recharging of restaurant costs. For example, a consultant carries out a project for a client, which is discussed during a business lunch. Where the consultant first includes the restaurant costs as professional expenses in their accounting and later recharges these to their client for the same amount in a plain manner, the deduction restriction (31%) solely applies for the client.
Furthermore, this exception can only be applied where the deduction restriction is genuinely being applied for the client who is liable in Belgium for personal income tax, corporation tax or non-residents' tax (QP/PV no 511, 26.4.1990, Repr. De Croo, Bull., 701 p. 112). Note that the tax on legal entities is not included in the aforementioned list. It should also be noted that this condition is not imposed in the recently altered regulations concerning recharged motoring costs that were discussed earlier. Thus, in the event that a Belgian company recharges a foreign client for restaurant costs separately on an invoice, the deduction restriction will still need to be applied on the part of the Belgian company insofar as the foreign client does not have a Belgian establishment on whose part the deduction restriction could be applied.
The invoice drawn up by the contract holder must include at least the nature of the service, the name of the restaurant and the date of the dinner, enclosing a copy of the restaurant bill.
Whenever a company wishes to levy a charge upon a client for certain expenses, it must analyse the manner in which (adding to an invoice, BTW-%, etc.) those costs should be charged in each case. If not, it may well find itself facing some nasty surprises in the event of a fiscal audit.