What are the 'advantages'?
In addition to the usual remunerations, an employer can remunerate its personnel by granting, for example, stock options, free shares, cash or salary bonuses, profit premiums, Restricted Stock Units (RSUs), etc. Payment resulting from, for example, the free granting of stock options is a taxable benefit in kind that forms part of the employee's remuneration on which the employer must withhold withholding tax.
Payments from foreign group companies
In our current global economy, it is common practice for stock options, discounted shares, free shares or other benefits of any kind to be granted by a non-resident company affiliated with the employer to a beneficiary Belgian resident. The foreign group company wants to reward the employees in a certain country and does this by, for example, granting stock options, discounted shares or free shares to the employees of its Belgian group company.
Today, there is no legislation in place that provides for an obligation to pay and withhold withholding tax on wages or for a fiche-reporting obligation (except in the event that the benefits are attributed to the results of a permanent establishment) for situations in which payments are granted by foreign companies. Neither the foreign grantor nor the Belgian employer (provided it does not actively intervene) are obliged to report the payment or withhold withholding tax on it. After all, the foreign group company can hardly be subject to an obligation under Belgian law, while the Belgian company cannot be held to withhold withholding tax if it does not intervene in the transaction itself.
Exception to this rule is the stock-option fiche obligation provided for in Article 44 of the Stock Option Act of 26 March 1999. This provision states that if a foreign company grants taxable payments emanating from options, due to or as a result of the professional activity of the beneficiary for the benefit of a Belgian taxpayer (i.e. the Belgian company-employer), this Belgian taxpayer must submit the required individual fiches and summary statements. If this is not the case, the payments are considered abnormal or benevolent and are added to the taxable income of the Belgian company. It is, therefore, important for the Belgian employer to always be aware when stock options are granted from the foreign group company to one of its employees or managers.
Acquired by the beneficiary
In spite of the absence of the withholding tax or fiche obligation, a payment obtained from a foreign group company does, however, constitute taxable income. Taxable remunerations in fiscal matters comprise all remunerations received as a result of, or in connection with, the exercise of the professional activity. The beneficiary must, therefore, declare payments obtained in their personal income tax return (or, if applicable, non-resident tax return). This applies to the remuneration of both employees and company managers. In the past, taxpayers often tried to escape taxation when they were granted RSUs from a foreign company, whether or not they know that collecting the tax correctly is often not a simple matter for the tax authorities. The absence of any fiche-reporting or withholding obligation, combined with the fact that any RSU income is often deposited in a foreign securities account, may lead taxpayers to believe that this income is not subject to taxation in Belgium.
The Belgian tax administration, and in particular the Special Tax Inspectorate, focuses its attention on employees who are granted payments by foreign multinationals as an organised control activity. If the payment obtained is not subject to withholding tax on income from professional activities, the Administration checks whether the benefit has been included in the personal income tax return and, in the absence of this, it will, if necessary, proceed to levying taxes, including increases.
The (draft) regulation
The draft bill aims to introduce a rule whereby from now on, a Belgian company subject to Belgian tax whose employees receive payments from foreign companies affiliated to these taxpayers because of, or in connection with, the exercise of their professional activity, will be deemed to have granted those payments itself. Affiliated companies are those that meet the criteria of Article 11 of the Companies Code. The draft creates a tax fiction that requires the employer of the payment beneficiary to declare the payment on a fiche and summary statement, on the one hand, and to withhold withholding tax on earned income and pay it to the Treasury, on the other. Even if the Belgian employer does not intervene in the transaction (as debtor, depositary, agent or intermediary), it is bound to fulfil these obligations on the basis of the fiction.
The fiche obligation is set to apply to the qualifying remunerations and payments of all kinds granted or made payable during the calendar year 2018. The model fiche to be drawn up by the Finance Minister must be sent electronically to the FPS Finance before 1 March 2019. In the absence, incompleteness or delay of said fiche, a penalty of 10% of the amount of the benefit granted will be due. The fiction relating to withholding tax on wages will, in turn, have to be applied to remunerations granted or made payable as from 1 January 2019. If a taxpayer employed by a Belgian employer receives a payment from his employer's foreign affiliated group company from 1 January 2019 onwards, this Belgian company-employer must withhold and pay the withholding tax.
As the Belgian company does not, in principle, intervene, it will be important to align the internal business policies with the new regulation, so that the employer is always informed of payments granted from abroad so that it can fulfil its notification and withholding obligations.
Although as the law currently stands, there is no obligation to withhold withholding tax on wages and to declare in advance payments obtained from a foreign group company, such payment must always be declared in the personal income tax return. Since the withholding tax is merely an advance on the final income tax, employers can, of course, also withhold the withholding tax voluntarily.
The draft can, therefore, be welcomed by taxpayers who benefit from the advantages that in the past remained unclear whether or not they would be subject to taxation. All benefits will, in future, have to be reported and subject to withholding tax. Those who tried to take advantage of the vagueness of the system of taxability on benefits obtained from abroad will, in turn, no longer be able to rely on their good faith when they receive additional tax on a 'forgotten' undeclared payment. In addition, the draft regulation will remedy the difficulties faced by the tax authorities in correctly collecting the tax on payments made from abroad. Finally, the extension of the fiche obligation means that many more payments obtained must be reported, giving the tax authorities a better overview of the payments on which they must receive withholding taxes on companies.