Changes in tax and social security obligations affecting Belgian companies for benefits granted by foreign affiliated companies

In internationally structured groups, foreign parent companies often grant benefits, such as restricted stock units, directly to the employees of their Belgian subsidiaries.

Social security

It was generally applied and defended that no Belgian social security contributions were due on such benefits if there was no direct or indirect involvement by the Belgian employer.

However, in its instructions for the 3rd quarter of 2018, the Belgian National Social Security Office has published a new position. It states that a benefit granted by a foreign parent company to the employees of a Belgian subsidiary is subject to social security tax if that benefit is the result of activities performed in execution of the employment agreement or is related to the position the employee holds with the employer.

We are of the opinion that this position is in breach of the law. International groups with cross border benefits plans may need to seek advice on the matter to estimate the risks, consequences and possible actions.

Tax

Before the recent changes, Belgian subsidiaries only had a wage withholding obligation and salary slip reporting obligation when they directly or indirectly involved with respect to benefits granted by the foreign parent company to its employees.

The law has been changed and as a result, the Belgian employer is subject to wage withholding tax and reporting obligations if an individual receives the benefit by reason of or further to his professional activity with the employer. Hence, in practice, if a foreign affiliated company grants a benefit, the Belgian employer is automatically obligated to withhold Belgian wage withholding tax and report the benefit on Belgian tax statements, irrespective of whether the Belgian employer was involved in granting the benefit.

The reporting obligations enter into force for grants made as of January 2019 (salary slips to be issued in 2020), whereas the withholding obligations apply on benefits granted as of March 2019.

A review of benefits plans!

The aforementioned changes imply that Belgian subsidiaries and their parent companies are advised to review their existing or envisaged benefit plans.

They need to assess their obligations under these new rules and have to review the current internal reporting processes, in order to ensure that the Belgian employer is notified of payments granted from abroad.

The payroll process has to be adjusted and companies may have to tackle practical issues such as the wage withholding tax on the benefit in kind exceeding the regular salary in cash.

In case of international employment, it should be taken into account that the new rules only apply to individuals having a professional relationship with the Belgian subsidiary.

Furthermore, the cost of an international plan and the administrative and financial compliance may require reorganisation of such plans and possibly the application of other incentive schemes.

Contact

Katrien Bollen
Email: katrien.bollen@tiberghien.com