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Update on the social security and tax treatment of benefits received by employees in Belgium from worldwide Long-Term Incentive Plans

by An De Reymaeker, International Tax Lawyer & Partner, Vandendijk & Partners Avocats - Advocaten

Background

Most foreign parent companies grant employees in Belgium benefits based on “Long-Term Incentive Plans” (LTI plans), which are implemented worldwide.

Most of these plans foresee, for example, that Restricted Stock Units (RSUs) or Stock Options (SOPs) are granted to employees with the right to receive shares from the parent company (US company or other) at no cost, after a certain period of time and under certain conditions.

Consequently, Belgian employees receive benefits from a third party which were, in principle and under certain conditions, not subject to Belgian social security. However, due to a new interpretation of the definition of “remuneration” by the National Social Security Office (NSSO/RSZ/ONSS) and a recent Supreme Court decision of May 20, 2019, Belgian companies now face higher social security costs with regard to these benefits.

From an income tax perspective, the benefits granted are taxable in Belgium if they are linked with the activities performed in Belgium and, as such, they need to be declared in the personal income tax return of the beneficiary. Since March 1, 2019, withholding taxes need to be paid on these benefits (in accordance with an adaptation of article 270 of the Belgian Income Tax Code), which therefore need to be mentioned on the annual salary statement 281.10 in Belgium (for benefits granted as of January 1, 2019).

Definition of remuneration and new position of the NSSO (RSZ/ONSS)

The definition of “remuneration” on which social security contributions are due is found in article two of the Belgian Social Security Law of April 12, 1965 and is defined as:

  1. the salary or the benefit (in cash or in kind);
  2. to which the employee is entitled;
  3. by virtue of his/her employment;
  4. chargeable to the employer.

These four conditions must all cumulatively be fulfilled in order for salary or a benefit to be subject to Belgian social security contributions.

In September 2018, the NSSO already took a new interpretation of the fourth condition – chargeable to the employer.

Initially, the concept of “chargeable to the employer” (“ten laste van de werkgever/à charge de l’employeur”) could be interpreted in its financial meaning as being “directly or indirectly at the expense of the employer”.

Before the publication of its most recent Administrative Instructions, the NSSO took the position that remuneration is chargeable to the employer “when the employer (even if it does not bear the financial cost of the benefit) is the one the employee could address in case the benefit is not granted”. This position was followed by the Supreme Court in its decision of October 10, 2016.

In its Administrative Instructions for the third quarter 2018, the NSSO changed its position, and it now adopts a broader interpretation of the notion “chargeable to the employer”. It considers that it is sufficient if “the granting of a benefit is the result of activities performed in the execution of the employment contract with the employer or is related to the function the employee holds with the employer”.

As a consequence, a benefit granted by a third party (for example, a US parent company) to a Belgian employee is subject to social security contributions in Belgium even if the Belgian company does not intervene in the granting of this benefit and the benefit is not taken at charge financially (directly or indirectly) by the Belgian employer. The simple fact that the Belgian employee would receive the benefit “by virtue of his/her employment” would be sufficient. This position was based on a decision of the Brussels Labor Court of Appeals of March 7, 2018, against which an appeal was lodged.

Recent court case of the Supreme Court of May 20, 2019

A recent Supreme Court case confirmed the decision of the Labor Court of Appeals. As a result, it was ruled that if an employee receives a benefit related to work performed in Belgium, the benefit is considered to be “chargeable” to the employer, even if it is at the expense of a third party.

This decision has an impact on the benefits granted by a foreign parent company to employees of a Belgian subsidiary (or a Belgian company which is part of the same group entity), if they receive these benefits for the work performed in Belgium (even if the Belgian employer does not intervene in any way whatsoever). In that case, the benefits will be subject to Belgian social security contributions.

Recommendations from AmCham Belgium

As employers’ social security contributions (+/- 27% on top of the gross amount) are very high and also currently uncapped in Belgium, this decision further increases the cost of employment, which is already too high in Belgium.

Therefore, AmCham Belgium urges the next government to consider reintroducing a cap on the employer social security contributions, which is in line with neighboring countries (see position paper dated February 18, 2019 and #PPB19). In addition, a reform of the personal income tax code, by i.a. lowering the tax rates, would allow Belgium to be more competitive.

About the author

An De Reymaeker

An De Reymaeker is an International Tax Lawyer and Partner at the Law Firm Vandendijk & Partners. She is specialized in personal taxation in an international context.  A member of AmCham Belgium’s Legal & Taxation Committee for many years, she is also, since December 2017, Chair of the Employee Tax Subcommittee.

About the Employee Tax Subcommittee

The Employee Tax Subcommittee focuses on personal taxes and social security issues which are related to international employment and drafts recommendations through position papers to advocate with Belgian government officials and political decision-makers. Contact Sue Wheeler (swheeler@amcham.be) if you'd like to get involved.

 

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