In July 2018, the Belgian government proposed new legislation introducing:
- a general income tax reporting obligation for all forms of equity compensation as of January 1, 2018; and
- a general income tax withholding (and reporting) obligation for all forms of equity compensation as of January 1, 2019.
For Belgian subsidiaries of a foreign parent company, such obligations will apply regardless of whether the subsidiary has local involvement (e.g., reimburses the parent for the cost of awards). The impact of the new rules on social security treatment currently is unclear.
To date, the rules with respect to a Belgian employer’s income tax withholding and reporting obligation for equity compensation granted by its foreign parent company have been tricky, mainly due to the lack of specific rules.
For stock options accepted within sixty (60) days after the offer date (and, therefore, taxable at grant), the rules clearly require the Belgian employer to report the grant of such options on an employee's fiscal voucher.
However, income tax withholding obligations and the withholding and reporting obligations with respect to social security contributions for stock options and other forms of equity compensation have been based on general rules. Pursuant to these general rules, a Belgian employer has an income tax and social security withholding and reporting obligation if the Belgian employer is “locally involved”. The concept of “local involvement” typically relates to the existence of a reimbursement arrangement between the Belgian employer and its foreign parent, or other forms of involvement, such as making the actual grants, etc.
Over the last twelve months, the Belgian tax authorities have been auditing an increasing number of taxpayers in respect of this particular matter and the reporting by the employees themselves. The number of audits and tax dawn raids in this particular field is even increasing over the last couple of months, whereby the tax authorities take a very strict position on the notion of "local involvement".
In order to streamline the rules and to ensure that equity income is reported and taxed, the Belgian government reached a political agreement at the end of July 2018 to introduce (i) a general income tax reporting obligation (to be complied with by all Belgian employers with respect to equity compensation grants made by the foreign parent company) for all equity based compensation (e.g., stock options, RSUs, an ESPP, etc.), independent of any facts and circumstances, as of January 1, 2018; and (ii) a general income tax withholding obligation (to be complied with by all Belgian employers with respect to equity based compensation grants made by the foreign parent company) for all equity based compensation (e.g. stock options, RSUs, an ESPP, etc.), independent of any facts and circumstances, as of January 1, 2019.
It is unlikely that the new rules will impact the analysis with respect to social security obligations; however, this remains to be seen.
As the respective draft legislation is not yet available, we will be monitoring further developments. Considering the frequent tax audits on this particular subject , taxpayers may wish to verify their current practice with respect to reporting and withholding in relation to equity based compensation.