Belgium* R&D tax incentives

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1 PwC Report Belgium* R&D tax incentives December 2008 Gerard Cops Tina Boullart Dimitri Lemaire PricewaterhouseCoopers Tax Consultants Woluwedal B-1932 Sint-Stevens-Woluwe Belgium

2 Foreword Introduction Belgium actively promotes Research and Development ( R&D ) activities. In order to strengthen the competitiveness of companies with existing R&D activities in Belgium and to attract new R&D investments, Belgium has introduced innovative tax measures. The recent introduction of the Patent Income Deduction (80% exemption of gross patent income) and the new rules on partial Payroll Withholding Tax relief for researchers (65% remittance exemption for professional withholding tax) are just a few examples of such innovative tax measures. How can we assist you? PricewaterhouseCoopers developed an integrated approach: 1. to screen your existing R&D operations or investment plans; 2. to map the applicable R&D tax benefits; 3. to simulate the financial impact for your company; 4. to assist you in implementing the R&D incentives; 5. to upfront rule the tax benefits with the Ruling Office. Please do not hesitate to discuss how we can assist you in tax optimizing your R&D projects. This report highlights the key corporate tax and employment related tax incentives. Corporate tax incentives Screen Map Implement Monitor In-house R&D investment deduction Patent Income Deduction Notional Interest Deduction Other corporate tax benefits Employment-related incentives Payroll Withholding Tax incentive Expatriate tax status for executives and researchers Home country social security This new R&D tax scene - together with its human capital makes Belgium an appealing location for locating or expanding R&D centers. For a company with existing R&D activities in Belgium the key question is whether it has optimized its use of R&D tax incentives. Contact information: Gerard Cops, Director, International Tax Services , gerard.cops@pwc.be Tina Boullart, Senior Consultant, International Tax Services , tina.boullart@pwc.be Dimitri Lemaire, Consultant, International Tax Services , dimitri.lemaire@pwc.be 2

3 Executive summary Subject Type Description Eligibility R&D center owning the IP rights Contract R&D center Corporate Tax Incentives Employmentrelated incentives R&D investment deduction R&D Tax credit Patent Income Deduction (R&D center acting in its own name and on its own behalf, owning the developed IP) (R&D center acting on behalf of another party) 13.5% one-shot / 20.5% spread investment deduction for new R&D Center investments in addition to normal tax depreciation 80% tax exemption of patent income for patents and supplementary protection certificates developed or further improved by a Belgian company or branch via a R&D center Notional Interest Deduction Notional Interest Deduction for equity (Belgian GAAP share capital and retained earnings) invested in the Belgian company or branch (FY31/12/2008: 4,307%) Other tax benefits Partial Withholding Tax exemption Expatriate tax Status Home country social security - Advance Tax Ruling - Foreign Tax Credit - Dividend withholding tax exemption - Exemption from capital duty 65% payroll withholding tax remittance exemption for qualifying researchers Special tax treatment for foreign executives and researchers temporarily assigned to Belgium (nonresident tax status, business travel exclusion, tax-free allowances) Possibility for foreign individuals temporarily assigned to Belgium to remain under the home country social security system by virtue of Totalization Agreements or the EC Regulation (1408/71) 3

4 Belgium* R&D tax incentives Corporate tax incentives 1. In-house R&D Investment Deduction 4

5 Corporate tax incentives In-house R&D investment deduction Introduction to the regime Belgian tax law provides the opportunity to benefit from a special investment deduction for investments in research and development of new products and forward-looking technologies that are environment friendly (not harming the environment). The investment deduction creates the possibility for taxpayers to claim a tax deduction - in addition to the normal tax depreciations - when making qualifying R&D investments. The fixed assets for which the investment deduction can be claimed include: new tangible and intangible fixed assets used for in-house R&D purposes; and the newly developed intangible fixed assets resulting from the inhouse R&D activities on the condition that they are capitalized and amortized. As an alternative to the R&D investment deduction, the company can apply for an R&D tax credit in an amount equal to the tax benefit resulting from the R&D investment deduction. In order to qualify for the R&D investment deduction or tax credit, certain conditions and formalities need to be fulfilled. The benefits of the increased investment deduction can be ruled in advance with the Belgian tax authorities and the regional authorities. Two types of R&D investment deduction The R&D investment deduction can be calculated on either the acquisition value (which will result in a one-shot-deduction), or on the yearly amortizations (which will result in a spread deduction). One-shot R&D investment deduction The one-shot investment deduction is calculated as a percentage of the acquisition value of the asset. For Tax Year 2009 the one-shot deduction amounts to 13,50% of the acquisition value. Spread R&D investment deduction The applicable rate amounts to 20,50% of the annual amortisation applied to the assets (Tax Year 2009). In years where the market interest rate is low, the spread investment deduction generally provides a higher tax benefit than the one-shot investment deduction. Remark: Besides R&D investment deductions, a similar one-shot investment deduction exists for, e.g.: Patents: 13,50% Energy-saving investments: 13,50% Investments in recyclable packaging: 3,00% These are not eligible for the spread investment deduction. 5

6 Corporate tax incentives In-house R&D investment deduction Qualifying R&D investments There are 3 types of qualifying investments: Tangible fixed assets used in in-house R&D activities Newly acquired or in-house produced tangible fixed assets that are used by the company or establishment in its R&D center. Acquired intangible fixed assets used in in-house R&D Newly acquired research & development, licenses and know-how and other intangible fixed assets that are used by the company in its R&D center. In-house developed intangible fixed assets The intangible fixed assets that result from the R&D activities in the in-house R&D center. It only includes those R&D development costs that can be capitalized as intangible fixed assets according to the Belgian accounting law. Note that the depreciation costs of the tangible and intangible fixed assets used in the R&D should be excluded from the intangible fixed asset basis for calculating increased investment deduction (in order to avoid a double deduction). The assets should be used for R&D purposes until fully depreciated for tax purposes (otherwise, there would be a partial loss of the benefit). Conditions A distinction can be made between conditions which apply to all categories of investment deduction and the specific additional requirements for R&D investment deduction. General conditions The assets must be fixed assets and amortizable over a period of at least 3 years. It must concern new assets. They can be either acquired from a third party or be self developed. The assets must be exclusively used for professional purposes in Belgium. They can be tangible or intangible. In respect of tangible assets, investments are considered new when they are never used before, neither in Belgium or in another country. In respect of intangible assets, the investments may not have been used in Belgium before. Excluded are: - Assets from which the right to use is transferred to a third party (e.g. via leasing, license, long lease, rental or any other agreement); - Cars (except taxicabs and cars used by driving schools); - Ancillary costs that are not depreciated over the same period as the fixed assets to which they relate. The investments or amortizations on which the investment deduction is calculated and the investment deduction itself, should take place in the same taxable period. 6

7 Corporate tax incentives In-house R&D investment deduction Specific conditions for R&D investment deduction (i) R&D center Branch of activity R&D investments should be made through an internal R&D center that qualifies as a branch of activity (a few exceptions exist): separate branch of activity (cf. article 46 BITC); with separate accounts (e.g. based on Activity Based Costing); universality of goods that is able to operate autonomously; assets are only eligible to the extent that they do not exceed the normal limit necessary for the operation of the R&D center. Alternatively, also the following investments not made through an R&D center comply with the innovative requirement : Investments for which a relief is granted by a certain authority; Specific innovative investments such as the development / improvement of new production techniques, new production processes, new equipment, new products or raw material, the development of prototypes and the purchase of special measurement instruments; Under specific circumstances, when the investments are recognized as necessary for the accomplishment of the realization of an R&D program. (ii) Forward looking technologies that are environment friendly R&D investments should be made with an aim of developing new products and forward-looking technologies not harming the environment or the purpose of which is to reduce environmental damage as much as possible. This requirement is interpreted broadly and is easy to fulfil. Other conditions The assets should be kept and used for the same purposes by the requestor of the investment deduction during their entire depreciation period. There will be a tax correction for years during which this condition is no longer observed (e.g. disposal of assets). Formalities to be fulfilled Submit application form 275U together with the corporate income tax return, including the following details: acquisition date, acquisition value, denomination and useful lifetime of the investment. A separate file must be kept by the company for each type of assets for which an investment deduction is calculated. The following documents should be added to the corporate income tax return in order to substantiate the form 275U: - An explanatory note giving a description of the category to which the tangible assets belong; - A certificate confirming the innovative and environmental friendly character of the development. This certificate is to be issued by the competent office belonging to the Region in which the company is located. It must be applied for within 3 months as from the last day of the taxable period. Compliance with all environmental permits will be reviewed upon request of such certificate; - Specific details depending on the category to which the assets belong. 7

8 Corporate tax incentives In-house R&D investment deduction Capitalization of internally developed intangible assets In order to qualify for the investment deduction, the in-house developed intangible assets must be capitalized as intangible fixed assets. Belgian tax law does not specifically address the issue of capitalization of in-house developed intangible assets. It refers to the accounting law for the definition of intangible fixed assets. In general terms, in-house development of intangible assets can only be capitalized, if following conditions are met: the amount capitalized does not exceed a prudent estimate of its usefulness or its contribution to the future profitability of the company; the asset is clearly defined and individualized; the costs attributable to the product or process can be separately identified and measured reliably; the technical feasibility of the project is demonstrated; adequate resources must exist to complete the development project. For accounting purposes, these intangible fixed assets should be depreciated over maximum 5 years. For tax purposes, these assets should be depreciated on linear basis, spread over: Therefore, the accounting and the tax depreciation do not need to match. It is even possible to fully depreciate the intangible fixed assets for accounting purposes in the year in which they are capitalized, whilst for tax purposes the depreciation is spread over minimum 3 respectively 5 years. Alternative - R&D tax credit As an alternative for the R&D investment deduction or the patent investment deduction, the company could opt for a tax credit for which the advantage given corresponds to the advantage of the investment deduction. However, as it is a tax credit, the computation will differ and will be shown differently in the tax return. The investment deduction implies a deduction of the taxable basis, while the tax credit is a reduction of the tax due. A key advantage of the R&D tax credit is that it is refundable when it has not been deducted for five subsequent fiscal years. The amount of the tax credit should be deducted from the basis of the Notional Interest Deduction. minimum 3 years in case the assets qualify as R&D; minimum 5 years in case the assets qualify as concessions, patents, licenses, know-how, trademarks or similar rights. 8

9 Corporate tax incentives In-house R&D investment deduction Hypothetical example: In-house-developed Intangible Fixed Assets 9

10 Belgium* R&D tax incentives Corporate tax incentives 2. Patent Income Deduction 10

11 Corporate tax incentives Patent Income Deduction (PID) Introduction to the regime Belgium introduced an innovative tax measure, the Patent Income Deduction ( PID ). It allows to deduct as an extra tax deduction in the tax return - 80% of qualifying gross patent income. Therefore, only 20% of gross patent income will be taxable at the normal corporate tax rate, resulting in an effective tax rate of maximum 6,8%. The measure aims at encouraging Belgian companies and branches to play an active role in patent R&D and patent ownership. Qualifying taxpayers Corporate taxpayers in Belgium that are involved in the development or further improvement of patents through an inhouse R&D center are eligible for the PID. They include both Belgian companies and Belgian permanent establishments ( PE ) of foreign companies. They must be the owner, licensee, or usufruct holder of the patents for which they would like to claim the benefits of the PID. To benefit from the PID, the R&D center should qualify as a socalled "branch of activity or line of business. In essence, it should be a division of an entity that is capable of operating autonomously. The Belgian company or branch should have relevant substance to perform and supervise research and development activities, but may use subcontractors, related or unrelated, in its development of the patents or extended patent certificates. The law specifically provides that the R&D center can be located outside Belgium (but belonging to the Belgian legal entity). Remark: Belgian companies or PE s acting as contract R&D service providers on behalf of another company cannot qualify because they are not the owner, usufruct holder or licensee of the patent. Qualifying patents The PID applies in 2 situations: Patents or supplementary protection certificates owned by a Belgian company or establishment as a result of its own patentdevelopment activities (partly or fully) in an R&D center in Belgium or abroad; Patents or supplementary protection certificates acquired by a Belgian company or establishment from a related or unrelated party in full ownership, joint ownership, usufruct, or via license agreement - provided it has further improved the patented products or processes in the company s R&D center in Belgium or abroad. Other Intellectual Property ( IP ) - such as copyrights, know-how, designs, trade or marketing intangibles - are not eligible for the Belgian Patent Income Deduction. The Belgian company or establishment can license the patents to other parties. Alternatively, it can use the patents owned by it or licensed to it to manufacture and supply patented products or services. 11

12 Corporate tax incentives Patent Income Deduction (PID) Qualifying patent income Patent income includes both: Patent license income The PID applies to variable and fixed patent license fees. This includes royalties, advance payments, milestone payments. If the license agreement and the license payment do not only cover patents, but also to other IP rights (e.g. trademarks, brands or know-how), only the portion that relates to patents is eligible for the PID. Patent remuneration embedded in the sales price of goods or services Remarks: The PID also applies to the compensation for patents that is embedded in the sales revenue for the supply of products or services by the company. The PID does not apply to capital gains upon transfer of the patent. PID is not applicable to patent income attributable to foreign PE s of the Belgian company or the foreign head office of a Belgian PE. Calculating the PID The PID is an additional tax deduction in the corporate income tax return. It is calculated as 80% of the qualifying gross patent income. The PID reduces the effective tax burden on the patent income to maximum 6,8% (1/5 of the Belgian statutory rate) since only 20% of the patent income would be effectively taxable at the Belgian statutory corporate tax rate of 33,99%. Due to the normal tax deduction of business expenses and other tax incentives (e.g. Notional Interest Deduction and investment deduction), the effective tax rate can even be substantially lower than 6,8%. Remarks: The PID applies in addition to the normal tax deductibility of all the R&D related and other business expenses, e.g.: salary costs, R&D infrastructure costs, license fees and amortization costs, patent exploitation costs, patent registration duties, other operating or finance expenses. For patents acquired via purchase, contribution, usufruct arrangement or a license, the PID basis is reduced by: - The license fees due by the taxpayer for obtaining a licensee right in the patents; and - The amortization applied to the acquisition or contribution value of the patents acquired via the purchase, contribution or an usufruct agreement. For the purpose of the PID calculation, the patent income cannot exceed an arm s length patent income level. 12

13 Corporate tax incentives Patent Income Deduction (PID) Other features In the tax return, the PID is applied prior to the Notional Interest Deduction and the deduction of carry forward tax losses. Excess PID cannot be carried forward. The excess PID is definitively lost. Foreign Tax Credit ( FTC, FBB / QFIE) available in Belgium for foreign withholding tax on patent royalty income. FTC can only be offset against the amount of the Belgian corporate income tax due on the qualifying patent income. Any excess FTC cannot be carried forward or reimbursed. Entry into force Formalities to be fulfilled Only minor compliance formalities apply. The taxpayer should submit a special application form together with the corporate income tax return. Advance Tax Ruling To ascertain the eligibility of a project for the PID and the correct application principles (e.g. qualifying patents, definition of patent income, arm s length nature of the patent income, other), it is possible and often recommended to apply for an advance tax ruling. The PID tax is applicable as from Tax Year 2008 (financial years ending on or after December 31, 2007). PID only applies to patent revenues that relate to patents that have not been used by the company, a licensee or related companies for the supply of goods or services to independent third parties before January 1, PID is not applicable to patent applications or expired patents. 13

14 Corporate tax incentives Patent Income Deduction (PID) Schematic example Initial developer License / Sale / Contribution Patent Company - Belgium - Patent license income or Affiliates Service (cost-plus) Contract developer Supply of goods or Tolling Contract manufacturer Sale of patent-based products 80% of gross patent income is tax exempt 3 rd parties 14

15 Corporate tax incentives Patent Income Deduction (PID) Hypothetical example 15

16 Belgium* R&D tax incentives Corporate tax incentives 3. Notional Interest Deduction 16

17 Corporate tax incentives Notional Interest Deduction (NID) Introduction All Belgian companies and permanent establishments (few exceptions) benefit from the Notional Interest Deduction ( NID ). NID is a general tax measure that aims at reducing the discrimination between equity-financing and debt-financing. The measure permits Belgian tax-resident companies and Belgian branches of non-resident companies to claim a tax deduction for their cost of capital by allowing them to deduct a notional interest at a rate calculated on the aggregate amount of their (adjusted) Belgian GAAP equity. The NID is available regardless of a company or branch s activity, size, multinational character, nature or source of income (thus, there is no "selectivity"), thereby assuring compliance with the European Union's State Aid rules. The benefits of the NID are automatic: the NID is a tax deduction in the Belgian corporate income tax return for which no advance ruling is required. The NID enables R&D or IP holding companies to further reduce their effective tax rate ( ETR ) on R&D income, and applies in addition to any R&D tax incentives. Calculation of the NID The NID is calculated by multiplying: NID base: - The NID is based on the company s share capital, share premium and retained earnings, as determined for Belgian GAAP purposes; - Adjustments are necessary in order to avoid double counting and abuse. For example, the fiscal net value of investments in shares, qualifying as financial fixed assets, or foreign branch equity needs to be deducted from the starting basis. NID rate: - The NID rate is fixed annually, based on the prior year's average of the 10-year Belgium Government bond interest rate. The NID rate is published in the Belgian Official Gazette at the start of the calendar year; - For Tax Year 2009 (financial years ending December 31, 2008 or later), the NID rate is set at 4.307%. Return on Equity 4.3% 6.0% 8.0% 12.0% Notional Interest Deduction (FY 31/12/2008) (4.3%) (4.3%) (4.3%) (4.3%) Taxable return on equity 0.0% 1.7% 3.7% 7.7% Nominal tax rate (rounded) 34% 34% 34% 34% Belgian ETR (excluding PID or other tax benefits) 0.0% 9.6% 15.7% 21.8% 17

18 Belgium* R&D tax incentives Corporate tax incentives 4. Other corporate tax benefits 18

19 Corporate tax incentives Other Belgian corporate tax benefits Advance Tax Ruling An autonomous Ruling Office was created within the central tax administration where the taxpayer can obtain unilateral or multilateral advance tax rulings on transactions or situations on almost all tax subjects (including income tax maters, transfer pricing, indirect taxes, registration duties). The ruling practice allows taxpayers to obtain advance legal certainty on the tax positions, before executing a contemplated investment, transaction, or reorganization. Pre-filing meetings can be organized with the Ruling Office on a "name" or "no-name" basis. Currently, over 600 formal tax rulings are issued on an annual basis. Unilateral rulings (only involving the Belgian tax administration) are generally issued within 2 to 4 months after submission. Most ruling decisions are positive. In the context of a new international regulatory scene (e.g. FIN-48 and other corporate governance rules), the new Belgian ruling practice is a useful instrument for tax planning and tax risk management, thereby increasing Belgium's attractiveness. Several advance tax rulings have been issued regarding R&D, e.g.: - Arm s length Transfer Pricing, e.g. cost-plus rulings for contract R&D services - Confirmation of eligibility for the R&D investment deduction - Confirmation of eligibility for the Patent Income Deduction - Confirmation of eligibility for employment-related tax incentives Foreign Tax Credit In order to avoid double taxation on foreign-source royalty income, Belgian companies and establishments are entitled to a foreign tax credit ( FTC ) to offset foreign royalty withholding tax ( WHT ) paid abroad, where: the royalty income has been subject to an actual WHT charge abroad; and the beneficiary uses the royalty-generating asset in Belgium for business purposes, i.e. the royalty income is subject to taxation in Belgium. Benefits: Except in case of royalty income eligible for the patent income deduction, the FTC is equal to 15/85 of the net frontier amount of the royalty (i.e. after deduction of foreign WHT), regardless of the actual WHT rate in the source country. Except in case of royalty income eligible for the patent income deduction, the 15/85 fraction applies even if the WHT is less than 15%, other than where an exemption applies in the source country. The flat-rate FTC can therefore be tax-beneficial in the hands of a Belgian recipient of the royalty, without tax losses, where the FTC claimed in Belgium exceeds the actual WHT levied in the source state. 19

20 Corporate tax incentives Other Belgian corporate tax benefits Exemption from dividend withholding tax Belgium abolished dividend withholding tax for dividends paid to corporate shareholders in treaty countries. The exemption is available provided the beneficiary of the dividends meets the following conditions: - it is a corporation that is resident in a treaty country; - it holds a participation of at least 15% in the Belgian company during an uninterrupted period of 12 months; - it is normally subject to tax in its country of residence; - it has a legal form that is similar to the legal forms enumerated in the EU Parent-Subsidiary Directive; - Belgium and the country in which the recipient company is established have concluded a double tax treaty that provides for a sufficient exchange of information provision. Hence, if meeting the above conditions, R&D companies can distribute dividends free from withholding tax. Exemption from capital duty Capital contributions upon both, incorporation and capital increase are free from any capital duty. This means that a Belgian R&D company can be set up at a limited cost. Intellectual Property and other assets can be contributed to the Belgian company exempt from capital duty. Spread taxation of Capital Gains Capital gains on qualifying fixed assets can be subject to a deferred and spread taxation, provided that the proceeds of the transfer are fully reinvested in qualifying depreciable assets within a certain period of time (generally 3 years; 5 years for reinvestments in real estate). The taxation of the net capital gain will then be spread over the depreciation period of the reinvestment asset. Certain conditions apply. Access to Belgium Treaty network and EU-Directives Belgian companies and establishments have access to the EU- Directives and an extensive network of Double Tax Treaties signed by Belgium. Non tax related The three regions in Belgium (Flanders, Wallonia and Brussels) provide for specific regional grants, which can be applied for by companies on an ad hoc basis to subsidize individual R&D projects. 20

21 Belgium* R&D tax incentives Employment-related tax incentives 1. Payroll Withholding Tax incentive 21

22 Employment-related tax incentives Payroll Withholding Tax incentive Introduction to the regime As from July 1, 2008, 65% of the payroll withholding tax ( WHT ) withheld for remunerations attributed by a Belgian company or establishment to qualifying researchers does not need to be remitted to the Belgian Tax Revenue provided that the researchers are employed in research and development programs and do have a qualifying degree. On the other hand, for the employee s personal tax liability, the Belgian Tax Revenue considers that the payroll withholding tax amount was entirely withheld. In order to benefit from the partial withholding tax exemption, specific formalities must be fulfilled. Conditions Qualifying R&D programs The R&D payroll withholding tax incentive only applies to employees involved in a Research and Development program : Research: the innovative and planned research in view of acquiring new scientific and technical knowledge and insights; Development: the application of knowledge acquired by research or other means, leading to a plan or design for the production of new or substantially improved materials, machines, products, processes, systems or services preceding the commercialization. Qualifying education The researchers should have a qualifying Masters degree or equivalent. The researcher should hold a Masters degree* or equivalent degree in the fields of: Flanders community degrees: - Sciences - Applied sciences - Applied sciences in biology - Medical sciences - Veterinary medicines - Pharmaceutical sciences - Bio-medical sciences - Industrial, technical or medical sciences - Bio-technology - Architecture - Product development French Community degrees: - Sciences - Sciences in Engineering - Agronomical and biological engineering - Medical sciences - Veterinary sciences - Bio-medical and pharmaceutical sciences - Architecture - Industrial sciences - Industrial and agronomical sciences (*) If the company qualifies as a Young Innovative Company, the partial WHT remittance exemption would also apply to scientific personnel with a Bachelor degree 22

23 Employment-related tax incentives Payroll Withholding Tax incentive Formalities The formalities to be fulfilled are rather limited: Two separate professional WHT returns should be filed: 1. A first one for the salaries of all employees; 2. A second one for the salaries of the employees for which the partial WHT remittance exemption is requested. To justify the partial WHT remittance exemption claimed via this second professional WHT return, the employer should have documents available substantiating: Hypothetical example For illustrative purposes, please find hereafter an example of the calculation and possible impact of this incentive in practice: Say that the company has an R&D center in Belgium where 20 qualifying researchers are employed. For the purpose of illustration, we have assumed 3 hypothetical salary categories. Following amounts of WHT tax and the exemptions thereon will apply (see table)*: - The effective employment of the researchers within an R&D program; and - The fact that the employees belong to the scientific personnel and hold qualifying educational degrees. Category Number of qualifying employees Annual gross professional income WHT to be withheld Exemption from WHT remittance per employee per category per employee per category per employee per category Category Category Category Totals Total saving: / year (*) Rounded figures, based on certain assumptions 23

24 Belgium* R&D tax incentives Employment-related tax incentives 2. Expatriate tax status for researchers 24

25 Employment-related tax incentives Special expatriate tax status for researchers Introduction Belgium has an attractive special tax regime for foreign executives and researchers temporarily working in Belgium. It offers significant tax benefits and decreases the cost of employing foreign executives and researchers in Belgium. The benefits can be combined with the partial withholding tax relief. Benefits 1. The individual is deemed to be a non-resident for Belgian income tax purposes. His/her personal income of non-belgian source (interest, dividends, real estate income) is not taxable in Belgium. 2. Certain expatriate allowances or expense reimbursements are taxexempt: Non-recurring expenses (such as moving costs, settling-in costs) are not subject to Belgian income tax, without any ceiling, provided certain conditions are fulfilled; Recurring allowances or expenses paid during the employment (such as cost of living differential, housing differential, tax equalization payments, annual home leave) are in principle tax exempt subject to a ceiling of EUR or EUR The higher ceiling of EUR is applicable for activities of a controlling or coordinating nature or for scientific research. School fees paid or reimbursed by the company are not considered as taxable income (without any ceiling), if conditions are fulfilled. 3. Remuneration relating to the days worked outside of Belgium is not taxable in Belgium (so-called travel exclusion ). The employment income is only taxable to the extent that it relates to activities in Belgium. 4. Expatriate allowances or expense reimbursements are not subject to Belgian employer and employee social security contributions (specific conditions apply). Conditions: The employing company should be either a Belgian company or branch that is part of an international group, or should be a scientific research center. The individual should be a foreign national. The employee should be an executive or researcher requiring special knowledge, responsibilities or expertise. The employment in Belgium should have a temporary nature. The individual should demonstrate that he or she has maintained personal and economic ties abroad. The individual has been assigned to Belgium by a foreign group company or has been recruited directly from abroad. Formalities An application for the expatriate regime should be filed with the Belgian tax authorities. The application should be filed within six months starting from the first day of the month following the month of the start of the employment or secondment in Belgium. 25

26 Belgium* R&D tax incentives Employment-related tax incentives 3. Home country social security 26

27 Employment-related tax incentives Home country social security In principle, an individual is subject to the social security scheme of the country where he/she works. An exception is, however, provided within the framework of secondments. Pursuant to the social security agreement (so-called Totalization Agreements) concluded between Belgium and key trading partners (e.g. U.S., Japan, other) or the EC Directive (1408/71), a foreign individual, who works for a company with an establishment in the home country and who is temporarily seconded to Belgium can remain, together with his family, subject to the home country social security system if specific conditions are fulfilled. As such, when such conditions and relating formalities are complied with, no social security obligations will arise in Belgium. 27

28 Disclaimer This presentation does not provide a comprehensive or complete statement of the taxation law of Belgium. It does neither cover the taxation principles of any other country referred to in this presentation. It is intended only to highlight general issues which may be of interest to our clients. For issues relating to this planning document please contact your local international tax services advisors or the specialist listed in this document. This document has been prepared for general guidance only, and does not constitute professional advice. You should not act upon the information contained in this memo without obtaining specific professional advice. The materials contained in this presentation were assembled in December 2008 and were based on the law enforceable and information available at that time. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Tax Consultants bcvba, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers Tax Consultants bcvba. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers Tax Consultants bcvba in Belgium or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. 28