Taxation of Employment Income in an International Context

Based on the tax treaties concluded by Belgium, salaries, wages and all other income from employment are taxed in the country of residence, unless the employment is exercised in the other country. In such case, taxation is allocated to the work state, based on the number of days actually worked in that country. The workdays spent in the resident country and third countries remain taxable in the country of residence.

The residency country will however remain entitled to tax the income if the below three conditions are cumulatively fulfilled:

1) The employee is physically present in the other state for no more than 183 days in any 12 months period (or calendar year – this varies from one treaty to another);

2) The salary is paid by, or on behalf of, an employer who is not a resident of the work state (some tax treaties might have a different wording);

3) The salary is not borne by a permanent establishment of the Belgian employer in the other state

To count the 183 days (first condition), some treaties will consider the days of physical presence in the work state, while other treaties will also include the normal interruption of work (for example weekends, holidays,…). All days and part of days are taken into account. It is therefore important that the individual keeps track of his workdays in a calendar.

With respect to the second condition, please note that Belgium (as well as most other jurisdictions) applies the definition of "economic employership". An important element when analyzing the qualification of economic employer is the link of subordination of the employee. Important elements when analyzing the link of subordination are:

a) whether the seconded employee is bound to obey the orders and instructions of the local management;

b) whether he performs such activities under the direction and control of the local management;

c) whether the local management has determined the job content and specific task for the period of secondment;

d) whether he reports on his activities to local management;

e) whether the local affiliate has the right to terminate the secondment;

f) whether the local affiliate bears the responsibility or risk for the activities performed by the employee;

g) whether the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided;

h) whether the local affiliate puts the tools and materials necessary for the work at the individual's disposal;

i) whether the local affiliate determines the number and qualifications of the individuals performing the work;

j) whether the local affiliate has the right to select the individual who will perform the work;

k) whether the local affiliate has the right to impose disciplinary sanctions related to the work of that individual;

l) whether the local affiliate determines the holidays and work schedule of that individual;

In addition, the nature of services is also an important factor when determining whether there is an employment relationship, as an employee is assumed to provide services which are an integral part of the business activities carried on by his employer.

The integration of an employee in the organization of the employer can also be considered as an indicator of dependent services. The integration criterion predominately involves a certain time element.

There is a strong alignment between the above conditions and the OECD guidelines with respect to the notion of employer. The Belgian guidelines however also include the requirement for a recharge of costs towards the Belgian company in order to conclude that a company is the economic employer. A recharge of costs is however a logical consequence in case of integration in the Belgian company and given the nature of the function.

If the company in the other state is considered as (economic) employer, the three conditions indicated above will not be simultaneously fulfilled and the individual will be taxable in the other state for the workdays spent in that state. If on the other hand there is no (economic) employer in the other state, the 183-days rule will be decisive to determine where the income will be taxed in the other state. From the moment the limit of 183 days in the other state is exceeded, the income relating to the workdays spent in that state will be taxable in that state.

The above are general guidelines on the taxation of employment income in an international context and based on the OECD model treaty and commentary which has been used as a basis for many of the tax treaties concluded by Belgium. Any specific case should however be investigated taking into account the applicable tax treaty concluded between Belgian and the other jurisdiction.