To attract new talent and retain key staff, companies in Belgium that are part of an international group may put in place compensation incentives that are linked to the performance of the company. These include stock options, restricted stock units and free shares. In many cases, the incentives are directly granted by a foreign company of the group and not by a Belgian entity.
The practical process of the grant and payments could make it so that tax reporting and withholding of Belgian wage taxes on such incentives was not compulsory. More specifically, under existing rules, the reporting and/or withholding obligations were only triggered when the incentive met strict conditions to be regarded as ‘stock options’ from a Belgian tax law perspective or when a Belgian entity actively intervened in the grant.
This rule resulted in a generally low visibility of this type of incentive, sometimes even for the taxpayers themselves who were likely to omit reporting them in their annual tax return.
New reporting and withholding obligation
New tax law was introduced in February 2019 that provides new reporting and withholding obligations. Going forward, employees who receive remuneration from a foreign company will be deemed to have received this from the Belgian company.
The Belgian employer is required to declare the remuneration and withhold wage tax on the earned income. The employer is also required to pay the taxes to the Treasury (withholding obligation). As a result, even if the Belgian employer is not involved in the incentive compensation transaction, it must now fulfil reporting and withholding obligations.
When does it enter into force?
The reporting obligation was initially intended to enter into force retroactively on remuneration earned in 2018 and withholding obligation on remuneration earned in 2019. The final version of the law is applicable to remuneration from 1 January 2019 and from 1 March 2019 for withholding obligation purposes.
Reporting remunerations granted between 1 January 2019 and 28 February 2019 will need to be filed by 1 March 2020 because of this new law. Penalties of 10% of the taxable amount may apply in the absence of, incomplete or delayed payments.
All taxable benefits obtained from a foreign affiliated company as from 1 March 2019 will need to be reported on the 2019 salary statement and wage taxes must be withheld and paid by the Belgian employing entity.
Pre-existing incentive plans may be impacted by the new obligations and Belgian companies should proactively review ahead of future vesting dates. If you would like to discuss any of the areas raised in this article, please contact:
Grant Thornton Belgium
T +32 71 82 25 94