Fiscal residency

Recent jurisprudence reconfirms the importance of the correct interpretation and of the substance requirements for the "permanent home" condition.

For several years already, the Belgian tax authorities are reviewing the tax situation of "artificial" set-ups of "frontier workers" schemes. Also recently, the Court of First Instance of Arlon ruled that a person could not qualify as having his "permanent home" in the French frontier zone, since all relevant elements of his personal situation were not consistent and indicated that the person concerned had always kept his "centre of vital interests" in Belgium and therefore could not benefit from the frontier worker status.

The case before the Court of Arlon clearly shows that for proving the actual tax residence or "permanent home", it is not only important to demonstrate that various administrative formalities are complied with , but also that the effective " centre of vital interests", considering both the personal as well as the professional situation, indeed is located in Belgium. The Court stated that all factual elements should be consistent, e.g. phone bills, electricity bills, bills for buying gas or food supplies, etc.

The latter jurisprudence does not only relate to the actual frontier worker status, but is equally relevant for other residency status disputes, certainly in view of the latest wealth tax announcements in France. Migrating to Belgium- to escape French income and wealth taxes - therefore needs to result in the actual transfer of the "centre of vital interests" to Belgium. Often the most difficult obstacle to deal with in order to realize an effective migration to Belgium is the sale or disposal of the family home in France.

Work State

As for the tax residency analysis, the Belgian tax authorities also increasingly submit the criteria for determining the "work state" (article 15 of the OECD Model Convention) to an actual "substance" test, whereby they dedicate more importance to the factual elements of the taxpayer's specific working situation.

As a general rule, employees are taxable in the state where they exercise their employment.
If an employee works both in Belgium and in another state - provided that state signed a Double Tax Treaty with Belgium-, the employee is taxable in both states in accordance with his work performed in each state, as such creating a salary split. In some cases, by applying the so-called 183 days-rule, his income may be attributed solely to his "residence state" provided a.o. that the employee's working days in the other state do not exceed 183 days per year.

In a recent case before the Court of Appeal in Brussels, a Belgian resident claimed such salary split, as he worked partially for a Belgian company - in Belgium - and partially for a Luxembourg company - in Luxembourg.

The Belgian tax authorities - followed by the Court of Appeal of Brussels - disagreed that part of the taxpayer's salary was subject to Luxembourg taxation (and exempted in Belgium) since the employee could not sufficiently prove his actual presence and the actual exercise of his employment in Luxembourg.

This case law demonstrates that it is essential - both for Belgian employees working abroad, as for foreign employees working in Belgium - to demonstrate and collect specific elements of proof regarding their employment outside their residence state, e.g. by travel tickets, restaurant bills, gas tickets, rental payments for hotels, apartments, other types of spending, ...

The latter jurisprudence confirms once more that it does not suffice to dispose only of an employment contract with a foreign company to be able to benefit from a salary split.