New tax withholding and reporting requirements for foreign sourced income (such as foreign parent equity awards) have been approved in Belgium.
As of March 1, 2019, Belgian employers must withhold payroll taxes on any remuneration paid to their employees by associated companies that are not located in Belgium. This will impact equity awards granted by a foreign parent company to the employees of its Belgian entities. The withholding obligation will apply regardless of whether the local entity is involved in granting the awards either financially or administratively. It is sufficient to trigger the withholding requirement if the award is granted by virtue of the grantee’s activity for the Belgian employer.
In addition, as of January 1, 2019, Belgian employers will be required to report foreign source remuneration on the tax payslip (“fiche”) of the Belgian employees. The Belgian tax authorities will use this information to verify the income included by the employees on their annual tax return. Recent audits by the Belgian Special Tax Inspection Unit have shown that a large number of employees have not declared their foreign equity awards. The new rules will cut down on this practice. A tax payslip for 2019 income should be filed electronically by March 1, 2020 at the latest.
In order to comply with the new withholding and reporting requirements, the Belgian employers will need to receive timely information from the parent company regarding the grant, vesting and exercise of equity awards granted to Belgian employees. We are advising our clients to review their equity administration processes to ensure that their Belgian entities have the information necessary to comply with the new rules.
Finally, foreign parent companies may want to notify Belgian employees of the changes so that they are prepared for the resulting withholding and reporting on equity income.