Belgium has a specific tax regime for stock options that can result in the taxation of a benefit in kind upon free grant of the option and subsequent relief of any gain upon exercise or sale. The law is clear when the options are granted by a Belgian employer. Until recently, though, there was some uncertainty where the options were granted by a foreign company that was not the employer.
What has changed?
In the framework of its summer 2018 budget summary, the Belgian government decided to strengthen the rules for stock options (and other benefits in kind) received by the Belgian workers of a Belgian entity which is part of an international group, where such workers receive the grant from a foreign company in the same group. This would include the situation where stock options are granted by the parent company of a Belgian subsidiary.
As of 1 January 2018, the Belgian entity will be responsible for the filing of tax forms if its workers receive, in a direct or indirect manner, stock options or other benefits in kind from a foreign company in the same group. In practice, this means that the Belgian entity will have to consider the amount of the received benefit in kind when preparing its monthly pay slips and annual tax forms.
Osborne Clarke comment
The new rule illustrates the current trend for states to expand the scope of monitoring tax information concerning their taxpayers, including where it originates outside their borders.
This obligation is challenging to comply with because stock option plans are sometimes managed abroad and in a discretionary manner by multinational headquarters, without the systematic or timely flow of information to the Belgian entity (in particular if the benefit in kind is not re-invoiced to the Belgian entity). However, if the Belgian entity fails to set up the necessary tax forms, it may be subject to tax sanctions and the benefit in kind will be treated as a taxable benefit of the company (in the form of an abnormal or gratuitous benefit).
Groups should therefore enhance the flow of information between Belgian entities and their foreign affiliated companies in order to prevent adverse tax consequences, including for stock options.
As of 1 January 2019, Belgian entities will also have to withhold the payroll tax due on the stock options or other benefits in kind received by their workers from a foreign company of the same group. The Belgian entity of the group will have to report and pay this payroll tax within 15 days of the grant of stock options or a benefit in kind.
Again, this will only be possible if the Belgian entity is fully informed of the benefit in kind granted to its workers. Furthermore, this new obligation could lead to cash flow problems for workers as the payroll tax will have to be withheld on the workers' gross remuneration, with the effect that the taxes owing could possibly exceed the ordinary monthly net remuneration.
If you would like to discuss how you can mitigate these cash flow problems, please contact one of the experts listed below.