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Belgium: Clarifications on taxation of cross-border provision of services

Wednesday, 10 September 2014   (0 Comments)
Posted by: Author: Smits Axel
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Authors: Smits Axel and Janssens Pascal (PwC Belgium)

On July 23, 2014, a note has been published, providing more clarity on the recently introduced Belgian catch-all provision for cross-border services.

Based on this provision, Belgian companies are required to retain payroll tax on payments made to non-residents located in a jurisdiction with which Belgium has

i.  not concluded a double tax treaty (‘DTT’) (so-called ‘tax havens’), or 

ii.  concluded a DTT which contains a specific provision that gives Belgium taxing powers as regards certain services, e.g. technical assistance. 

If no DTT applies, Belgian companies are not required to withhold this payroll tax, provided the non-resident is able to demonstrate that this income is effectively taxed (i.e. included in the tax base) in its own state of residence. If a DTT applies and provides for a reduced rate, the payroll tax due is limited to the rate of the DTT.

The note explains that, notwithstanding the broad wording of the law, only payments for services are in scope. Furthermore, the Belgian Tax Authorities introduced a minimum threshold, i.e. no payroll tax should be retained on the first tranche of 38,000 euros (EUR) per non-resident, per year and per Belgian debtor. Finally, the note provides a template certificate to be provided to the non-resident’s tax authorities for getting the confirmation that the income is included in the payee’s taxable basis in order to be eligible for the above mentioned exemption.           

PwC observation: 

This note clarifies some aspects of the catch-all provision regarding the taxation of services provided by non-residents to Belgian companies. In particular, more clarification has been provided on the qualifying services, the relevant amounts and the necessary certificate. We recommend that clients review existing service agreements with vendors to see what vendors are based in countries that could be affected by this payroll tax requirement and to assess the impact of the clarified procedural aspects.

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