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19Feb

New Tax Convention Belgium – Netherlands: Belgian Communal Taxes

 

News

The new treaty for the avoidance of double taxation on income between Belgium and the Netherlands, which was signed on 5 June 2001 entered into force on 1 January 2003.

Appreciation

One of the main amendments is the abolition of the frontier worker system. Frontier workers will no longer be taxed in their country of residence but in the country where the employment is carried out. (Official Gazette 20 December 2002)

As commented in our PTX headline of 20 December 2002 (*) the Netherlands have included a unilateral compensation rule in the treaty for their residents, in order to prevent Dutch cross-border workers being fiscally disadvantaged by the application of the new treaty. For residents of Belgium working in the Netherlands the new treaty does not provide any such compensation rule, as in most cases taxation in The Netherlands is more advantageous.

Please also note that Protocol 1 of the new treaty and the Act of 13 December 2002 (Official Gazette 28 December 2002 **) may cause an additional income tax charge for residents of Belgium working and taxable in the Netherlands according to the new treaty. In this respect three scenarios can be distinguished:

- First, frontier workers residing in Belgium and working in the former Dutch frontier zone, will as from 1 January 2003 be taxable in the Netherlands (whereas in the past they were taxable in Belgium) but will continue to pay communal taxes in Belgium on the amount of tax that would be due if the income was not tax exempt in Belgium.
- Secondly, frontier workers residing in Belgium and working in the Netherlands outside the former Dutch frontier zone, will as from 1 January 2003 continue to be taxable in the Netherlands on that income, but they will begin to pay communal taxes in Belgium on the amount of tax that would be due if that income was not tax exempt in Belgium.
- Thirdly, residents of Belgium working simultaneously in Belgium and in the Netherlands (split employment), must as from 1 January 2003 also pay communal taxes on the amount of Belgian income tax that would be due on the income derived from activities performed in the Netherlands, if that income was not tax exempt in Belgium.

(*) http://news.hrconsulting.be?200212201642
(**) http://news.hrconsulting.be?lk200302191

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Posted: February 19th, 2003