In recent administrative guidelines, the Belgian tax authorities have clarified their views on how the so-called “hypotax” arrangements for Belgian tax residents working abroad are to be implemented in practice (Ci.RH.241/598.238 – Aafisc No. 44/2011, 12.09.2011).

In past years, serious discussion had arisen concerning the deductibility for income tax purposes of this hypothetical tax. Although many local tax inspectors considered “hypotax” as part of the salary attributed to an employee – and thus as taxable income in his hands – the Belgian tax authorities have now confirmed that it does not constitute taxable income. As a result, hypotax can be deducted in fixing the employee’s tax base.

In their guidelines, the Belgian tax authorities reiterate that, where an employer pays foreign income taxes that are due, this constitutes taxable income in the employee’s hands. As the foreign tax is deductible, reporting the payment is neutral, but the tax authorities have underlined that they will scrupulously check that foreign taxes have actually been paid.

It should also be borne in mind that this may have consequences on reporting obligations (i.e. salary forms 281.10) if the foreign taxes are borne by a Belgian company.