Belgium and China have made some changes to their double tax treaty currently in force.
Although it still needs to be confirmed by law, the new treaty includes amongst others the application of Belgian communal taxes on income already taxed in China (art. 23). Of course, Belgian communal taxes only apply insofar as the employee working in China still qualifies as a Belgian tax resident. Hence, even though entirely taxed in China, Belgian (communal) taxes remain due.
Changes have also been made to applicable rules for determining when a permanent establishment of a foreign company arises in Belgium for tax purposes. Whereas under the old treaty, reference was made to a service period of at least six months within a twelve-month period, the new treaty refers to a period or periods aggregating more than 183 days within a twelve-month period (art. 5).
The purpose is to apply the same “time” condition as used in the treaty with respect to the taxation in Belgium of foreign employees as a result of them “being present in Belgium during a period or periods aggregating more than 183 days within a twelve month period” (art. 15).
The treaty also increases the reference period from six to twelve months in order to identify a permanent establishment for construction work (art. 5). However, Belgium can only effectively tax profits attributable to a Belgian establishment insofar as, tax treaty wise, a “permanent” establishment exists. Hence, the increase from six to twelve months will impact Belgium’s tax entitlements on such activity. These rules affect the tax situation of the (foreign) employees active in Belgium as, if there is a deemed permanent establishment, they will in such event be taxable in Belgium, regardless whether their presence exceeds or not an aggregate of more than 183 days within a twelve month period (art. 15).
Pending approval still in 2013, this new double tax treaty is applicable with effect from 2014.
For further information or to discuss the consequences of the above, please contact Gunther Valkenborg on +32 (0)2 743 43 39 at Loyens & Loeff Brussels.
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