The fixed allowance scheme

The fixed allowance scheme - for employees and company officers 

Under article 31, para. 2.1° of the 1992 Income Tax Code, workers are taxed on “wages, salaries, commissions, perquisites, bonuses, compensation and all other similar remuneration, including tips and other allowances, including incidental allowances, arising out of or in connection with the carrying on of an occupational activity in any capacity, other than reimbursement of the employer’s own costs”.

In other words, “reimbursement of the employer’s own costs”, i.e., expenditure incurred by the worker for the account of and repaid to him by his employer, is not taxable income for a worker.

Correspondingly, such reimbursements will normally be deductible by the employer.

These rules also apply to company officers, i.e., individuals who hold office as directors, managers, liquidators or a similar function (1), or who hold an executive management or day-to-day commercial, financial or technical management post in the company other than under a contract of employment (2).

The tax authorities will scrutinise reimbursements of “employer’s own costs” closely to ascertain that they are not in reality disguised remuneration on which the recipient would be liable to tax.

“Employer’s own costs” may be reimbursed at their actual amount as evidenced by supporting vouchers or as a lump sum reimbursement.

Lump sum reimbursements will not be treated as taxable disguised remuneration if the amount has been fixed “according to standards derived from a large number of observations and tax audit verifications” (Com. I.R. (Income Tax Practice Notes) 1992, No. 31/36). In other words, the flat-rate amounts allocated must be estimated on the basis of strict standards that are provable by reasonable, consistent and verifiable criteria.

It should be noted that, provided the fixed allowances are not higher than those which the State allows to civil servants, the tax authorities will accept that they are based on credible standards. Apart from this fixed framework, certainty about the tax consequences of such allowances can be had by applying for a prior tax agreement from the “Advance Income Tax Rulings Department”. 

There are several different kinds of  fixed allowance. They may even be combined provided there is no duplication, and if certain conditions are met. The main allowances are:

• the daily fixed allowance for travel and assignments in Belgium

• the daily fixed allowance for travel and assignments abroad

• the daily fixed allowance for assignments abroad

• the fixed monthly allowance

• the fixed mileage allowance

The entire Deprince, Cherpion & Associates is at your service for a preliminary feasibility study of your particular case.