Taxes for Expats – The US – Belgium Tax Treaty
The US – Belgium tax treaty was signed in 2006, replacing a previous treaty signed in 1970. The purpose of the treaty is to prevent double taxation for Americans living in Belgium and Belgians living in the US, however it doesn’t prevent US citizens living in Belgium from having to file US taxes.
US taxes for expats in Belgium
The US taxes based on citizenship, meaning that all US citizens and green card holders, including US expats living in Belgium, with worldwide income of over $12,200 a year (in 2019), or just $400 of self-employment income, or just $5 of income if they’re married filing separately with a foreigner, are required to file a US tax return each year.
Belgium on the other hand requires Americans to file Belgian taxes if their main family home or the center of their economic activity or interests is in Belgium.
This leaves many US expats living in Belgium having to file two tax returns, and also puts them at risk of double taxation.
Expats receive an automatic filing extension for their US taxes until June 15th (July 15th in 2020, due to Coronavirus), and they can request a further extension until October 15th if they need to. Belgian tax returns are due by June 30th.
US expats in Belgium may also have to file a Foreign Bank Account Report (FBAR), if they have a total (all accounts) of over $10,000 in non-US based bank, investment, and other financial accounts at any time during the year (and including any accounts that they have signatory authority or control over, even if not registered in their name).
The United States – Belgium Tax Treaty
“Belgium is at the crossroads of germanic and Latin Europe, which is exemplified by its three national languages: Dutch, French, and German.” – Expat Arrivals
The United States – Belgium Tax Treaty covers double taxation with regards to income tax, corporation tax, and capital gains tax, however, a clause called a savings clause in Article 1 paragraph 4 states that “this Convention shall not affect the taxation by a Contracting State of its residents and its citizens.” This means that US expats still have to file US taxes on their global income.
However, the treaty allows US expats to avoid double taxation on their income earned in Belgium by letting them claim US tax credits when they file their US tax return to the same value as Belgian income taxes that they’ve already paid, when they file their US tax return.
For income earned (and so taxed first) in the US, the treaty allows Americans in Belgium to claim Belgian credits to the value of the US tax paid on this income, although they may have to pay some extra Belgian tax on top, the Belgian tax rates being higher than the US.
To claim US tax credits against Belgian taxes paid, expats must file Form 1116 when they file their federal tax return. By doing this, the vast majority of US expats in Belgium won’t end up owing any US income tax, as Belgium has higher income tax rates than the US.
Alternatively, expats can claim another exemption called the Foreign Earned Income Exclusion by filing Form 2555, which simply allows them to exclude the first around $105,000 of their earned income from US taxation. Which exemption is most beneficial depends on each expat’s circumstances (e.g. their types of income, residency status, income levels, where their income originates, etc).
It is possible in some circumstances to claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit, although they can’t both be applied to the same income.
The US – Belgium Tax Treaty also allows the Belgian government to share US expats’ Belgian tax information with the IRS, as well as their Belgian bank and investment account details and balances.
Some Americans in Belgium will benefit from the treaty though, for example students, teachers, trainees, researchers, entertainers, sportsmen, and expats receiving dividends, interest, royalties, pension income, alimony, social security income, and child support. Expats with these types of income should consult a US expat tax specialist to check. Expats who can claim a provision in the treaty should do so by filing IRS Form 8833.
The US-Belgium Totalization Agreement
A separate agreement called a Totalization Agreement helps US expats in Belgium not to pay social security taxes to both the US and Belgian governments. Expats’ contributions made while in Belgium can be credited to either system. Which country they pay depends on how long they will be living in Belgium.
Expats in Belgium who are behind with their US tax filing because they were unaware that they had to file from abroad can catch up without facing penalties under an IRS amnesty program called the Streamlined Procedure, so long as they do so before the IRS contacts them about it.