US Expat Taxes for Americans Living in Belgium – What You Need to Know
It has been estimated that there are several thousand Americans living in Belgium.
Living in Belgium is an incredible experience for a number of reasons, including the friendly locals, the delicious food, the work-life balance, not to mention having the rest of Europe on your doorstep. As an American expatriate living in Belgium though, what exactly do you need to know regarding filing US expat (and Belgian) taxes?
All US citizens and green card holders are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Belgium, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If your annual income is more than $12,400 (in 2020, or $12.550 in 2021), or just $400 for self-employed individuals, or just $5 for Americans married filing separately with a foreigner, then you have to file form 1040.
While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Persons who are married or legally living together are required to file their tax return jointly except for the year of marriage, year of declaration of legal cohabitation, or if they are living separately.” – KPMG
If you pay income tax in Belgium, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Belgian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Belgium.
The Foreign Tax Credit is typically a better option if you pay more tax in Belgium than you would owe in the US, as you can carry the excess tax credits forward for future use.
The United States – Belgium Tax Treaty
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.
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.
Belgian taxes – what you need to know
Belgian residents are taxed on their worldwide income on a scale from 25% to 50%. There is also a local income tax of around 7% of income tax due.
Foreigners living in Belgium are considered a resident for tax purposes if their main family home or the center of their economic activity or interests is in Belgium.
The Belgian tax year is the same as the US, which is to say the calendar year. If you’re employed by a Belgian firm, they will deduct tax at source before paying you. Tax returns are due by June 30th. The Belgian tax authority is called the Federal Public Service.
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.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Belgium that you contact a US expat tax specialist.