US citizen working in Belgium and tax treaty leverage

[jgombos]

What is the name of your state? NM

I've read parts of the tax treaty between the US and Belgium. This is some tough reading. I need some practical advice on where to go for advice. Should I try to find a Belgian accountant that can accommodate US taxes, or should I seek out a US accountant who knows how to file in Belgium?

The advice of the employer is to use their accountant to file in Belgium (they offer this as a benefit), and to use a US accountant to file in the US. This sounds like terrible advice to me, because neither account will be able to advise on how to best exploit the tax treaty.

Another question in particular is that there is a significant tax savings vehicle in Europe, such that earnings are wired directly to a foreign holding company (which is based neither in the US or Belgium), and the worker is a shareholder who is paid in dividends on an as-needed basis. Tax is paid on the foreign dividends, but not on the amount sitting in the foreign company (until it's withdrawn). This is a legitimate way to greatly reduce tax liability for Europeans. However, once the US tax liability and tax treaty are considered, the foreign holding company arrangement may not pay off -- it may even worsen the situation enough to make the traditional employee/employer arrangement the best option. Does anyone know which arrangement is better overall, with both countries accounted for?

 

[LdiJ]

What is the name of your state? NM

I've read parts of the tax treaty between the US and Belgium. This is some tough reading. I need some practical advice on where to go for advice. Should I try to find a Belgian accountant that can accommodate US taxes, or should I seek out a US accountant who knows how to file in Belgium?

The advice of the employer is to use their accountant to file in Belgium (they offer this as a benefit), and to use a US accountant to file in the US. This sounds like terrible advice to me, because neither account will be able to advise on how to best exploit the tax treaty.

Another question in particular is that there is a significant tax savings vehicle in Europe, such that earnings are wired directly to a foreign holding company (which is based neither in the US or Belgium), and the worker is a shareholder who is paid in dividends on an as-needed basis. Tax is paid on the foreign dividends, but not on the amount sitting in the foreign company (until it's withdrawn). This is a legitimate way to greatly reduce tax liability for Europeans. However, once the US tax liability and tax treaty are considered, the foreign holding company arrangement may not pay off -- it may even worsen the situation enough to make the traditional employee/employer arrangement the best option. Does anyone know which arrangement is better overall, with both countries accounted for?

Aside from the tax treaty.....you will be able to exclude your first 82,500 USD in foreign earned income from your US tax return (filing form 2555 with the return) and you will also receive a credit for foreign taxes paid. Therefore you may not have as much need as you think to "exploit" the tax treaty.

 

[jgombos]

Aside from the tax treaty.....you will be able to exclude your first 82,500 USD in foreign earned income from your US tax return (filing form 2555 with the return) and you will also receive a credit for foreign taxes paid. Therefore you may not have as much need as you think to "exploit" the tax treaty.

Great.. that's quite comforting to hear.

 

[Snipes5]

Have your Belgian taxes done by someone in Belgium. Have your US taxes done by someone in the US who handles international issues on a regular basis. You don't necessarily need a CPA but you should at least find someone who is an Enrolled Agent. You can search www.naea.org to find someone.

As tax professionals, it is our responsibility to read and understand tax treaties.

Whoever does your US taxes will want to see a copy of your Belgian return.

Snipes

 

[Ryoffe]

Jgombos,

U.S. residents/citizens are taxed on their world wide income. So even if your wages are paid as dividends and wired to a foreign financial institution, you will still have to file form TDF-90 which discloses any foreign bank/securities accounts with a balance at any point in the year greater than $10,000.

However, U.S. expatriates do enjoy various tax breaks such as;

Foreign Income exclusion: Form 2555: allows you to deduct $87,500 from income earned over seas

Foreign Housing Tax Credit: Form 2555: Allows you to deduct your rental expense if it’s paid by your employer (Bush recently reduced this credit)

Foreign Tax Credit: Form 1116: Allows you to reduce your U.S. taxes by the amount paid of tax paid overseas

Also you can deduct the employer paid meals.

Hope this helps,

R.

 

[jgombos]

Have your Belgian taxes done by someone in Belgium. Have your US taxes done by someone in the US who handles international issues on a regular basis. You don't necessarily need a CPA but you should at least find someone who is an Enrolled Agent. You can search www.naea.org to find someone.

As tax professionals, it is our responsibility to read and understand tax treaties.

Whoever does your US taxes will want to see a copy of your Belgian return.

Snipes

This all sounds reasonable, for the most part. However, who's to say the US tax should not be prepared first? Maybe the Belgian tax preparation can benefit from the US return?

Since Belgians are taxed quite heavily (55%), I would be tempted to have the Belgian tax prepared but not filed, then use the unfiled Belgian return to prepare the US return. Then take the US return to Belgium and revise it with the US return... perhaps make the loop until no changes are required.

 

[jgombos]

Foreign Income exclusion: Form 2555: allows you to deduct $87,500 from income earned over seas
...Also you can deduct the employer paid meals.

This brings up a question.. Those with a Belgian tax status of non-resident expatriate can claim a tax-free cost of living allowance (*). I still have to look at form 2555; but the question is how will the allowance affect the bottom line?

(*) http://brussels.angloinfo.com/countries/belgium/intax.asp

Foreign Housing Tax Credit: Form 2555: Allows you to deduct your rental expense if it’s paid by your employer (Bush recently reduced this credit)

Don't you mean if the rental were paid by the tax payer? I don't see why a tax payer would be able to deduct expenses that their employer had.

Hope this helps,

R.

Yes, thank you!

 

[Snipes5]

If you have non-resident status in Belgium, it is better to do the US Return first. You will not be eligible for a Foreign Tax Credit in Belgium (if such a thing exists) because in order for that to happen, the income has to be sourced outside Belgium, which it obviously is not.

You did that right. The Housing Exclusion is for Employer-Paid rent. Repeat after me: "Taxes are not logical".

The non-taxable status of income in another country has no bearing on whether or not it is taxable here. That's why you need someone who can handle international tax issues.

Snipes