When the pension debtor is a non-Belgian entity, taxation also arises if the employer or the employee benefited from a ‘tax advantage’ in Belgium relating to the pension contributions (rule 2) or if the beneficiary exercised his/her professional activities, under which the pension is paid, wholly or partly, in Belgium (rule 3).
In practice these rules often give rise to difficulties; such as for non-resident workers who have never worked in Belgium but who are affiliated to a Belgian pension plan since their employer decided to house the occupational pension scheme in a Belgian pension fund/insurance company.
Here is one scenario to illustrate this point:
Suppose that a Spanish tax resident, working in Spain for an international group’s Spanish subsidiary, is affiliated to a Belgian pension plan. In principle, the employee is exposed to taxation in Belgium since the debtor is a Belgian entity (see rule 1).
This situation should not be problematic, as in most cases, the employee’s pension is subject to taxation in the home state according to the double tax treaty between Belgium and the home state. Indeed, most treaties provide for taxation of pensions by the home state. In such a situation, there will be no taxation in Belgium in application of the double tax treaty, but the employee can only apply for Belgian tax exemption by providing a residence certificate (in our scenario above that would be a Spanish tax residence certificate).
Another difficulty concerns employees who have only worked in Belgium for a very limited period of time. Since the Belgian Income Tax Code provides that it is sufficient that the professional activity is partly exercised in Belgium (see rule 3), the employee’s pension is liable to Belgian tax.
Here is one scenario to illustrate this point:
Suppose that a Spanish tax resident, who is normally working in Spain for a Spanish employer, is affiliated to a Spanish pension plan and is seconded to Belgium for a period of a few months. While remaining taxable in Spain on his/her salary, his/her pension would become subject to Belgian taxation.
Also in such scenario, the Spanish employee can apply for a Belgian tax exemption when delivering a tax residence certificate.
The abovementioned rules can lead to absurd outcomes and create rather burdensome formalities for foreign pensioners. The set of rules described above discourages many foreign companies from ‘housing’ their occupational pension scheme in Belgian pension/insurance funds.
Automatic exemptions in certain cases
Since Belgium has attractive tax legislation for pension funds, it is eager to also host foreign pension funds. Since longer aware of these shortcomings of the law, our firm assisted in analyzing the problems and suggesting new wording. As a result, the current set of rules on the taxation of pension paid to non-residents is now simplified. A new provision has been inserted into the Belgian Income Tax Code and the set of rules now provides for two exemptions in which no Belgian tax is due on occupational pensions paid to non-residents. The new measures already apply to pensions paid or granted since 1 January 2017.
In the new set of rules, a pension payable to a non-resident is not liable to taxation in Belgium, if and to the extent that the following two conditions are simultaneously fulfilled:
- the beneficiary’s professional activities, further to which the pension is granted, did not generate taxable professional income that was taxable in Belgium; and
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the contributions paid into the pension plan (by either the employer or the employee) have not generated a ‘tax benefit/advantage’ in Belgium in the hands of the debtor of the contributions.
By “automatically” granting the exemption in these situations, it is no longer necessary for the beneficiary to appeal to the double tax treaty and to provide (each year) a tax residence certificate. Following this exemption, the pension fund/insurance company is exempt from withholding professional withholding tax and exempt from reporting the payment on a pension slip. Do note that the pension should, however, still be reported on a specific salary slip.
For beneficiaries whose salary has been taxable partly in Belgium and partly abroad during their career, the pension payment(s) should be split between the taxable and non-taxable part in Belgium. For the taxable part, it will still be necessary to provide a tax residence certificate.
Furthermore, for the new rules to apply, the pension debtor must set up a system for collecting information and should have such data available to check whether the conditions of this automatic exemption have been satisfied. For the time being, it is not clear whether a statement from the employer is sufficient or whether more substantial proof will have to be provided.
More details will become clear in the near future, and it is certain that the new legislation allows Belgium to become even more attractive as a host country for foreign pension funds.
For more information:
Brigitte Lievens - counsel Tiberghien (brigitte.lievens@tiberghien.com)
Katrien Bollen - associate Tiberghien (katrien.bollen@tiberghien.com)
Laurine Vanherck - associate Tiberghien (laurine.vanherck@tiberghien.com)