Just before the end of the year, the tax administration finally made a decision and published a circular (Circulaire 2017/C/87 dd. 22/12/2017) which addresses the Belgian treatment of the phasing out of the Dutch “pension under self-administration”.
Phasing out Dutch pensions under self-administration
Until 1 April 2017, a Dutch director-major shareholder or “DGA” (comparable to a business manager in Belgium) could accrue a pension “under self-administration”, which means that the management of the pension contributions and the payment of the pensions were not carried out by a professional insurer or pension fund but by his own company or another self-management body (such as a Dutch pension company). On 1 April 2017, however, the Netherlands published a law [law on the phasing out of pensions under self-administration and other fiscal pension measures], which no longer permits this accrual under self-administration from 1 July 2017.
Consequently, a DGA can opt to either:
- surrender the already accumulated pension (with a discount on the tax base). The advantageous surrender is only possible up to and including 2019;
- convert this to a Dutch old-age pension commitment (“ODV”). Here too, the choice must be made by no later than 2019;
- freeze this, whereby the existing pensions remain untouched and the previous legislation remains applicable.
Treatment in Belgium of the surrender
For the inhabitants of Belgium who wanted to surrender their Dutch pensions under self-administration, it was uncertain for a long time how the Belgian tax authorities would handle this surrender. On 22 December 2017, the tax authorities took the decision and by means of a circular, went into the treatment of such capital in Belgium in more detail.
As already mentioned above, a natural person (resident of Belgium) who chooses to surrender his Dutch “pension under self-administration” will receive a tax reduction in the Netherlands of 34.5% (in 2017), 25% (in 2018) or 19.5% (in 2019). This means that in case of a surrender in the course of 2018, only 75% will be taken into account for taxation and 25% of the value in the Netherlands will be exempt from tax.
Where will taxes be payable?
One should first of all consider where taxes are payable, in Belgium or the Netherlands. What is important here is whether the pension has commenced or not. If the pension has already commenced, Belgium will in principle be entitled to levy the tax, although the Netherlands may also tax the income in certain cases. The Netherlands will however be entitled to levy the tax if the pension has not yet commenced. It is however possible that taxes are also payable in Belgium based on the so-called subject-to-tax-clause. This clause states that Belgium only provides for an exemption (with progression) in so far as the income is effectively taxed in the Netherlands. Since the discount on the surrender value is exempt in the Netherlands (i.e. the 25% for surrender values in 2018), this discount will still be subject to Belgian tax rules in Belgium.
Which rate applies?
What Belgian tax rules apply depends on the status of the DGA at the time of payment or recognition of the surrender value. If the person is still active as a DGA, everything he receives will be considered as professional income (based on the principle of attraction) and jointly taxable at the progressive rate.If, however, no more DGA activities are exercised at the time of payment or allocation, this “free capital” in Belgium will be regarded as a pension. Pensions are taxable separately in Belgium at 16.5%, provided that the capital is paid out as a result of actual retirement (at retirement age or in one of the five preceding years) or as a result of death. Payment of the capital at another time will result in a tax at the progressive rate.
The discount on the surrender value of Dutch pensions built up under self-administration seems at first sight an interesting way to obtain capital more advantageously. For Belgian residents, however, this advantage will be neutralized as this discount will still be taxed in Belgium either at the progressive rate (increased by 50% with municipal tax) for persons who are still active as directors or at a separate rate of 16.5% as a pension (unless the payment was made at an unfavourable time). For converting a pension under self-administration into an old-age pension commitment, the tax authority will publish another separate addendum.
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Senior Tax & Legal Associate