In Belgium, a specific pension savings account can be set up with a financial institution or insurance company.
The contributions, made by the tax payer into the account, entitle him/her to a tax credit of 30% (of the amount of these contributions). There is an annual ceiling for the contributions, which has been set at 940 Euro for income year 2015. In the past, the ceiling was increased from year to year following the evolution of consumption prices. For the years 2015 up to 2018, this annual increase has been frozen.
One can make payments that generate tax credits until one reaches the age of 65. The taxation of the pension reserves, however, already occurs at an earlier moment. Up to 2014, the taxation took place at the age of 60 years and at a fixed rate of 10%. From 2015 onwards, the tax rate is reduced to 8%, but the levy occurs earlier (except in case of early retirement before the age of 60). To this purpose, the pension reserves (per 31 December of each year) are subject to a tax of 1%, which constitutes an advance on the final tax due.
In case the withholdings do not yet cover the full balance of tax due at the moment when the pension funds are paid out, the balance of tax (after deduction of the withholdings up to that date) is due through the individual tax return of the tax payer.
In case of early withdrawal of the funds in the account a 33% tax rate applies.
Tax payers with an international career may need to consider various questions before opening an account or continuing to make annual contributions into an existing account:
- when the individual works abroad and is taxed on this income outside Belgium (and exempt in Belgium under an international tax treaty), no effective use will be made of the tax credit, while the pension distributions remain fully taxable;
- persons, who emigrate from Belgium, remain taxable on their pension savings account. Also for them, it has no use to make further contributions (the tax credit cannot be used against any Belgian taxes due). In addition, there is a risk of international double taxation when the pension is paid out. As the withholdings are not treated as regular income taxes, there may be no treaty protection against international double taxation.