At the end of 2016, new legislation was introduced in Belgium in order to reduce the scope of Belgian taxation on pensions, paid out to tax payers, who are residing abroad.

Under the old legislation, pension income, paid out by a debtor, who is located in Belgium, was subject to Belgian taxes. This was even the case when the beneficiary of the pension had no link whatsoever with Belgium. Beneficiaries, who lived and worked their whole career outside Belgium could still be confronted with Belgian tax issues in case their pension was paid out from a source in Belgium.

In many cases, this rule could be offset by the use of international tax treaties, but the tax payer had to comply with certain formalities in order to be able to claim treaty protection. In addition, a tax payer could be a resident of a non-treaty country or of a country, offering insufficient tax treaty exemption.

These tax rules were not only disadvantageous for many tax payers, but also constituted a strong barrier against the establishment of international pension funds in Belgium. Especially as Belgium wants to attract international pension funds to move into Belgium, the old tax legislation constituted a serious problem for the Belgian government.

Tax treaties

In many (but not in all) tax treaties, pension income is taxable in the country of residency of the tax payer. As mentioned above, the old Belgian tax rules were often overruled by such treaties and Belgium had to abstain from the taxation of Belgian source pensions, paid out to residents of most tax treaty countries.

In order to obtain the treaty exemption, the tax payers were, however, faced with the administrative burden of requesting a residency certificate with the tax authorities of their country of residence. In case of annuities, a new residency certificate was required from year to year.

In case the pension income was subject to tax withholdings by the pension fund or insurance companies, the tax payer faced considerable difficulties in filing a tax claim to recover unduly withheld taxes.

Change of law

Non-resident tax payers received a nice Christmas present on December 25, 2016, when the law was changed. Pensions, paid out by a Belgian pension fund or insurance company to non-resident tax payers are no longer taxable in Belgium, provided  that there is no link between the tax payers’ pension and Belgium. More specifically, exemption from Belgian tax is granted to the extent that in Belgium no beneficial tax treatment was applied in the past on the pension contributions and to the extent that no taxable income has arisen in the past relating to professional activities, carried out in Belgium.

If the tax payer did  not carry out any (taxable) professional duties in Belgium or performed duties, covered by tax treaty exemption, his Belgian source pensions no longer is taxable in Belgium.

It is possible that a Belgian-source pension relates partly to a period of taxable employment in Belgium and partly to employment abroad. In such case, a pro rata calculation is made and only the part of the pension, relating to Belgian (taxable) employment will remain taxable in Belgium. It is to be noted, that even for such pensions, it still is possible that a tax treaty would apply so that Belgium would have to grant full exemption. Such exemption, however,  remains subject to the conditions relating to the above mentioned residency certificate, which then must still be filed with the Belgian tax authorities.

In order to correctly apply the exemption, the Belgian pension fund or insurance company will have to rely on data, provided by the employer, relating to Belgian taxable periods during the career of their employees. The employees can then be relieved from further administrative burdens.

Belgian tax forms 281 are no longer required to the extent that exempt pension income is also exempt from tax withholdings at source. This does not imply that no reporting requirements would apply at all. The pension fund or insurance company still has to comply with specific reporting standards, related to the international exchange of tax data between countries.