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“The avoidance of tax may be lawful, but it is not yet a virtue .”

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News

New Tax Rules in respect of cross border occupational pensions as of tax year 2007

Date: 20 January 2007

The Belgian Parliament has finally complied with European Community Law in respect of cross border occupational pensions (Law of 27 December 2006, Belgian State Gazette 28 December 2006).

Indeed, with effect from income tax year 2007 (calendar year 2006) Belgium has modified the tax rules with respect to the transfer of pension capital or reserves.

In the first place, the effect of the so-called ‘exit tax’ (article 364bis I.T.C. 1992) is now limited to taxpayers taking up residence outside the European Economic Area (the EEA includes the 27 Member States of the European Union as well as Norway, Iceland and Liechtenstein). This means that Belgium can continue to consider that a pension capital or reserve is paid out on the day before his departure, and tax the pension capital, but only if the taxpayers leaves the EEA unless a double tax treaty applies.

The new legislation also simplified the transfer of pension capitals or reserves to another pension fund or insurance company or pension organism. As a matter of principle such transfers do not qualify as a (taxable payment or attribution (article 364ter, 1ste paragraph I.T.C. 1992) as long as the transfer takes place within the European Economic Area. The taxation is postponed to the later payment or attribution. Until last income tax year, the transfer was limited to transfers within Belgium.

These important modifications will certainly have consequences for your company, in practical in respect of your tax withholding obligations. However, they also offer tax planning possibilities with respect to the tax regime of the pension payments.

Apart from this, Belgium has also lifted the ban of the tax deduction of the contributions an employer paid to a pension organism established outside Belgium. This means that if an employer contributes to a pension institution established in another EEA Member State, the contributions are tax deductible within the limits of article 59 I.T.C. 1992 (in particular the 80 %-rule).

 

 

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