Belgian tax reform

The end of 2016 brought a fierce wind of changes on the Belgian savings taxation world. This is the best moment to take a closer look to the benefit that the subscription of a foreign life insurance policy can bring, in this new scenario. The main aim of this latest legislative intervention is to face the budgetary deficit by increasing government income and by keeping a high level of Belgium´s foreign investments attractiveness, thus reinforcing competitiveness. These changes entered into force on 29th December 2016, when the Programme Law of 25th December 2016 (Programmawet van 25 december 2016/Loi-programme du 25 décembre 2016 – the “Programme Law”) was published in the Belgian Official Journal. Hereafter the main hot points for what concerns the investment activity:

  • Increase of withholding tax on dividends and interests from 27% to 30%, with effect from 1 January 2017. Belgium has already faced a similar increase in late 2015, when the rate of the withholding tax has been raised from 25% to 27%;
  • Treatment of “internal” capital gains—the (new) capital created by the contribution of the participation is, from a tax perspective, considered as a taxed reserve and thus withholding tax is due in situations of a subsequent decrease of capital;
  • The speculation tax, introduced on 1st. January 2016 has been abolished. The government took this decision because since this tax came into effect, the volume of stock exchange transaction decreased remarkably, reducing the government’s revenues for what concerns the tax on stock exchange transactions, better known as “TOB”(taxe sur les operations de bourse);
  • TOB has been subject to:

a doubling of the ceilings as follows:

– €1,600 for purchase/sale of shares

– €4,000 for transactions with capitalization funds and

– €1,300 for all other transactions (including bonds).

an extension of the application to exchanges located abroad:

– transactions made on foreign platforms by natural persons residing in Belgium are now liable

– the Belgian ordering party is liable for the TOB, even when the intermediary is established outside Belgium

– the foreign intermediary can still nominate a representative in Belgium to fulfil the reporting obligations  and pay the TOB

  • Various measures to address tax fraud.

Within this framework, a foreign life insurance policy can more than ever be considered as a fundamental tool, to achieve a high fiscal efficiency of the investment activity. In fact, “Branch 23”  life insurance products are not listed among the products affected by the above-mentioned rate increase of the withholding tax (such as interests on savings certificates, deposit accounts and bonds, income from Branch 21 life insurance products in the event of early surrender etc.). This is the reason why these insurance products now even become a more crucial wealth management and planning tool.

Furthermore, as far as the stock exchange transactions are concerned, orders linked to the underlying assets of a foreign life policy – concluded or executed outside the Belgian territory- are not subject to the TOB.

To discover more about the opportunities coming from the subscription of a “Branch 23” life insurance policy, do not hesitate to get in touch with us at info@farad.lu.

Article by Francesco Bruno, Senior International Wealth Planner – FARAD International