A dual system for pension savings has been introduced in Belgium by the law of 26 March 2018 (Official Gazette of 30 March 2018). Recently, the Belgian tax authorities issued a practice note (2018/C/72) which provides clarification and specific examples in this respect.
The existing system for pension savings (pensioensparen / épargne-pension) is well known in Belgium and results in a federal tax reduction of 30% calculated on the amount of the contributions made (in the framework of a pension savings insurance or pension savings account) up to a maximum contribution of EUR 960,00 (indexed amount for income year 2018 – tax year 2019). Under this system the maximum tax benefit (per taxable period / income year) amounts to EUR 288,00 (excluding communal taxes).
In coexistence with the above-mentioned traditional system of pension savings, a second mechanism (new system) has been introduced, as of income year 2018 (tax year 2019). Indeed, in order to further promote (third-pillar private) pension savings schemes taxpayers in Belgium now have the possibility to make more (tax beneficial) contributions into a pension savings scheme, notably up to a maximum amount of EUR 1.230 (indexed amount for income year 2018 – tax year 2019), while benefiting from a tax reduction of 25% (instead of 30%), which will results in a maximum tax benefit of EUR 307,50 (excluding communal taxes), which is EUR 19,50 more compared to the traditional formula (provided that the maximum contribution of EUR 1.230 is actually paid in to the scheme).
For every income year, taxpayers (who make contributions into a pension savings scheme) will have to decide (and inform their financial institution in a timely manner) what scheme they want to apply for that taxable period. Taxpayers who make pension savings contributions up to EUR 960 per year (old system), will continue to benefit from the 30% tax reduction. If a taxpayer decides to opt for the higher limit up to EUR 1.230 in 2018 (and informs his / her financial institution about it), the 25% tax reduction will apply (even if this would result in an overall lower tax benefit compared to the old system, e.g. when only an amount of EUR 1.000 was contributed). If the taxpayer does not communicate his / her choice towards his financial institution, in principle, the lower cap (and 30% tax reduction) will apply and anything contributed above EUR 960,00, will be refunded to the taxpayer’s bank account.