Certain taxpayers, who have been living and/or working in The Netherlands, may decide to move their residency from The Netherlands to Belgium and retire in Belgium. Over the years, there has been quite some discussion and uncertainty in the Belgian fiscal landscape with respect to the taxation of Dutch AOW pensions, paid to tax residents of Belgium. The Belgian circular note of 8 March 2018 now provides an overview of the applicable rules and takes into account an important recent change in Belgian tax law.
The Dutch AOW pension constitutes a basic state pension which is paid out under the National Old Age (AOW) Pensions Act. AOW entitlements are typically accrued by individuals, regardless of their nationality, who are working in The Netherlands but also by individuals who are living in The Netherlands, even if they do not exercise a professional activity and pay no contributions into the AOW insurance scheme. So, the general triggers for building-up Dutch old age pension rights are “having residency” in The Netherlands or “performing a professional activity” in The Netherlands.
It is clear that based on article 18 of the Belgian-Dutch double tax treaty, Belgium may levy income taxes on the Dutch AOW pensions paid to tax residents of Belgium. Based on internal tax law as interpreted by recent Belgian case law, it was argued that Belgium could only tax these AOW payments as pensions if and to the extent that there was a link with a previous professional activity, which resulted in contributions paid for financing the AOW pension scheme. The law of 25 December 2017 has amended the Belgian Income Tax Code with respect to the Belgian definition of what a ‘pension’ is. As a result, Dutch AOW payments are in principle and by default fully taxable as pensions in Belgium, when received by tax residents of Belgium, even if the taxpayer has never exercised a professional activity.
In practice, however, the following ‘distinction’ should be made:
- AOW pensions paid or attributed as from 1 January 2017: In case an AOW pension is paid or attributed as from 1 January 2017, this pension is always taxable as a pension, based on Belgian domestic tax law (and in line with article 18 of the Belgian-Dutch double tax treaty).
- AOW pensions paid or attributed up to 31 December 2016: In line with recent case law of the Belgian Supreme Court, AOW pensions paid or attributed until 31 December 2016 will remain only be taxable in Belgium as a pension if and to the extent that professional activities took place during the build-up of the AOW pension rights and if social insurance contributions were paid to finance the AOW pension system.