Working in Belgium, living in the Netherlands: which country will tax the pension built up with your employer?
Imagine the following scenario: You live in the Belgian-Dutch border region, you work just across the border (for example, you work in the Ghent Canal Zone and live in Zeelandic Flanders) and intend to retire aged 65. In addition to your state pension, you will receive a substantial pension pot from your employer's group pension scheme or pension fund for all the years you worked for the company. But which country will tax you and at what rate?
When an employee receives a private pension on retiring, the capital is taxed at a favourable rate in Belgium. If an employee continues working up until the age of 65, then a favourable tax rate of 10 percent applies. If an employee takes early retirement aged 60, then a 20 percent rate applies, which gradually reduces to 10 percent for anyone who, as said, continues working up until the age of 65.
However, if the employee lives in the Netherlands but works in Belgium, the Netherlands will be responsible for taxation under Article 18 of the double tax agreement. The general rule is that pension capital is taxed in the country of residence. In the Netherlands, this capital is taxed at the normal progressive rates. Starting from 66,422 euros, this progressive rate is as high as 52 percent.
If the employee had to move to Belgium before his/her pension capital was paid out, and continued working until the age of 65, then the capital would be taxed at 10 percent in Belgium. This obviously represents a huge difference in taxation.
Imagine the following scenario: You live in the Netherlands, you have worked up until the age of 65 with a Belgian company and when you retire, you will have built up a pension capital of 200,000 euros gross. If you live in the Netherlands, this capital will be progressively taxed at the time when it is paid out. Rates up to 52 percent will apply, meaning that in the Netherlands you will owe the substantial sum of 100,000 euros in tax (ignoring tax allowances).
If you move to Belgium before the payment, then you only pay a 10% lump sum in tax, which corresponds to 20,000.00 euros.
In both cases, there will be fiscal as well as non-fiscal taxes, in this case Belgium's 2% solidarity contribution and 3.55% to Belgium's National Institute for Public Health and the Environment. These contributions are tax deductible, which means that the tax burden in both cases will be slightly less.
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We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.
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