I am so happy to be an investor in Belgium.
While Belgium has one of the highest taxes on labour income, it also has one of the most favourable stock market tax regimes for individual investors like me.
In fact, I pay almost no investing taxes!
Here is a how I do it (and how you can too).
Belgium is one of the only countries in the world with 0% tax on investment profits (known as capital gains). Under certain conditions of course.
To be able to benefit from the 0% tax on capital gains, the investment has to be within normal management of personal assets that are not part of any business activity.
“Normal management” in this case refers to non-speculative long-term investments, such as holding a fund for the long term. Speculative short term trading and investments fall outside of this category and would be subject to a 33% tax.
Belgium has a legal term for this investment approach, they call it the “good housefather” rule (Bon père de famille in French, and "Goede huisvader" in Dutch).
The funds has to be your own after-income-tax money invested privately, in your own name, and not as part of a business activity, such as through your own company.
This unique 0% tax on capital gains makes stock market investing very interesting for individuals.
Navigating investment taxes in Belgium
Imagine that you invest 10,000 EUR, for example, and after a few years it’s worth 15,000 EUR. If you sell, you’d make a gain of 5,000 EUR.
In the UK, you would have to pay 20% tax on capital gains, so 1,000 EUR (20% of 5,000 EUR).
In France, 34%, or 1,700 EUR.
In Belgium, 0.
Well, almost 0.
While we don’t have capital gain taxes in Belgium in this situation, we still need to pay various small taxes on investments:
- 30% withholding tax on dividends distributions
- 30% tax on the capital gains of accumulating bond funds (also known as the Reynders tax)
- 0.12%, 0.35% or 1.32% tax on transaction amounts (also known as TOB: Taxe sur les opérations de bourse, or Taks op de beursverrichtingen)
Here is the interesting part however. The 30% withholding tax on dividend distributions only applies to investments that distribute dividends. This means that by selecting accumulating equity funds (i.e. those that reinvest the dividends directly), we don’t have to pay this tax.
The Reynders tax (named after Didier Reynders, who served as Belgium’s Minister of Finance during 1999-2011) is the equivalent of the withholding tax for accumulating bond funds. Instead of paying 30% tax on dividend distributions, we need to pay 30% on the capital gains generated by those dividends at the time of sale. Luckily, as long-term investors (who prefer stock funds), we don’t hold much bonds, we sell them rarely, and usually only a small portion of it.
The TOB is a small tax paid on the transaction amount. For the type of funds we like to invest with (ETF, or exchange traded funds), this tax is paid both at the time of purchase and sale.
For accumulating ETFs that are registered in Belgium, the tax rate is 1.32%.
But by selecting accumulating ETFs that are not registered in Belgium but in another country of the European Economic area, we can benefit from the lowest TOB rate: 0.12%.
So to summarise by coming back to our earlier example: if we were to invest 10,000 EUR in a stock ETF (accumulating and not registered in Belgium), and sell it when it’s worth 15,000 EUR, we would pay 0.12% * 10,000 + 0.12% * 15,000 = 12+18 = 30 EUR in taxes.
This is indeed far less than what we would have to pay in most other countries.
Sébastien Aguilar is the founder of FIRE Belgium, a community of professionals in Belgium who take control of their finances and learn to invest simply and effectively for the long term. He shares his journey and tips in his column for The Brussels Times.
