Investing from Belgium

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Belgium-flag.gif This page contains details specific to investors in Belgium. However, it does not apply to residents of Belgium who are also United States (US) citizens or US permanent residents.

You can apply the Bogleheads® investment philosophy if you live in Belgium, but you must be aware of a few particularities. This page introduces a series of them. Please seek advice in the Bogleheads forum and contact a professional advisor before acting on them.

The general guidance given in Bogleheads® investing start-up kit for non-US investors, Investing from outside of the US and EU investing is applicable.

This page is not intended for US (tax) resident investors, as their situation is very specific.

Belgian stock exchange/ Beurs van Brussels

Saving and investing in Belgium

The Belgian investor has access to:

  • Regulated and unregulated saving accounts (with government protection until 100,000 Euro).[note 1]
  • Various instruments that offer protection of the principal: Certificate of Deposit (kasbons), term accounts, government bonds (staatsleningen or Obligations Linéaires -Lineaire Obligaties; abbreviated OLO, in one of these nice Belgian bilingual abbreviations), and corporate bonds.
  • Stocks:
    • Most Belgian retail banks offer access to several stock exchanges as most banks have an in-house broker.
    • Alternatively the Belgian investor can use one of the (foreign) often online low-cost brokers such as Interactive Brokers (IB).
Please note that the stock market in Belgium is very small, dominated by a few companies and not very diversified.[note 2]
As Belgium is very integrated into the EU, investors seeking broader diversification can consider the EU as the home-market.
  • Many people (72% in 2014) own their house in Belgium.[1] The mortgage payments provide some tax benefit. [note 3][note 4]
  • Mutual funds and ETFs: In Belgium, an investor is currently able to buy index funds in the form of exchange-traded funds (ETFs) through a bank or broker and there are companies offering index mutual funds. Please note that ETFs have a much smaller total expense ratio (TER) than the comparable Belgian mutual funds.
  • Saving through insurance contracts:
    • Tak-21 savings insurance (tak21-spaarverzekering) : life insurance insuring the combined premiums (after costs) and a guaranteed fixed return augmented with an optional bonus. There is government protection until 100,000 Euro.
    • Tak-23 investment insurance (tak-23 beleggingsverzekeringen) : life insurance investing in underlying mutual funds.
    • Tak-26: not an insurance, hence no premium tax of 2%, but no exception on tax on return.
The tax on the insurance premium (2%), the high total expense ratio (TER) (typically larger then 1.3%), and entry fees (typically 3%, even going up to 6%, but all negotiable) and exit fees for these funds are very high compared to what is commonly considered acceptable for Bogleheads.

Taxation of investments in Belgium

Taxation of investments from outside of Belgium

Investors that hold funds that hold securities are taxed at multiple levels on dividends. Depending on the tax treaties there might be withholding taxes by the country of domicile of the asset before the Belgian Taxation applies. (For example, US tax treaties or US estate taxes.)

Taxation of investments by Belgium

  • 30% taxation on income (interest, dividends, royalties) from investments that are really received by the individual investor. [2]
    • Except for the first 940 euro interest on regulated (gereglementeerde) savings accounts which is exempt. Interest above that is taxed at 15%.[note 5]
    • Except dividends that are reinvested within the fund. There is no dividend taxation on these for Belgian investors. As Belgium does not have any capital gains tax[2], there is no Belgian taxation on the growth of equity funds.
    • Except life insurance that is not taxed on the return; if duration of the contract is longer then 8 years, or death-coverage more than 130% of the capital.
    • Except a few other other exceptions such as real-estate collective investment trusts (bevaks), [note 6] social investments, and some other movable assets.[3]
  • No taxation on capital gains, including the dividends immediately reinvested in accumulating funds.[2]
    • Except for capitalizing funds with more than 10% bonds; These funds do not distribute the intrest received as dividends, they are reinvested in the fund. When selling the fund, the capital gains on bonds portion will be subject to 30% tax withholding. [note 7]
  • No taxation on net-wealth.[2].
  • Belgium has a yearly taxation of 0,15% on your investment account, if the combined total of your investment accounts is higher then 500k Euro.
  • Belgium does impose an inheritance tax [note 8]
  • Tax on stock exchange transactions (0.12%, 0.35%, 1.32%).[4] [5] [6]

Retirement investing in Belgium

In Belgium, retirement savings are often formulated according to a "four pillar" funding system. The first two pillars are pensions, the third pillar is tax-advantaged savings and the fourth pillar are the different kinds of after-tax savings.

First and second pillar : pensions

  • The first pillar consists of a state pension (rustpensioen)[7] that provides a basic income from age 67, the level of which is linked to the statutory minimum wage and the amount of years that a person has contributed.
  • The second pillar consists of the collective pension schemes (groepsverzekering) linked to the employer. A majority of the Belgian employees employed in the private work space have some level of collective pension. Previously these pensions were often 'defined benefit', now they are mostly 'defined contribution' by the employer. These have a guaranteed (accumulating) return of 1.75% [8] with a possible participation in the gains. A limited number pension schemes allow to divert a portion of pre-tax earning to the scheme or allow an extra personal contribution.

Tax-advantaged investments

The third pillar includes the tax advantaged investments. Two kinds of tax-advantaged saving exist: individual personal pension saving and the long term saving. The contracts are typical until age 60 or 65.

  1. The individual pension saving
    • One can invest via a bank or via life insurance. For the insurance contracts, the underlying product is a Tak-21 or Tak-23 respectively.
    • One has the choice to save in a life insurance with guaranteed return (pension saving insurance - pensioenspaarverzekering) or to save indirectly in a funds (pension saving funds - pensioenspaarfonds).
      • The pensioenspaarverzekering guarantees fixed return augmented with an optional bonus. The return is announced each year.
      • The returns of the pensioenspaarfonds are determined by the underlying funds. The typical choices are defensive/moderate/aggressive. By law these funds are mixed funds with bonds and stocks (between 50 and 70% stocks), and they need invest the majority of theirs funds in European assets.
    • Has a maximum contribution of 980 or 1200 euro per year. The contributions result in a tax-credit of 30% (if you invest 980 euro maximum, or 25% if you invest the higher amount of 1200 euro) for the yearly investing. Withdrawals before the end of the contract are taxed 33%.
    • At age 60 the balance is subjected to a 8% 'liberating' taxation.[9]. No other taxation will happen, neither on interests, dividends or capital gains. Contributions after age 60 still benefit from the tax-credit, and are completely free from any final taxation.
  2. Long-term saving (Langetermijnsparen)
    • through tak-21 insurance contracts for people who do not have a mortgage payment deduction with a maximum of 2.350 euro. [note 9] Contribution and income limits are shown in the accompanying table.
    • The contributions result in a tax-credit of 30% . Withdrawals before the end of the contract are taxed 33%.
    • At age 60 the balance is subjected to a liberating 10% taxation [10] No other taxation will happen, neither on interests, dividends or capital gains. Contributions after age 60 still benefit from the tax-credit, and are completely free from any final taxation.

Rebalancing is possible inside the third pillar but one needs to remain within the same "type" to avoid taxation. One switch per year is often allowed without costs.

Asset Allocation for an investor from Belgium

As investor you need to decide your asset allocation.

Your chosen asset allocation together with the general evolution of the market will be most determinate in the results that you will get.

Stock asset allocation

When deciding on their stock allocation, every investor needs to make a number of decisions:

  • What regional allocation will I adhere to?
  • Do I want global diversification?
  • Do I overweight one region?
  • Do I overweight my region and introduce a home-bias?

Bogleheads choose an asset allocation that is widely diversified. Have a look at the main article to check if you need to deviate from a globally diversified equity allocation.

Stable assets asset allocation

Also known as "bonds" asset allocation or "fixed income" asset allocation. With the current bond returns you need to decide how much of your stable assets you invest in bond(funds) and how much you keep in high(ish) yield savings accounts or other cash like assets.

Within the stable assets allocation, the typical choices for the Belgian investor investor are:

  • A diversified set of Euro bonds
  • Global bonds, hedged to Euro
  • Or, cash or other fixed income investment like saving account, term-accounts, tak-21 insurance contract, ....

Or a combination of the above.

Belgian investors have access to many options for bonds: government bond funds (government bonds reduce credit risk); corporate, investment grade and high yield bond funds; inflation-linked funds;

A Belgian investor can hold bonds that are euro-denominated or bonds in other currencies, that can be hedged back to Euro. Generally bonds in your own Euro currency or hedged back to Euro are advised if bonds are used for stability. This avoids currency volatility which is a big part of short term volatility with bonds.

Funds are available across the duration spectrum. Lower duration means lower interest risk, but typically each risk reduction also reduces the expected return.

Which funds to invest in from Belgium

Traditional index funds are not widely available in Belgium. Investors in Belgium have a large choice on the ETFs to implement their chosen asset allocation..

The Index funds and ETFs outside of the US wiki page mentions useful aspects of ETFs to consider, such as: whether the fund distributes dividends; if it is synthetically or physically replicating; and the distinction between base currency and trading currency.

There are multiple options on the choice where to acquire tour funds. Almost every bank provides the opportunity to buy bank-owned mutual funds and give access to the major stock exchanges for access to ETFs. In addition, domestic and international online brokers provide their services in Belgium. Please make your choice taking into account the transaction fees as well as the cost that you are charged for your portfolio; either fixed fee or fee per position. Please take into account that these fees are subject to change and also depend on your 'relation' and contract with the broker.

If choosing a foreign broker make sure you "register" the account, and that you understand if you need to pay the taxes [11] yourself or if the broker will withhold these for you.

Type of ETF useful for investing from Belgium

In general it is good to select widely-diversified Euro-denominated low-cost ETF from a reputable ETF provider.
Belgian investors can reduce tax and compliance costs for equity funds through non-registered accumulating ETFs domiciled in Ireland:

  • Since January 2018 the transaction tax for funds "not registered" in Belgium, but still registered in a different country of the European Economic Region (EER) has been lowered to 0,12%, as opposed to 1,32% for funds "registered" in Belgium, and 0,35% if not registered in the EER. [6]
  • Accumulating ETF funds
  • for equity funds, because Belgium taxes distributed dividends at 30% (but does not tax reinvested dividends, nor taxes capital gains if the fund is held longer than six months).
  • also for bond funds, because bond funds are subject to a 30% capital gains tax.[note 7]
  • Domiciled in Ireland : because Ireland does not tax foreign investors on dividends or estates and provides access to a wide treaty network.
    • ETFs domiciled in Ireland are more cost effective than holding US domiciled funds or Luxembourg domiciled funds[12]
    • Since 2018 it seems almost impossible for European investors to buy US-domiciled ETS as the US providers do not seem to want to comply with the European legislation.
  • Euro-denominated ETF: avoid the fees of currency exchange fees when buying or selling.

The site justETF is a place to start searches for non-US ETFs that satisfy your requirements.

Sample equity ETF index funds

Like many international investors, people investing from Belgium could consider to approximate the global equity market.[note 10]

Example funds (using the following selection criteria: total market, all-cap, low costs, fund size is decent, full replication or a high amount of stocks relative to the index when using optimized sampling, accumulating):

Fund Type Total Expense Ratio* Approximate

market cap
(not float adjusted
- 2015)

Approximate

market cap
(float adjusted
- 2016)

Description
iShares Core MSCI World UCITS ETF (IWDA/EUNL/SWDA)

or SPDR MSCI World UCITS ETF (SWRD)

ETF 0.20%
0.12%
66% 75% Follows the MSCI world index. Developed world large cap; no emerging, no small cap
iShares Core MSCI Emerging Markets IMI UCITS ETF (EIMI/EMIM/IS3N) ETF 0.18% 22% 10% Follows the MSCI Emerging market IMI
iShares MSCI World Small Cap UCITS ETF (WSML/IUSN)
or SPDR® MSCI World Small Cap ETF (WDSC/ZPRS)
ETF 0.35%
or 0.45%
12% 15% Follows the MSCI World Small Cap Index of world mid and small cap stocks

The 3 funds selected follow MSCI indexes, this avoids problems with differing index definitions (which could lead to investing twice in the same country and/or not at all in other countries)

  • IWDA (iShares Core MSCI World) - excludes emerging Market and small caps
  • EIMI - Emerging Market - excluding small cap - EM represent about 10% of the global capitalization. [13]
  • WSML (Ishares MSCI World Small Cap UCITS ETF) - world small-cap stocks - excluding emerging markets - according to MSCI definition, small caps are about 15% of the market.[14] Using the Morningstar style box, it seems that 20% would be needed to correctly fill the small cap portion.

Based on this, a division 20% WSML, 10% EIMI, 70% IWDA is a good approximation of the world market.[15]

Sample EURO and European equity ETF index funds

To introduce a home bias or tilt to the region a Belgian investor can use:

The following funds to focus on Europe:

Fund Type Total Expense Ratio* Description
iShares MSCI Europe UCITS ETF (Accumulating) (IMAE) ETF 0.33% Follows the MSCI Europe Index
Vanguard European Stock UCITS ETF (Distributing) (VEUR) ETF 0.12% Follows the FTSE Developed Europe Index

For equity investing in the Eurozone:

Fund Type Total Expense Ratio* Description
iShares MSCI EMU UCITS ETF (CEMU) ETF 0.33% Follows the MSCI EMU Index of large and mid cap Euro stocks
SPDR® MSCI EMU UCITS ETF (EMUE) ETF 0.25% Follows the MSCI EMU Index of large and mid cap Euro stocks

(*) does not include buying and selling costs

Sample bond ETF index funds

With the current (2018) bond returns you need to decide how much of your stable assets you invest in bond(funds) and how much you keep in high(ish) yield savings accounts.

Belgian investors have access to many options for bond ETFs through one of the ETF exchanges: government bond funds (government bonds reduce credit risk); corporate, investment grade and high yield bond funds; inflation-linked funds;

Funds can hold bonds that are euro-denominated or bonds in other currencies. Generally bonds in your own Euro currency or hedges to Euro are advised if bonds are used for protection. This avoids currency volatility which is a big part of short term volatility with bonds.

Funds are available across the duration spectrum. Lower duration means lower interest risk, but typically each risk reduction also reduces the expected return.[note 11]

Please check the dividend and capital gains tax of the chosen fund. [note 7]

Some examples for bond ETFs:

Fund Type Total Expense Ratio Description
iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (EUNA/AGGH) ETF 0.10% The Bloomberg Barclays Global Aggregate Bond (EUR Hedged) index tracks bonds issued in emerging and developed markets worldwide. Rating: Investment Grade. Currency hedged to Euro (EUR).
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged (accumulating VAGF/ distributing VAGE) ETF 0.10% The Bloomberg Barclays Global Aggregate Bond (EUR Hedged) index tracks bonds issued in emerging and developed markets worldwide. Rating: Investment Grade. Currency hedged to Euro (EUR).
  • Examples for broad market, euro denominated bonds from the Amsterdam stock exchange; courtesy of iShares' product overview:[16]
Fund Type Total Expense Ratio Description
iShares Core Euro Government Bond UCITS ETF (IEGA) ETF 0.20% Tracks Barclays Euro Treasury Bond Index
iShares Euro Aggregate Bond UCITS ETF (IEAG) ETF 0.25% Tracks Barclays Euro Aggregate Bond Index
iShares Euro Inflation Linked Government Bond UCITS ETF (IBCI) ETF 0.25% Tracks Barclays Euro Inflation Linked Government Bond Index
iShares Euro Government Bond 1-3yr UCITS ETF (IBGS) ETF 0.20% Tracks Barclays Euro Government Bond 1-3yr Term Index (other maturities are also available)

Notes

  1. Deposits up to 100,000 euro (and some other investments) are backed by deposit insurance. See Fonds de Protection | Protection Fund.
  2. Benchmark indices of Belgian stocks include the BEL All-Share Index (BAS) and the BEL 20 Index of large cap stocks.
  3. In 2015 the (federal) Belgian tax code allows a tax reduction for capital repayments of a mortgage loan concluded before 1 January 2005, with a maximum of EUR 2,290 (applicable together with the life insurance premiums). See Detailed description of deductions for individual income tax purposes in Belgium, pwc, viewed November 8, 2015 and May 24th, 2016.
  4. For loans concluded after 2005, one is entitled to a tax break on interest payments, capital repayments and life insurance premiums (e.g. your loan protection insurance) paid in the framework of a home loan for your own and only home. The total deductible amount is limited depending on the region in which your property is located. Does my home loan entitle me to any tax benefits?
  5. In a regulated savings account the interest earned in 2015 up to 1,880 euros is exempt from taxes (withholding tax). The yield above 940 euros is taxed at 15 %. Regulated savings accounts must meet certain conditions:
    • The base rate can be changed daily;
    • The fidelity premium paid amount is fixed for a year;
    • The bank may not grant a rate higher than the regulated maximum interest rate.
      Translated from Soorten spaarrekeningen | Types of savings accounts. For an explanation of base rates and fidelity premiums see this translated version of Wat levert een spaarrekening op? | What does a savings account produce?, viewed November 11, 2015.
  6. Bevak is an acronym for Beleggingsvennootschap met vast kapitaal, see Bevak,(in dutch) wikipedia.
  7. 7.0 7.1 7.2 Funds that hold more then 10% bonds and that to not fully distribute all interest received are are subject to a capital gains tax of 30%, with no credit for losses. As such it seems wiser to postpone the taxation to the moment of the sale where dividends might be offset with the losses in the fund price. Please note that to escape the capital gains tax, the totality of the dividends needs to be distributes and this needs to be explicitly mentioned in the documentation of the fund. Failing such clear mention, the brokers will still withhold the capital gains tax even if the fund is distributing
  8. Belgium does impose an inheritance tax, droits de succession or successierechten, collected at the federal level but distributed to the regional level. Information regarding the tax can be found at Successions in Belgium and Calcul des droits de succession, available in French and Dutch.
  9. The tax deductible contributions under the long-term investing system are subject to a ceiling. The maximum is 15 percent of the first 1,600 euro of the taxpayer’s net earned income, plus 6 per cent of the balance of that income, up to an absolute maximum. If the saver is already receiving a tax allowance for repayment of the capital on a mortgage loan or for other life insurance premiums (excluding pension savings contributions), the euro maximum constitutes the total amount deductible for all these items together. See The determinants of savings in the third pension pillar, December 2007 Stinglhamber, P. / Zachary, M.-D. / Wuyts, G. / Valenduc, Ch.
  10. As of 2015, developed market and US stock market had (non-float) capitalization comprising approximately 75% of the global market: emerging market capitalization comprised approximately 25% of the global market. Small Cap stocks make up approximately 10% of the market. Figures are not float adjusted and Korea is considered an emerging market consistent with MSCI indexes. Excluding so-called “control holdings” emerging markets represent 17% of the total (Control holdings do not trade in the market; an example of this would be a government that holds 50% of a company’s stock to maintain control of it, these shares will not trade freely and will not be available to investors).See Burton Malkiel's blog posting How Much Should We Invest in Emerging Markets?, Wealthfront, viewed Jul 15, 2016.
  11. The following table provides annual returns for Barclays Euro bond indexes. Data source: Barclays Guides and Factsheets, available for download.

    google drive spreadsheet

See also

References

  1. Eurostat-Data, viewed November 13, 2015.
  2. 2.0 2.1 2.2 2.3 Detailed description of income determination for individual income tax purposes in Belgium, pwc. Viewed November 8, 2015.
  3. Income from movable assets(in dutch).
  4. taxes on saving and investing (viewed Feb 19, 2019)
  5. Tax on stock exchange transactions (test-aankoop site viewed Feb 19, 2019)
  6. 6.0 6.1 Transaction tax for popular trackers (www.tijd.be site viewed Feb 19, 2019)
  7. Belgian old age pension (Rustpensioen) | Bureau for Belgian Affairs | SVB
  8. The guaranteed return of collective pension schemes was 3.75% until the end of 2015, it is 1,75% since then
  9. Pension savings, Federale Overheidsdienst Financien, (in dutch) viewed May 24, 2016.
  10. See The determinants of savings in the third pension pillar, December 2007. Stinglhamber, P. / Zachary, M.-D. / Wuyts, G. / Valenduc, Ch.
  11. dividend withholding tax, transaction tax, capital gains tax for bond funds
  12. For example: the tax treaty between Ireland and the US lowers the dividend withholding tax to 15% for Ireland-domiciled funds. Luxembourg domiciled funds pay the default 30%.
  13. emerging markets on the MSCI.com website
  14. msci world small cap index on the MSCI.com website on the MSCI.com website
  15. forum discussion "discussion portfolio - passive global exposure for a non-american or european"
  16. iShares product overview

External links

Bibliography