Investing from Belgium

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Belgian stock exchange/ Beurs van Brussels
Belgium-flag.gif This page deals specifically with investing in Belgium

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 ask portfolio questions in the bogleheads forum and contact a professional advisor before acting on them.

The general guidance given in EU investing is applicable. The pages Investing from the Netherlands and UK investing also have useful information.

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

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

  • 30% taxation on income from investments (interest, dividends, royalties received by the individual investor) [2]
    • Except for the first 1,880 euro interest on regulated (gereglementeerde) savings accounts which is exempt. Interest above that is taxed at 15%.[note 5]
    • Except life insurance that is not taxed on the return; if duration of the contract is longer then 8 years, or death-coverage more then 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 funds with more than 25% bonds; capital gain on bonds portion will subject to 30% tax.
  • No taxation on net-wealth.[2]
  • Belgium does impose an inheritance tax [note 7]
  • Tax on stock exchange transactions (0.09%, 0.27%, 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 (3.75% until the end of 2015; from 2016 onward this is 1.75% with a possible participation in the gains). A limited number pension schemes allow an extra personal contribution.

Tax-advantaged investments

Maximum savings amount and income for long-term saving[8]
Year Contribution limit (€) Income limit (€)
2013-2017 2,260 34,847
2012 2,200 33,847
2011 2,120 32,514
2010 2,080 31,847

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. The contributions result in a tax-credit of 30% for the yearly investing. Withdrawals before the end of the contract are taxed 33%.

  1. The individual pension saving has a maximum contribution of 940 euro per year.
    • One can invest via a bank or via life insurance.
    • One has the choice to save in a fund with guaranteed return (pensioenspaarverzekering) or to save indirectly in mutual funds (pensioenspaarfunds). For the insurance contracts, the underlying product is a Tak-21 or Tak-23 respectively.
      • The pensioenspaarverzekering guarantees fixed return augmented with an optional bonus. The return is announced each year.
      • The returns of the pensioenspaarfunds are determined by the underlying funds. The typical choices are defensive/moderate/aggressive. By law these funds are mixed funds with bonds and stocks, and they need invest the majority of theirs funds in European assets.
      • At age 60 the balance is subjected to a 8% 'liberating' taxation.[9]. No further taxation will happen.
  2. Long-term saving (Langetermijnsparen) through tak-21 insurance contracts for people who do not have a mortgage payment deduction. [note 8] Contribution and income limits are shown in the accompanying table. At age 60 the balance is subjected to a liberating taxation [10]

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.

Which funds to invest in from Belgium

The EU investing wiki page mentions useful aspects of funds 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.

Investors in Belgium have a large choice where to acquire their 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 abject to change and also depend on your 'relation' and contract with the broker.


Type of ETF useful for investing from Belgium

Belgian investors can reduce tax and compliance costs through non-registered accumulating ETFs domiciled in Ireland:

  • Transaction tax for funds "not registered" in Belgium is 0,27% as opposed to 1,32% for funds "registered" in Belgium.
  • For equity, Accumulating ETF 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).
  • Domiciled in Ireland : because Ireland does not tax foreign investors on dividends or estates and provides access to a wide treaty network.
    • Nonresident alien & Irish ETFs explains how ETFs domiciled in Ireland are more cost effective than holding US domiciled funds.
    • International investors are often advised not to buy US domiciled assets because of US estate taxes, FATCA (Foreign Account Tax Compliance Act)[11] and because their country does not have a withholding tax treaty (see also Nonresident alien taxation).
    • Belgians investing directly in US-domiciled ETFs could qualify for the 15% US withholding tax rate on dividends, but since US domiciled ETFs are almost always distributing dividends, Belgians will suffer on top of that a 30% tax from the Belgian government and hence only retain 62.05% of the original dividend.[note 9]

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) ETF 0.20% 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) ETF 0.25% 22% 10% Follows the MSCI Emerging market IMI
SPDR® MSCI World Small Cap ETF (WDSC or ZPRS) ETF 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 incompatible index definitions.

  • 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. [12]
  • WDSC- world small-cap stocks - excluding emerging markets - according to MSCI definition, small caps are about 15% of the market. [13]

Based on this, a division 15% WDSC, 10% EIMI, 75% IWDA is a good approximation. [14]

Sample EURO and European equity ETF index funds

The following funds can be used 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

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 that are euro-denominated or funds in other currencies (generally bonds in your own currency 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). Typically each risk reduction also reduces the expected return.[note 11]

Some examples for bond ETFs:

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)
(*) does not include buying and selling costs

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 1880 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. 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.
  8. 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.
  9. With 15% US withholding tax, and 27% Belgian dividend tax a Belgian investor would get: 100×0.85×0.73=62.05% of the dividend. So for 2% dividend yield per year, 0.02x(100-62.05)=0.759% would be subtracted, and 1,241% would be distributed to the investor. See Een introductie tot indexbeleggen vanuit België | An introduction to index investments from Belgium.
  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

External links

Bibliography