The Act of 7 February 2018, one that essentially is a ‘wealth tax’, sees the introduction of an annual 0.15 percent tax on financial instruments held in securities accounts valued over €500,000.
On the surface this seems fairly straightforward, on further inspection rather vague. What exactly do “financial instruments” consist of? How will my residency status affect implementation? What if my account has multiple owners?
In the forthcoming article, I explain the type of financial instruments covered by the tax, how accounts with multiple account holders are affected, and finally, possibilities for legitimate mitigation of the tax.
The tax is due on any securities, trading or brokerage accounts held by individuals that have a value in excess of €500,000 per account holder. Importantly, it applies to Belgian and overseas accounts held by Belgian residents as well as Belgian securities accounts held by non-resident account holders.
The financial instruments included in the €500, 000 threshold are:
• Stocks; regardless of whether they are of listed companies
• Bonds; regardless of whether they are listed
• Shares in investment companies
• Cash bonds
Of which the tax will be calculated at 0.15 percent of the average value of the taxpayer’s share, not just on the tranche over €500, 000.
ACCOUNTS WITH MULTIPLE ACCOUNT HOLDERS
All account holders are liable for the tax, regardless of their status: full ownership, bare ownership, or usufruct (or life interest). If the securities account has two or more account holders, it is presumed that the account is held in equal shares by all account holders.
However, in the case where the actual value of a share is less than the value of an equal share, tax can be recovered through filing a separate tax return with the other account holders.
PROCEDURE AND PAYMENT
Belgian banks will report the values of the securities and the tax due per account holder, deduct the tax from the account, and pay it to the tax authorities. The tax is to be reported and paid by 20th December, starting in 2018.
If you have more than one securities or brokerage account and anticipate the total value to exceed the €500,000 threshold, it will fall on your shoulders to authorise the bank to deduct and pay the tax. Furthermore, in your annual income tax return you will need to declare your multiple securities accounts.
Overseas banks may also report and pay the tax via a fiscal representative based in Belgium. However, if they do not, Belgian resident account holders will have to report the value of their securities online, together with their annual income tax returns, and pay the tax by 31st August.
Failure to report and late, incomplete, or inaccurate filing can attract a penalty of 10 to 200 percent, depending on the importance of the infringement.
NAVIGATING THE TAX
Indeed, there are completely legitimate steps you can take to reduce this additional tax burden. Firstly, let us take a look at financial instruments that are not covered by the wealth tax net:
- Stock options or futures.
- Stocks and bonds that are registered are also exempted.
- Bonds or stocks that were converted to the company’s registers after 9th December 2017 will be disregarded for a year. If converted on 4 January 2018 or on 24 December 2018, they will be disregarded for 2018.
- Securities held in a pension savings account.
- Investments in an insurance wrapper, i.e. in an insurance policy of Branch 23.
- Securities accounts held by a company or legal entity are exempt. However, any transfer of the securities to the account of a company or legal entity that is liable to corporate income tax – for the sole purpose of avoiding the tax – will be disregarded, and not just for the year of the transfer. The securities will be deemed to be owned by the transferor.
Certain exempted instruments do open up possibilities for navigating the tax. If you have any questions or concerns about your own position in relation to this new ‘wealth tax’ please feel free to contact the author of this article Marc Quaghebeur (email@example.com) or contact us for a free Fry Group Guide to the Insurance Investment Wrapper.