Belgium and US Clarify Pension Plans Under Double Tax Treaty

When Belgium and the US signed a new double tax treaty in 2006, one of the major innovations was a provision holding that when an employee comes to work in Belgium, he and his employer can continue to pay into his US pension plan for a maximum of ten years. His employer’s contributions are not taxable income and the employee’s personal contributions are tax-deductible.

In an Agreement dated January 14, 2010, the Competent Authorities of both States listed the pension plans that qualify for tax relief. In the case of the United States, these plans are:

• Qualified plans under sections 401(a) (including 401(k)) IRA
• Individual retirement plans (including those that are part of a simplified employee pension plan that satisfies section 408(k)), individual retirement accounts, individual retirement annuities, a section 408(p) account, and a Roth IRA under section 408A
• Section 403(a) qualified annuity plans
• Section 403(b) plans
• Section 457(b) plans
• Thrift Savings Plans (section 7701(j))

Tax relief for contributions to a US pension plan is limited under the so-called 80 percent rule. This means the employer’s pension contributions are only tax-deductible insofar as they allow a build-up of sufficient pension reserves to finance a pension of 80 percent of the employee’s last annual salary before taxes. The calculation is complex – it takes account of state pension and private benefits and of total contributions made over a normal professional career. If an employee has made personal contributions to the pension plan, he is entitled to a tax credit limited to 40 percent.

If the employee has not been contributing to the plan or is not a member of the pension plan, he cannot get the relief for a US pension plan. If he contributes to a Belgian pension plan, he can get tax relief in Belgium, and if he is a US citizen he can also get relief in the US. In Belgium, qualifying contributions are those paid to pension funds and to group insurance schemes set up by insurance companies.

Contributions are tax-deductible in Belgium, within the same 80 percent cap. Complementary retirement plans for self-employed qualify as well, but the maximum deduction is limited to €2,781.

If your pension plan is not listed, you can ask the tax authorities of the originating State (where the plan generally corresponds) to for the name of a pension plan recognized for tax purposes in that other State.