When Belgium and the US signed a new double tax treaty in 2006, one of the major innovations was a provision 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, the Competent Authorities of both States have listed the pension plans that qualify for tax relief. In the case of the United States, these plans are
Tax relief for contributions to a U.S. pension plan is limited under the so-called 80% rule. That means that 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% of the employee’s last annual salary before taxes. The calculation is complex; it takes account of state pension and private benefits and of contributions 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%.
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 but, if he is a US citizen also in the U.S. 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% 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 other state that the plan generally corresponds to a pension plan recognized for tax purposes in that other State.