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

  • qualified plans under sections 401(a) (including 401(k)) IRC,
  • 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) plan,
  • Thrift Savings Plans (section 7701(j)).

 

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. 

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