No one likes them but everyone has to pay them: taxes. As investors, we also have to make our contributions that are necessary to live in a fair and equal society.
There are four types of taxes that are relevant to a Belgian investor who mainly invests in index funds and ETFs:
- tax on transactions
- tax on dividends
- tax on capital gains for bonds
- tax on trading accounts
What follows is an overview of those taxes. I provide some links at the end if you want dig a bit deeper.
Word of caution
The information presented here is up-to-date at the time of writing (December 19th 2018). However, every new government likes to make some changes to the tax system so it might be outdated by the time you're reading this.
Tax on transactions (“beurstaks” or “taxe boursière”)
There's a tax on the transaction every time you buy or sell a security. If the ETF you are purchasing or selling is registered on a particular list maintained by the European Economic Area, then the tax equals 0.12% of the transaction amount. Otherwise, it's 0.35%. Fortunately, most ETFs available in Europe are on this list. All the funds in my portfolio are.
There is not really a strategy to reduce this tax. Since it's a percentage, buying more or less securities in one transaction isn't going to affect the total amount of tax that you will end up paying.
Tax on dividends (“roerende voorheffing” or “pŕecompte mobilier”)
There's a 30% tax on dividends that you perceive through shares that you hold. This tax is applicable to individual stocks but also to distributing funds.
This tax is the main reason why accumulating funds are preferred over distributing funds. Indeed, with accumulating funds, the dividends are directly reinvested into the fund, thereby bypassing this tax. Furthermore, an added benefit is that you don't have to spend time on deciding how to reinvest the dividends. After all, when you are a passive investor, you want to spend the least amount of time possible managing your investments!
In my portfolio, you will only see accumulating funds. I also wrote about what be careful about when selecting a fund in my post about passive investing in Belgium.
Tax on capital gains for bonds (also called the Reynders-tax)
For funds that consist of at least 10% bonds, there is a 30% tax on the profits made when selling. For example, if you bought a bond at €100 and end up selling it later for €130, your net profit will only be €21. The other €9 will go to the Belgian state through this tax.
For funds that consist solely of bonds, the 30% tax rate will be applied to the full profit. For mixed funds, for instance that contain both bonds and stocks, the tax will only be applied to the bonds portion of the fund. Concretely, if you own a fund that consists of 50% bonds and 50% stocks, the effective tax rate on the profits will be 15% instead of the full 30%.
A consideration is that this tax gives more incentive to invest in stocks rather than bonds. This is contradicting with the common strategy of investing more in bonds as you get older, because of their reduced volatility. Something to ponder about!
Tax on trading accounts (“taks op effectenrekeningen” or “taxes sur les comptes-titres”)
Up until September 2019, Belgium was withholding a yearly 0.15% tax on any trading account (for instance on Lynx, Binck Bank or Degiro) whose value exceeds €500,000. This tax was deemed unconstitutional in October 2019 and will not be applicable from 2020. However, this does mean that you'll have to pay it when you do your taxes for the year 2019.
Want to know more?
If you want to know more about the topic, I refer you Wikifin's pages in Dutch or French. Wikifin is a website maintained by the FSMA, which is the Belgian regulator for the financial sector. Their information is therefore trustworthy and independent.