Belgium’s Exchange-Traded Funds (ETFs) market finds itself navigating through a tax system inconsistency that favours unregistered products, according to Sébastien Lippens, the founding partner at Privafin. In a market where ETFs are highly sought after for their simplicity and cost-effectiveness, Belgian investors are urged to tread carefully due to the complexity of the country’s tax rules for investment products.
Two taxes, the stock exchange transaction tax (TOB) and the withholding tax on capital gains (RV), impact the returns of ETFs in Belgium. Sébastien Lippens emphasises the need for vigilance among investors regarding potential tax pitfalls, especially the disparity between ETFs registered with the Financial Services and Markets Authority (FSMA) in Belgium and those registered in the broader European Economic Area (EEA).
Crucial distinction
Belgium’s tax treatment reveals a significant discrepancy between Belgian-registered capitalisation ETFs and their counterparts in the EEA. The TOB for a Belgian-registered capitalisation ETF is 1.32 per cent, both on purchase and resale, resulting in a total reduction of 2.64 per cent for arbitrage (buy/sell) transactions. Conversely, EEA-registered or non-Belgium registered ETFs incur a mere 0.12 per cent charge on purchase and sale, or 0.24 per cent for arbitrage.
This inconsistency leads to a notable 2.4 per cent difference in a single arbitrage transaction, prompting informed investors to lean towards unregistered ETFs. However, paradoxically, these are the very ETFs from which Belgian investors are restricted from receiving commercial information.
Adding to the complexity, the TOB is capped at €4,000 for a 1.32 per cent rate. This cap raises questions about its alignment with recent developments in savings taxation, especially as larger transactions seem to benefit from a falling TOB. Simultaneously, the introduction of a 0.15 per cent annual tax on securities accounts over €1 million further tightens the tax landscape for larger accounts.
Withholding tax
Distribution ETFs face a 30 per cent withholding tax on distributions, regardless of whether they invest in bonds or shares. Capitalising bond ETFs, however, are not exempt from the 30 per cent levy on capital gains upon exit, commonly known as the “Reynderstaks.”
Lippens suggests that opting for capitalising equity ETFs not registered in Belgium may be more advantageous from a withholding tax perspective, given their exemption from withholding tax and lower TOB. Yet, he acknowledges that future standardisation of the TOB across all capitalisation ETFs might alter this dynamic in favour of distribution ETFs.
The long-anticipated reform of the TOB, aiming to simplify the system with a uniform 1.32 per cent or higher TOB on exit for capitalisation funds/ETFs, remains in limbo. This reform, if adopted, could significantly impact the attractiveness of capitalisation ETFs, favouring distribution ETFs. However, with doubts surrounding its adoption in the current legislature, the disparity in tax treatment endures for the time being. Belgian investors continue to navigate the complexities, with the hope that regulatory clarity will eventually prevail in the ETF tax landscape.
Further reading on Investment Officer:
- Onlogische belasting bestraft ETF’s (🇳🇱/🇧🇪)
- Active ETFs gain popularity among fund selectors
- Luxembourg plans to cut subscription tax on Eltifs