Belgian government hitting dividend investors with tax hike

The Belgian government’s long-discussed tax shift has arrived and it’s not good news for investors. The tax shift (called tax lift by some) promises to keep and create more jobs by making labor cheaper as well as increasing the purchasing power of people with low to middle income.

To finance this, the government is increasing taxes on consumption and the tax on investment income. For various reasons, the previous government lowered the VAT rate on electricity from 21 percent to 6 percent but this costly measure is being cancelled. Unfortunately, the Flemish government already has a new electricity tax in the pipeline to fill a hole caused by the oversubsidizing green energy plus prices are also going up due to a change to  corporate tax exemptions. Combined these three tax hikes will significantly increase the electricity price – which was already heavily taxed.

Unhealthy food is in the crosshairs as well, not a lot of details are available about how they’re going to tax this but Denmark once did something very similar and they cancelled it after only a year because food prices and administrative costs soared. People didn’t change their eating behavior and lots of folks started shopping across the border to avoid the tax.

After months of discussion about a possible capital gains tax or a tax on speculation, the parties in charge agreed on creating a monster called the “speculation tax”. Not a lot of details are available but it seems it’s going to be a tax you’ll have to pay on gains when you sell shares within six months after purchase.

The tax is largely symbolic, it’s expected to earn the government as little as 28 million euros a year. It’s no doubt going to be very complex to implement, resulting in lots of wasted time and administrative costs. Experts fear the speculation tax will chase away people from the stock market, resulting in lower liquidity on the Belgian stock market as well as fewer IPOs in Brussels. Meanwhile, the real speculators will not be harmed by this tax as on shares only and they can always move to London or someplace else to avoid the tax. I believe this tax is going to cost a lot more than it’s going to earn the government.

I follow a long-term buy-and-hold strategy so this speculation tax shouldn’t harm me too much but unfortunately the government also increased the tax rate on income from investments from 25 percent to 27 percent. Quite unexpected and definitely a slap in the face for dividend investors as this makes it even harder to grow passive income.

This is the third dividend tax increase in just a couple of years, the original rate was 15 percent. The first increase took it to 21 percent (same as the VAT rate), then they rose it to 25 percent and now it’s 27 percent. I hope this is not a trend or dividend investing is becoming very unattractive in Belgium.

Hopefully there’s some truth to the part about higher purchasing power as all the tax increases by the various levels of government leave me with a very disheartening feeling.

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12 thoughts on “Belgian government hitting dividend investors with tax hike

  1. roadmap2retire

    Hmmm sad to hear that dividend investors are being punished with a higher tax. I think UK also had a similar move recently.
    Hopefully this does not discourage too many investors from dividend investing or there are options out there for you folks to protect your assets from taxes in some sort.

    Best wishes
    R2R

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    1. Dividends Are Coming Post author

      Sad thing is investing in stocks or funds was already unpopular in Belgium. A lot of people are afraid of leaving the safety of their saving account, about the only other thing regarded as trustworthy is real estate.

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  2. ambertree

    The patchwork they created for the tax lift is really disencouraging people to invest.
    Just like you, i am curious to see if we will feel the shift! Will our buying power really increase? Or is it just a vague promise that is washed away by higher vat on electricity?

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    1. Dividends Are Coming Post author

      Agree, with all the cuts, new taxes, and tax increases our purchasing power is taking a big hit. Test Aankoop calculated the combination of tax increases on electricity alone will amount to roughly 256EUR a year for a family with an average electricity use (3500kWh).

      Last year my city also raised a bunch of taxes, off the top of my head that amounted to close to 250EUR a year. I’m very curious if the proposed “up to 100EUR a month extra” is going to cover all of this. It seems they’ve narrowed down the new taxes pretty well but the promised increases in net wages are vague and something for “down the road”.

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      1. ambertreeleaves

        As more news starts to come in, I think we are now sure that the tax shift is not positive for us.
        The 100 EURO is for low incomes only (below 2000 or 2400/month).
        I did the calculation for me, Electricity will be around 450-500/year more expensive (our house heating is electricity 😦 )

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  3. Geblin

    Hi Dividends Are Coming,

    I don’t like it one bit. I did start investing in late 2008 so my dividend income did already take a hit from the raise to 25%. Now another raise to 27%. The proposed 100 EUR raise is not for everyone, only for the lowincomes so only a small part of the population will benefit. The rest will end up with an even higher taxrate.

    Cheers,
    G

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    1. Dividends Are Coming Post author

      Agreed, this is looking worse every day. The plans are very vague and it looks like few people will get a net benefit from this.

      I’m also curious if the new tax regime for real estate companies has any implications for REITs, it’s all very vague but I’m a bit afraid we’re going to see big dividend cuts there.

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      1. Geblin

        In Belgian REIT’s we have the ones with 25% and 15%, only the ones with 25% will get a raise. I hope it stays that way.

        Cheers,
        Geblin

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      2. Dividends Are Coming Post author

        One of the aspects of the tax shift appears to be a new tax regime for “real estate funds”, I’m not sure if they mean REITs with this as the information is very vague.

        This image (http://imgur.com/W4d3Exu) from a French-language newspaper mentions these new real estate fund taxes should bring in 286 million EUR a year.

        REITs are exempt of Belgian corporate taxes if they pay out 80% of profits as dividends, I hope the government isn’t making any changes to that.

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    2. No More Waffles

      Geblin and DAC,

      I’m still not convinced that dividends fall under the new 27% tax rate. Many news outlets mentioned “27% op spaarproducten, met uitzondering van spaarboekjes” (Check deredactie.be, for example), so that would mean not on income from stocks? I couldn’t find any official government sources though.

      Anyway, if it turns out that the increased tax rate also applies to dividends that puts is back 2%, which isn’t too bad, but still stings a little bit.

      Overall I find the tax shift not worthy of the name. It’s the usual marginal changes, now covered up in a ton of vagueness. Instead of taking their time and drastically changing the way things are taxed, we now have a hasty solution to a situation that will continue to persist.

      Best wishes,
      NMW

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      1. Dividends Are Coming Post author

        Hi NMW,

        You’re right the tax shift is very vague at the moment but I don’t see any reasons why the government would keep it at 25% for dividends and hike everything else to 27%.

        De Tijd specifically mentions this includes dividends but the good news is the tax hike won’t go into effect until 2017:

        Voor financiële producten waarvoor de roerende voorheffing 25 procent bedraagt, stijgt het tarief in 2017 naar 27 procent. Die belastingverhoging moet 350 miljoen euro opbrengen. Het nieuwe tarief is van toepassing op onder meer dividenden en de rente op zicht- en termijnrekeningen, kasbons en obligaties. Het is al de derde keer in enkele jaren dat de roerende voorheffing stijgt. De regering-Di Rupo trok in 2012 de roerende voorheffing op van 15 naar 21 procent en in 2013 van 21 naar 25 procent. Gecumuleerd komt deze trapsgewijze verhoging van de roerende voorheffing bijgevolg neer op een stijging van de belastingdruk met 80 procent. De uitzonderingen blijven van kracht. De rente op spaarboekjes blijft vrijgesteld tot 1.880 euro. De roerende voorheffing blijft 15 procent voor de opbrengst van spaarboekjes boven 1.880 euro, voor de Leterme-staatsbons van eind 2011 en volksleningen.

        http://netto.tijd.be/budget/Wat_betekent_de_taxshift_voor_u.9658272-1630.art

        Overall 2 percent isn’t too bad but the trend is worrying. Several years ago dividend tax was only 15 percent, who knows how much it will be five years from now…

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