June 5, 2020
For Belgian taxpayers, June means facing up to their obligation to complete and submit their tax returns. Do you have a Luxembourg life assurance contract, perhaps even with OneLife? No need to panic, here we provide some key information to help you keep a smile on your face.
- Life assurance contract held by a natural person
In accordance with the Income Tax Code, every Belgian natural person taxpayer must declare if they have a foreign life assurance contract. Declaration of the existence of the life assurance contract forms an integral part of the general context of automatic exchange of information (CRS, Common Reporting Standard).
During the information exchange process, OneLife, a life assurance company governed by Luxembourg law, is obliged to forward certain information to the Luxembourg tax authorities concerning life assurance policyholders. The Luxembourg authorities are then obliged to communicate this information to the country of residence of the policyholder (i.e. Belgium). The automatic exchange of information therefore enables the Belgian tax authorities to check whether the taxpayer has met their declaration obligation.
Who should declare the contract if the rights to the life assurance contract have been assigned in the context of succession planning?
The mechanism for assigning all rights to the contract enables the policyholder to “give” the rights to control the assets underlying the life assurance contract to a stated third party. In light of this mechanism, in a position paper dated 28 June 2019, the Belgian federal authorities now require both the original policyholder (subscriber) and the beneficiary of the rights assignment (the assignee) to state the existence of the life assurance contract in their personal income tax returns.
“Life assurance” equals “simplicity”
Without any doubt, in terms of tax returns the life assurance vehicle offers an undeniable advantage compared to direct possession of securities accounts.
Only the existence of the life assurance contract must be stated, whereas in the case of direct possession of a securities account (securities portfolio with a bank) several laborious steps frequently call for the inevitable assistance from a professional, notably in order to:
- Establish the amount of income to be declared;
- Complete the tax return itself;
- Complete any additional return for the stock exchange transaction tax.
For Belgian natural person tax residents, the following steps will also be required if any interest or dividends are received from a foreign source:
- Calculation of the income from a foreign source;
- The applicable convention on double taxation must be identified and analysed;
- A request must be issued for exemption from foreign income that has already been taxed or the reduced percentage must be applied depending on the convention in question;
- Administrative steps with the competent tax authorities.
Lastly, it is also highly pertinent to mention at this stage that the obligation to declare the existence of the life assurance contract will not lead to the taxpayer being taxed in any way. As the Branche 23 life assurance offered by OneLife provides no guaranteed return or capital protection, the income generated by our products remain non-taxable.
2. What if the Belgian tax authorities request further information? Often it is simply a misunderstanding!
Many of our clients have received a request for information from the tax authorities stating failure to make a declaration. The tax authorities explain that they believe the taxpayer holds a bank account abroad whereas they actually have a life assurance contract that they correctly stated in their return.
It is important to note that the standardised documents relating to the automatic exchange of information do not distinguish between bank accounts and life assurance policies (they are both covered by the term “financial account“). In the context of the CRS, therefore, OneLife is unable to make specific reference to the life assurance contract.
In order to resolve this misunderstanding, you just need to tell the Belgian tax authorities that it relates to a life assurance contract as you declared on your IPP personal income tax return. The tax authorities will not contest this statement, which you can even issue via e-mail.
Failure to declare, however, may notably lead to an administrative fine of between Euros 50 and 1,250.
The main points in summary:
For the life assurance contract (natural persons):
- The policyholder and, as applicable, the assignee, only have to declare the “existence” of the contract. No additional information is required.
- The income from Branche 23 life assurance policies (no guaranteed return) offered by OneLife remain non-taxable.
If the tax authorities issue a request stating “failure to declare”:
- In order to resolve any misunderstanding, you just need to tell the Belgian tax authorities that it relates to a life assurance contract as you declared on your IPP personal income tax return (and not a bank account). You can do this simply by sending an e-mail.
Would you like more information? OneLife’s experts are here to offer support in wealth and estate planning to you and your clients.