Introduction
Belgian residents who have lived or worked in the United States during their career may still hold U.S. retirement accounts, such as an Individual Retirement Account, commonly referred to as an IRA. These accounts may also be inherited by Belgian residents from family members in the United States.
While these accounts are U.S.-based, the tax treatment is not always straightforward once the beneficiary lives in Belgium and is no longer a U.S. taxpayer. In practice, the most important issue is often not the final tax position, but the U.S. withholding tax applied by the financial institution or custodian before the funds are paid out.
U.S. withholding tax can apply automatically
U.S. custodians such as Fidelity, Schwab, Merrill Lynch, Vanguard or Wells Fargo are required to apply U.S. withholding rules when making IRA distributions to foreign residents.
For Belgian residents who are not U.S. citizens and who are treated as U.S. Non-Resident Aliens (NRAs), the default withholding on pre-tax IRA distributions can be 30% of the gross amount.
This default withholding may apply unless the correct treaty documentation has been filed with the U.S. custodian before the distribution is made.
U.S.–Belgium tax treaty may reduce withholding
In many cases, a Belgian tax resident who is not a U.S. citizen may be able to claim treaty benefits under the U.S.–Belgium tax treaty.
Where the treaty position is properly claimed and accepted by the U.S. custodian, U.S. withholding tax on IRA distributions may potentially be reduced to 0%.
However, this does not happen automatically. The relevant U.S. tax form must be correctly completed, submitted to the custodian and accepted before the distribution is processed.
For private individuals, this will generally require Form W-8BEN.
Why Form W-8BEN is important
The W-8BEN form is used by non-U.S. individuals to confirm their foreign tax status and, where applicable, claim treaty benefits.
In practice, problems often arise because:
- 1. no W-8BEN was filed;
- 2. the treaty claim was not completed correctly;
- 3. the custodian had not accepted the form before payment;
- 4. the form had expired and was not renewed.
This is why it is important not to request a distribution before the documentation position has been confirmed with the U.S. custodian.
U.S. citizens living in Belgium are treated differently
A Belgian resident who is still a U.S. citizen remains a U.S. taxpayer. This can lead to a different withholding treatment.
For example, U.S. citizens living in Belgium may still be subject to U.S. withholding on IRA distributions, even where they are Belgian tax residents. The withholding may then need to be addressed through the relevant tax return and foreign tax credit mechanisms.
This is one of the reasons why it is essential to first determine whether the beneficiary is still a U.S. taxpayer or is treated as a Non-Resident Alien for U.S. tax purposes.
Inherited IRAs and Roth IRAs require extra care
Inherited IRAs often require additional review, especially when the distribution forms part of an estate settlement.
Roth IRAs and inherited Roth IRAs can also raise practical issues. Even where the technical treaty position appears favourable, some U.S. custodians may apply withholding as a conservative internal policy.
Once withholding has been applied, recovering the amount can be difficult and time-consuming. It is therefore usually better to clarify the withholding position before the distribution is made.
Practical recommendation
Belgian residents who hold or inherit a U.S. IRA should take the following steps before requesting any distribution:
- 1. confirm whether they are still a U.S. taxpayer
- 2. identify the type of IRA involved
- 3. check the custodian’s withholding policy
- 4. file the correct W-8BEN form where applicable
- 5. ensure the treaty claim is correctly made
- 6. obtain confirmation that the custodian has accepted the documentation
- 7. separately review the Belgian tax treatment.
Conclusion
Belgian residents who are not U.S. citizens may, in certain cases, receive U.S. IRA distributions without U.S. withholding tax if the U.S.–Belgium treaty position is correctly claimed.
The key point is timing. Once a U.S. custodian has applied withholding, correcting the position afterwards can be much more difficult.
Anyone holding or inheriting a U.S. IRA should therefore always review the U.S. withholding position before requesting a distribution.