Traditionally, self-employed individuals in Belgium do not have the same pension rights as employees. As of 2021, statutory pension for self-employed is calculated the same way as for employees, which should result in a higher statutory pension over time.
As company directors are generally considered to be self-employed in Belgium, this is a positive development for this category as well. Statutory pension is normally calculated based on your self-employed business income or salary you take out of your management company. Before, only 69% was taken into consideration, but as of 2021 this is now 100%. The further away you currently are from retirement, the higher your statutory pension will be in the future.
Since statutory pension will in any case be lower than your current salary level, it will likely be insufficient to maintain your current lifestyle. For this reason, you may want to top up your statutory pension with one or more supplementary pension plans. For company managers, this is typically done in a tax-efficient manner through the company via a so-called ‘Individual Pension Agreement’ and/or ‘Group Insurance Policy’. The premiums paid into the plan are fully tax-deductible as long as the total of both your statutory and supplementary pension does not exceed 80% of your (most recent) normal annual gross salary. This is the so-called ‘80%-rule’. The applicable formula is the following:
Supplementary pension ≤ (80% of normal annual gross salary – est. statutory pension)
Statutory pension should therefore be included in the 80% limit. As this amount is not yet known when the insurance premiums are paid, the tax office allows you to estimate the amount. It can be estimated at 25% of your gross salary, considering the legal minimum and maximum (which are revised annually). However, for the years worked from 2021 onwards, 50% of your gross salary must now be taken into account to calculate the 80% limitation.
In this context, supplementary pension refers to any pension that is accrued under the so-called ‘second pension pillar’. This includes Individual Pension Agreements and Group Insurance Policies. Your Private Supplementary Pension for the Self-Employed (VAPZ/PLCI) also counts towards the maximum premium you can contribute. Policies taken out individually, such as a personal pension saving plan under the ‘third pension pillar’, should not be included.
As a result, the tax-deductible insurance premium amount may now be lower than it was before. Any excess premiums paid in 2021 and 2022 remain deductible, if your company transfers the excess amount to 2023. It then counts as an advance for next year’s payment in the plan. In certain cases, you can even pay premiums for the past (max. for 10 years), which is called a ‘back-service’. These payments are also fully tax-deductible for the company.
This is a complex matter and expert guidance is recommended. TAXPATRIA® can advise you on the tax implications of your supplementary pension planning and your business accounting.