New special social security contribution and filing obligations for occupational pension schemes

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Executive summary

A new special social security contribution was introduced in June 2012 on occupational pension contributions above a certain threshold. The legislation is effective as from 1 January 2012.

A transitional threshold scheme will identify if a premium is deemed to be excessive:

  • From 1 January 2012 until 31 December 2015: any annual funding in excess of EUR 30,000
  • From 1 January 2016 onwards: any payments yielding in a benefit exceeding the pension target, which is set at the maximum pension of a civil servant – approximately EUR 74,000 at date of publication

If a contribution or premium is deemed to be excessive, a levy of 1.5% will be charged on the employer.

Background

Belgium has a long tradition of welcoming occupational pension schemes through a tax friendly environment to encourage employers and their workforce to build up a robust second pillar pension to supplement pension benefits arising from the State’s first pillar. Until 1 January 2012, funding of a qualified pension vehicle is exempt from income tax and generates a deductible expense for the employer, if the funding is not excessive. It is, however, subject to a flat indirect tax of 4.4% and a social security charge of 8.86%.

Amidst the Eurozone budget crisis, the Belgian government has been looking for additional sources of revenue. Since the government was looking for immediate sources of revenue, it concentrated on captive sources of revenue such as the large company car fleets or companies with massive occupational pension pools.

The government has initially worked in two directions in respect of occupational pensions. The first was to increase the level of income tax levied on pension distributions with an aim of encouraging individuals to continue working up until the normal pension age (see alert of 19 June 2012). Secondly, as part of the governance wave, the government initially considered to limit further the ability for an employer to claim a corporate tax deduction for pension contributions above a certain threshold. This consideration has been dismissed and replaced by an additional social security contribution levied on pension benefits considered as “excessive” or “generous”.

The new special social security contribution

This new special social security contribution for employees subject to Belgian social security was introduced by a law enacted on 22 June 2012. The new legislation is in two stages: a transitional scheme from 1 January 2012 up to 31 December 2015, and a definitive scheme as of 1 January 2016. The levy rate for both schemes is fixed at 1.5% but the schemes vary in the way they deem contributions or premiums as generous or excessive.

1. Transitional scheme

During the transition period, the legislator has introduced a nominal threshold of contributions to determine whether an employer’s contributions are excessive. A premium or contribution is considered to be excessive as soon as the employer’s premiums and contributions exceed a threshold of EUR 30,000 per employee, in any given year (amount to be indexed annually).

The employer will be liable to pay the 1.5% special contribution on the excessive contributions during the fourth quarter of the year during which the threshold was exceeded.

This contribution will need to be paid in addition to the 8.6% contribution that is currently already in place.

A similar special contribution (1.5%) and threshold will apply for self-employed company directors.

2. The definitive scheme

Starting from 1 January 2016 (or earlier if determined by a Royal Decree), the above nominal threshold will be replaced by a “pension target” threshold to determine whether a contribution is excessive.

If the sum of the state benefits and occupational pension yield exceeds this ceiling on 1 January of any given year, the special contribution of 1.5% will apply on all the occupational pension contributions paid by the employer during that year, regardless of whether the employee would fall below the ceiling again in the course of the same year.

This pension target has been set at the maximum pension benefit for civil servants, currently amounting to approximately EUR 74,000 (subject to indexation). The latter will also apply for self-employed company directors.

Next steps

Employers should consider the potential impact of this new legislation on their pension accrual and determine whether they are likely to be subject to any additional social security contributions as a result of the new special contributions. They should also ensure that they prepare their filing obligations by the end of the third quarter of 2012.

The addition of this further cost, which will require specific attention, serves to add administrative complexity as well as expense to the system.