You may have heard about the plan d'épargne en actions, or PEA. It's a way for French residents to save for retirement in a tax-advantageous manner. Does it exist in Belgium? Yes and no. There is no direct equivalent. But there is a way to get even better tax benefits. We explain how, and dig deeper in the similarities and differences between the French and Belgian system. Finally, we show you why we built to Curvo as the best alternative to a PEA for Belgians.
What's a PEA?
The PEA (plan d’épargne en actions) is a tax-efficient way for French residents to invest for the long term. It was created in 1992 to stimulate investing in the financial markets.
Normally, you have to pay a 30% on capital gains when selling your investments. Part of this is a tax on income (12.8%) and the other part of 17.2% is for social security contributions. But when investing through a PEA, you're exempt from the tax on income, meaning the 30% tax rate decreases to 17.2%. After a lifetime of investing, this can result in a significant tax discount. Note that you have to keep your investments for at least 5 years to get the tax benefit.
A downside of the PEA is that your total contributions over its lifetime are capped at €150,000. But the total value can exceed €150,000, simply because the money is invested and so will likely increase in value.
Another drawback is that a PEA limits your choice of investments. For instance, there's a rule that at least 75% of the stocks inside a PEA must be in companies within the European Union. If you want more diversification (which is preferred!), you have to resort to synthetic ETFs that can replicate any index through financial engineering. Several such ETFs are available to French residents.
The PEA is a nice option for French investors and their long-term savings. But what's the Belgian equivalent?
The Belgian equivalent to the PEA: investing in accumulating stock ETFs
The Belgian pension system is different to the French one. Let's first look at the Belgian pension saving plan, the "pensioensparen" or "épargne-pension".
Pension saving plan (pensioensparen / épargne-pension)
Belgium offers a pension saving plan known as an “pensioensparen” in Dutch and "épargne-pension” in French. It lets you put away funds every year for your pension in addition to the state pension. It comes with a considerable tax break (25% or 30%), making it seem like an attractive option for those saving for retirement.
However, it's expensive and has limited saving capabilities:
- Your savings are locked up until the age of 60. You can withdraw the funds at an earlier age but it comes at a severe 33% tax penalty. Therefore, this option is not recommended. Furthermore, most fund providers charge exit fees when you withdraw parts of your savings.
- Pension saving funds are expensive. Pension saving funds are actively managed, which results in high entry fees, and expensive ongoing fees that you have to pay every year.
- You cannot save more than €1,270 per year. If you want to save more, you have to figure out a way to invest the excess amount through other means.
- There's an 8% exit tax. So you eventually have to pay some of the tax break back.
If you wish to dig deeper, we wrote an in-depth guide on the Belgian pension saving plan.
Due to these constraints, the best equivalent to the PEA is by investing your savings through ETFs. Let me explain why.
No capital gain taxes on stocks
Although there's no direct equivalent to the PEA in Belgium, there doesn't need to be one. Belgium is unique in that capital gains on stocks are not taxed. This makes Belgium really attractive for long-term investors.
You also don't need to declare income from investments to the Belgian taxman as long as they are considered "normal". It's a vague definition and open to the interpretation of the taxman, but roughly it means that any investment that is not speculative is exempt. Generally, investments that you've held for longer periods of time, like you would with a PEA, are considered "normal" investments. Double-check with an advisor if you're unsure. And read our guide on Belgian taxes for investors if you want to learn more on the topic.
So one alternative to the PEA for Belgians is simply to invest in stocks. But there are two problems with investing in stocks. The first is that most stocks distribute a dividend, which are taxed at 30% in Belgium. A workaround is to invest in funds of stocks that are accumulating, rather than individual stocks. A fund contains many different stocks. And with an accumulating fund, all dividends are directly reinvested in the fund. This bypasses the tax on dividends.
Secondly, it's notoriously difficult to succeed investing in individual stocks. It's often much better to invest in globally diversified funds, which contain thousands of stocks. And ETFs, or exchange-traded funds, are the most common instrument in Belgium to invest in funds. Read below about why ETFs are the best way for Belgians to invest.
Comparing the French PEA with investing in accumulating stock ETFs in Belgium
But first, let's summarise the comparison between the French PEA with investing in accumulating stock ETFs in Belgium.
Why ETF investing works
The underlying philosophy of ETF investing is index investing. Index investing, also called passive investing, is a tried and tested method for growing your wealth. It’s based on the observation that rather than picking individual stocks and trying to buy and sell at the right time, it’s usually more profitable to invest in the stock market as a whole.
Essentially, you own a small portion of thousands of companies throughout the world. Instead of betting on a particular company, you are placing a bet on the global economy. Your investments are diversified, have a lower risk and a more consistent return than when picking stocks individually.
When index investing, you invest in a type of fund called an index fund or ETF. Each index fund tracks a specific index, which is a collection of stocks with strict rules on which stocks are included and how much of each company the index contains. An index fund invests in the companies dictated by the rules of the index. The most famous index is the S&P 500, which has the 500 biggest American companies, weighted by market capitalization. In Belgium, the main index is the BEL 20, which consists of the 20 largest companies in the country.
The graph below shows the evolution of the MSCI World index since 1978. MSCI World is a basket of over 1,500 stocks from 23 countries (US, Germany, Japan, UK…) and approximates the world economy. A €10,000 investment in 1979 in a fund tracking MSCI World would have grown to €825,000 today! This equates to an average yearly return of 10.6%. And the world economy continues to grow enormously:
ETFs are a sound investment decision for the following reasons:
- Best suited for the long-term: investments in ETFs compound to substantial returns over time and beats most active investing. You can also choose to withdraw the money whenever you like without any penalties.
- Diversification: you’re exposed to thousands of companies in one go through a single fund. And diversification is key to good investing.
- Simplicity: once you’ve selected the right funds to invest in, you can sit back and watch your investments grow. There's no need to waste time analysing individual stocks.
- Tax efficient: as there aren't any taxes on capital gains for accumulating ETFs of stocks, it's a no-brainer for you!
- Cost-effective: partly due to the economies of scale and lack of active management costs, ETFs are a cheap way of investing.
There are two ways of investing in ETFs:
- Managing your own ETFs through a broker
- Using an automated app like Curvo
The challenges of investing through a broker
Managing your own portfolio of index ETFs through a broker can be challenging. You need to choose the indices, build your portfolio as the right mix of indices that suit you and your goals, and choose the ETFs that track these indices. For each step, there are thousands of options. But that's not all. Understanding the Belgian tax system is also important, as well as learning how to use your broker, or knowing when to rebalance your portfolio. You can learn more in our guide.
Faced with all these challenges when starting his investment journey, our founder Yoran spent hours researching and figuring out how to build the best portfolio for his long-term savings. That's why he started Curvo: to remove all the complexities of index investing so you don't have to worry.
Curvo: the easiest alternative to the PEA for Belgians
Curvo's mission is to make good investing as easy as possible and accessible to everyone.
Diversified portfolio built for you
We understand that it's hard to build the portfolio of index funds that's right for you, so creating an account starts with answering a questionnaire on your investment goals and your appetite for risk. You’ll then be assigned the best portfolio of index funds that matches your goals and risk tolerance. Each portfolio is globally diversified and invests in over 7,500 companies. They're managed by NNEK, a Dutch investment firm licensed by the Dutch regulator (AFM).
Optimised for taxes
Each portfolio is also tax-optimised for Belgians and consists of accumulating index funds of stocks and bonds. This way, no dividend tax has to be paid. Also, the funds were chosen so that they're exempt from the Belgian transaction tax!
Sustainability at the core
Your investments focus on one guiding principle: don't invest in companies that are considered destructive to the planet. This means that sectors like non-renewable energy, vice products, weapons and controversial companies are excluded from your investment.
Built for automated monthly investing
You can set up a monthly savings plan where your selected amount is automatically debited from your bank account and invested in your portfolio at the start of each month. This way, it's easy to adopt the best saving habits. Also, you are not charged any transaction fees. Lastly, your investments suppors fractional shares, meaning all your money is invested. All these things make Curvo ideal for monthly investing.
Safe and secure
Curvo works with itsme to safely sign up to the app. Your investments are secure and managed by NNEK, a Dutch investment firm regulated by the Dutch regulator (AFM). You can also withdraw your funds when you wish and there aren’t any exit fees.
No learning curve
Our goal is to solve all the complexities of ETF investing through a broker. This means you don't have to worry about:
- Understanding the Belgian tax system. The portfolios are already tax-optimised.
- Choosing a broker. There are many options available and it can be hard to pick the one that you feel most comfortable with.
- Rebalancing. It is made sure that your portfolio is kept in balance.
- Calculating and executing your orders every month. It's all set up for you.
- Staying disciplined. We help you stay the course!
Learn more about how Curvo works.
Summary
We showed you two alternatives to the PEA which are available to us as Belgian residents. Belgians are fortunate as capital gains on stocks aren't taxed. So the most advantageous way to invest your savings in Belgium is through accumulating stock ETFs.
Managing your own portfolio of ETFs yourself through a broker is cumbersome and you have to get the details right. That's why we built Curvo: to take away the complexities of ETF investing and set you up for long-term success by putting your savings to work.
Questions you may have
How are dividends taxed in Belgium?
There’s a 30% tax on dividends. This tax is applicable to individual stocks but also to distributing funds. The dividend tax is the main reason why accumulating funds are preferred over distributing funds.
We dig deeper on this topic in our resource on Belgian taxes.
What are the tax advantages when investing in Belgium?
The major tax advantage when investing in Belgium is the lack of taxes on capital gains. You also don't have to declare income from investments as long as they are not speculative assets. These exemptions make Belgium attractive for index investing!