TLDR: The choice between PFU (12.8%) and the progressive tax scale depends on the payment dates, the type of income, and the possibility of benefiting from tax allowances. The PFU is the default regime for premiums paid from September 27, 2017, while the progressive tax scale is the default regime for premiums paid up to September 26, 2017. Opting for the progressive tax scale allows for specific allowances, but the choice is global and irrevocable for the tax year.
Payment dates
The payment date is crucial in determining the default tax regime. For life insurance or capitalization contracts, premiums paid up to September 26, 2017, are taxable by default under the progressive tax scale, but it is possible to opt for the PFU. Conversely, premiums paid from September 27, 2017, are taxed by default under the PFU (12.8%), unless a global option for the progressive tax scale is chosen.
Type of income
The type of income affects the choice of tax regime. Capital gains from the sale of securities or digital assets are taxable by default under the PFU (12.8%), but it is possible to choose the progressive tax scale with an irrevocable option for the tax year. Pension benefits paid as a lump sum can also be taxed under the PFU or, by option, under the progressive tax scale.
Tax allowances
The choice between the two regimes affects the possibility of applying tax allowances. Opting for the progressive tax scale allows you to benefit from:
- An annual allowance of €4,600 for singles or €9,200 for couples on life insurance/capitalization contract products.
- Allowances based on the holding period (e.g., 50% after 2 years or 65% after 8 years) on capital gains from the sale of SME shares.
- A fixed allowance of €500,000 on capital gains from the sale of company shares.
Mandatory flat-rate withholding (PFO)
The 7.5% PFO applies mandatorily to products linked to premiums paid from September 27, 2017, even if the progressive tax scale is chosen. This withholding is not final, so the taxpayer must still pay income tax according to the chosen regime.
Global and irrevocable option
The option for the progressive tax scale is global and irrevocable for the tax year. This means that, if exercised, it applies to all investment income subject to the PFU for the current tax year. It is not possible to mix the two regimes for different types of income in the same year.
Tax losses
Losses incurred on investments or contracts taxed under the progressive tax scale can only be offset against products or gains of the same type realized in the same year or within the following 5 years.
Incompatibility between allowances
It is not possible to combine the fixed allowance with the proportional allowances for the holding period on the same capital gain if it is taxable under the PFU. The choice of tax regime must therefore consider which allowance is more advantageous in the specific case.