The issue that you are looking at here is that any type of short-term trading is generally (based on my experience) treated as income (if you make profits). Usually all the expenses related to that type of income are deductible from that type of income - if a retailer sells clothes below his cost-price he should be allowed to write that off against his income. If you are short-term trading, you are generally viewed the same - this means your profits (after deduction of losses and other trading-related expenses) are considered to be income and are taxed as such. This is really one of the underlying principles of taxation, i.e. you cannot tax someone on income while ignoring his costs - In a Western country, I think that any law that is contradictory to this could be taken to a higher court.
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Quoting Fat Tails since he actually provided the text I linked to earlier. I bolded two sections, but both of those bolded sections show that you are allowed to deduct your losses and thus will not be taxed on them.
In any case, if they apply the 25% to futures and other derivatives as well, it may actually be to your benefit. Don't know what tax rate was payable in Belgium before this on futures, but a 25% flat tax could cause a reduction in taxes payable if the income from futures / other derivatives was regarded as income previously.
In my case, being taxed like this would reduce the tax rate on short-term equity trades from 40% to 25%.
The new speculation tax will be applicable on profits generated within 6 months for transactions on stocks, warrants and options.
If you do 5 trades :
trade A : profit 10.000 : < 6 months
trade B : profit 20.000 : < 6 months
trade C : loss 20.000 : < 6 months
trade D : profit 10.000 : 11 months
trade E : loss 20.000 : 10 months
you would have made a net profit of : 0 €
however you would have to pay a speculation tax of : 9.999 € (33% op 30.000 (A+B))
but NOT on futures, convertible bonds, turbos and sprinters.
Will some of the option investors look at trading futures ?
Last edited by rleplae; October 16th, 2015 at 08:49 AM.
Out of curiosity, is there a higher court where this can be contested? The mere fact that you are not allowed to offset losses on a trading business could present a major headache to this law if it were to go to a higher court.
You could incorporate, but somehow you need to get the money back into your pocket. It is usually not my preferred option because it adds overheads and there are usually better loopholes to use, i.e. in my case hold stocks for 6 months or longer and use puts to lock in gains. At least I can offset the cost of my puts against short-term gains, but the Belgian situation looks to be different. You are not able to offset the cost of your puts against anything, so it will definitely impact portfolio performance.
In this case incorporating into a company might be a better option and then you need to find an optimum mix of salary and dividends in order to legally minimise the total tax burden. In this month, I will realise gains of 2.5% and losses of 1.4% (pre-open). Paying 40% tax on net gains will leave my portfolio ahead 0.6%. Don't think incorporating would be worth it in this case. Under the Belgian law, I will be ahead by 0.1%. However, I trade very infrequently - if I was trading at the same rate as 2 years ago, I would be paying a ton in taxes and my porfolio would be down a lot just due to the fact my losses are not deductible.
Don't know EU legal structures at all, but I was curious if the EU Court could overturn such a law if there was a legal challenge to it.