TRADE & INVESTMENT
News
July 3, 2008
The latest Barometer of Belgian Attractiveness by Ernst & Young
confirms that Belgium remains one of the most popular locations
for foreign investment projects in Europe. 175 new investment
projects confirm the positive trend of the past few years. Most
projects were expansion projects, but the share of ‘new’ foreign
investment projects increased to 20%. The U.S. (49 projects)
remains the largest source of foreign investment.
Belgium’s main assets remain its excellent infrastructure, and
its quality of life, according to business leaders surveyed. In
addition, Brussels’ central location and the Notional Interest
Deduction attract many company headquarters. 25% of all new
investment projects took place in the Brussels region, a
confirmation of the increasing importance of Brussels for foreign
investors.
www.ey.be
On May 21, the American Chamber of Commerce in Belgium (AMCHAM)
released its US Direct Investment in Belgium 2008 Report.
The report confirms that Belgium remains the sixth destination
for US foreign investment in Europe (EU-15), and the 15th
destination for U.S. foreign investment worldwide. U.S affiliates
employ about 130,000 people, or 6.4% of all employment in Belgium.
They are responsible for 9% of all foreign investment, and about
5% of GDP.
Most of the U.S. investment in Belgium is in the service
sector, especially in financial services which attracts 46% of all
investment. However, traditional U.S. investments in manufacturing
like the pharmaceutical and chemical sectors remain the dominant
source of employment.
In general, the AMCHAM report highlighted key improvements in
the areas of tax effectiveness and modernized airport and harbor
infrastructure. Most notable was the Notional Interest Deduction,
which was hailed as a boon to investment and credited with having
improved business conditions in Belgium.
www.amcham.be
In 2007, companies in the field of chemicals and life sciences
(medicine, biotechnology) invested € 2.32 billion in R&D, which is
a record figure. They employ over 7,200 people in R&D activities
(on a total of 94,000 employees). These are the findings of
Essenscia, the umbrella organization that represents companies in
the field of chemicals and life sciences, following a survey among
its members. In the course of the past decade, investment in R&D
in this sector has increased steadily. The chemical industry and
life sciences account for 45% of total private sector R&D
spending, putting it at the vanguard of innovative industries.
www.essenscia.be
According to Essenscia, the umbrella organization that
represents companies in the field of chemicals and life sciences,
2007 was an excellent year for the chemical industry in Belgium.
The industry’s turnover exceeded € 54 billion (+ 5.5 % as compared
to 2006). Exports amounted to € 99.2 billion (+ 9.4 %). Investment
amounted to almost € 2 billion (+ 13 %). Research & development
expenditure totaled an estimated record amount of € 2.32 billion
(+ 2 %) and continues to be on the rise. Sustainable development
is one of the chemical industry’s priorities for the coming years.
It is closely linked to innovation and R&D.
www.essenscia.be
Standard & Poor's Ratings Services said it confirmed its 'AA+'
long-term and 'A-1+' short-term sovereign credit ratings on
Belgium with a stable outlook. 'The ratings on Belgium are
buttressed by the country's modern, well-diversified, and wealthy
economy, with income levels in line with the 'AAA' median, as well
as its commitment to further reduce the level of debt,' S&P said.
www.forbes.com
Manufacturer of buses, coaches and commercial vehicles Van Hool
has received an order from the Californian public transport
company, AC Transit, for 8 fuel cell buses with an option for
another 4 buses. It is the largest-ever order of fuel cell buses
by a U.S transit agency and it brings the reality of using
hydrogen for emission-free public transport a lot closer.
Van Hool manufactures approximately 1,600 buses and coaches a
year. Over the past few years, Van Hool has strengthened its
presence in the North American public transport sector with more
than 500 vehicles sold to various transit authorities. Over 100
public transit buses will be sold and delivered in North America
in 2008.
www.vanhool.be
On April 24, Microsoft CEO Steve Ballmer announced a “public
private partnership” between Microsoft, the Wallonia Region and
the city of Mons. The partnership will involve a €2 million euro
investment from the Wallonia Region and a €1.2 million euro
contribution from Microsoft to create the Microsoft Innovation
Center (MIC), to be located in the Technology Parc Intialis in
Mons by January 2009.
The Microsoft Innovation Center will stimulate developers,
independent software vendors, students and entrepreneurs to create
and deploy innovative software solutions. To do so, the MIC will
bring together technology partners, government authorities, small
industrial actors (SME’s), and financing sources.
The MIC will especially focus on investigating new e-health
technologies. As a business incubator, it will offer e-health
startups access to a panel of private and public experts in the
sector, help gather funding for pilot projects, offer a specific
e-health education track and foster collaboration between
Microsoft Research and academic researchers.
Over the next three years, the MIC aims to create between 5 and
10 new companies per year and generate in total 250 new jobs.
In his announcement, Steve Ballmer expressed his ambition that one
of the new start ups will become a global competitor.
www.investinwallonia.be
On April 15, pharmaceutical giant Pfizer opened a new
development center for veterinary vaccines in Louvain-la-Neuve.
The new center is unique in Europe and represents an investment of
€40 million. It will develop some 400 new vaccines, as well as
samples for clinical tests and registration procedures, and will
speed up the launch to market of the vaccines. Pfizer employs 220
people in Louvain-la-Neuve.
The choice of a location in Wallonia was partly explained by
the proximity of Brussels-National Airport, where Pfizer has set
up its distribution platform for Europe, Africa and the Middle
East, but also by the fact that Belgian universities are at the
forefront of biotechnology.
The Pfizer Group currently employs 3000 people in Belgium,
which is 3% of its global workforce.
www.pfizer.be
Flanders and Wallonia are both ranked among the top 10
of the most attractive European regions for foreign investors,
according to a recent study by the Financial Times. London
tops the list of most attractive locations, followed by
Flanders, Paris, Leipzig and Wallonia.
The study European Cities and Regions of the Future 2008/2009
used 75 criteria to compose the listing, including the state of
the economy, business friendliness, quality of life, human
resources, business costs, business infrastructure, and existing
foreign investment.
Belgian cities score high in the city rankings as well. Brussels is
the seventh most important city in Europe, the ninth city for
attractiveness of local companies for employees and quality
of life, and fifth for infrastructure. Antwerp, on the other hand,
is seen as the eight most attractive smaller European city.
A new treaty between the United States and Belgium to avoid double taxation
entered into force on December 28, 2007. The effective date for withholding
taxes will be February 1, 2008.
The new treaty constitutes a “win-win” agreement for businesses in the U.S. and
Belgium with transatlantic operations. It reduces double taxation of income,
eliminates barriers to trade and investment, and facilitates cross-border capital
movement.
Economic ties between the US and Belgium will be strengthened by the new
treaty. With bilateral trade between the two countries valued at more than $35
billion annually, Belgium is the 18th trading partner for the United States, ahead
of larger countries like India, Australia, Russia, and Spain. Some 1200 U.S.
companies have already invested more than $52 billion in Belgium, whereas
Belgian companies have invested more than $12 billion in the U.S., employing
about 130,000 people.
The new tax treaty is but one more step in a series of measures the Belgian
government has taken recently to increase Belgium’s attractiveness for foreign
investors.
Since 2006, Belgium has allowed a deemed interest deduction for equity invested
in a Belgian company or branch, thereby decreasing the effective tax burden.
A recently enacted “Patent Income Deduction” effectively reduces the effective
tax rate for patent income to maximum 6.8%, a rate substantially lower than the
rates available for patent income in most other European countries. It significantly
improves the prospects for patent development and holding companies in Belgium
that license patents to U.S. affiliates.
A new tax regime for pension funds went into effect last year, making Belgium the
first European country offering multinationals a complete and comprehensive
framework for the creation of both pan-European and international pension funds.
The US-Belgian Double Taxation Treaty contains a variety of interesting new features
for U.S. companies with business plans in Europe.
It introduces a 0% withholding tax on dividend payments from a U.S. company in
Belgium to its U.S. parent company, provided the U.S. entity in Belgium owns 10% or
more of the Belgian company. This 10% ownership threshold is significantly lower
than the threshold in other treaties recently concluded by the U.S. Combined with
other general features of Belgium’s domestic tax system for holding companies, this
may attract holding companies for holding the shares of U.S. affiliates. The
exemption from withholding tax also applies to pension funds, provided the
dividends are not the result of business activities by the funds.
It introduces a 0 % withholding tax on interest. Together with the Notional Interest
Deduction, this makes direct loans between the U.S. and Belgian affiliated
companies more attractive, and increases possibilities for companies in Belgium to
finance U.S. affiliates.
It is the first income tax treaty concluded by the U.S. to contain a binding arbitration
procedure with a foreign country, giving taxpayers the prospect of finality to a tax
dispute within a specific timeframe. The U.S. and Belgium have two years to resolve
a tax dispute before arbitration starts.
Anti-abuse provisions designed to deny inappropriate use of the treaty were
strengthened, to bring them into closer conformity with current U.S. treaty policy. On
the other hand, new categories of taxpayers such as qualified charities or pension
trusts will now be able to claim benefits.
Belgian Sax Appeal
A recent edition of The Economist figures a one-page ad with a saxophone player
and the message that Belgium, as home of the saxophone, has sax appeal. It is part
of the third international investment promotion campaign of the Belgian
government in 5 years, this time under the slogan Only in Belgium.
The new campaign stems from the realization that despite recent successes in
attracting foreign investment, Belgium can ill afford to rest on its laurels. In a
globalized economy, Europe attracts a smaller part of foreign investment each year,
and Belgium is locked in a fierce competition for new investment with Western and
Eastern European competitors. Over the last 5 years, the Belgian government has
therefore taken an increasingly pro-active approach in creating a business friendly
environment that makes it more attractive for foreign investors to expand or start a
local business.
Only in Belgium is a worldwide campaign mainly targeting investors, business leaders,
financial directors and advisers. It was launched in Brussels’ Egmont Palace on March
11. In the presence of many foreign dignitaries, former Prime Minister Verhofstadt
explained that Belgium was the fourth destination worldwide for foreign investment
capital in 2006, one place ahead of China. He also underlined that Belgium has one
of the most globally integrated economies in the world, and of course referred to
Belgium’s status as gateway to Europe, in economic as well as in political terms.
In addition to ads in The Economist and The Financial Times, the campaign includes
30-second commercials on CNN and BBC World. At the heart of the campaign,
however, is a new website, www.invest.belgium.be. The new site highlights what
Belgium has to offer economically, explains steps to set up a business, offers links to
relevant background information, and outlines the procedures to join the
ever-expanding group of foreign companies in Belgium.
It is hard to miss, however, the central message on the opening page. Visitors to the
site are introduced to Belgian surrealist painter René Magritte, cartoon hero Lucky Luke,
and yes, Adolphe Sax, the Belgian inventor of the saxophone. The message is simple:
Belgium is a country where you can achieve success by pursuing your ideas, a country
where creativity and innovation are rewarded.
December 2007
China may be the place to be for entrepreneurs today,
but Belgium actually attracted more foreign
investment in 2006. The latest World Investment Report
by the United Nations Conference on Trade and
Development (UNCTAD) ranked Belgium as
the fourth destination for foreign investment worldwide,
one place ahead of China.
Foreign companies invested about $72 billion in
Belgium, more than double the amount of 2005 and
13.6% of all foreign investment in the European Union.
135 new so-called ‘greenfield’ investment projects
were initiated. Foreign investment increased worldwide
by 38%, fueled primarily by an increase in the value of
mergers and acquisitions, as solid economic growth
worldwide increased profits and stock values.
The tax-friendly regime of Belgian coordination centers
and tax reforms like the Notional Interest Deduction
(NID), enacted in 2005, probably contributed to the
excellent Belgian performance, UNCTAD noted. The
NID, in force since the beginning of last year, gives
companies an extra tax break if they increase their
capital.
The top foreign investment destination in 2006 was the
U.S., followed by the U.K., France, Belgium, China, and
Canada. Hong Kong, Germany, Italy, Luxembourg,
and Russia complete the top 10.
Belgian investment abroad increased sharply as well,
from $31.7 billion to $63 billion.
The study also revealed that three of the world’s 50
most internationalized financial institutions are
Belgian: KBC, Dexia, and Fortis. Inbev, on the other
hand, occupied the 63rd spot in an alternative
ranking of global companies with the most foreign
assets.
Trade data published in the magazine World City
illustrate the very substantial economic relationship
between the US and Belgium. Trade between the
two countries amounted to about $36 billion in
2006, sparked by $4.6 billion in diamond exports
and imports. Belgium was the 18th trading partner
for the U.S., ahead of larger countries like India,
Australia, Russia, and Spain.
New York City handled 90% of U.S. diamond imports
from Belgium. Refined fuel was also among the
leading imports from Belgium. In 2006, $696 million
of the gasoline came through the New Orleans
customs district, the leading importer of fuel from
Belgium. Antwerp has one of the largest refining
and petrochemical centers, and the second
largest seaport in Europe behind Rotterdam.
The U.S. had a trade surplus with Belgium, with
exports ($21.3 billion) about 50% higher than
imports ($14.4 billion). The United States sent
roughly $1 billion in pharmaceuticals and
chemicals to Belgium
October 2, 2007
A new ‘patent royalties deduction’ was introduced into
Belgian tax law, which allows Belgian companies, or
Belgian branches of foreign companies, to deduct 80%
of patent royalties from their taxable income. The new
tax measure is aimed at encouraging companies to play an
effective role in patent research and development, as well
as patent ownership. It comes into force in tax year 2008,
i.e. as of the financial year ending on December 31, 2007.
The new tax deduction is more attractive than similar
measures adopted in other countries. It will apply not
only to patents owned and developed, entirely or partially,
by the company or one of its ‘branches of activity'
(in Belgium or abroad). It will also apply to patents
acquired from a third party. In such a case, the company
or the Belgian branch of a foreign company would have to
improve entirely or partially the patent in one of its own
research centers, in Belgium or abroad, in order to benefit
from this incentive. For patents used by the Belgian
company or establishment for the manufacture of patented
products, the tax deduction will amount to 80% of the license
fee that the Belgian company would have received if it had
licensed the patents used in the manufacturing process to
an unrelated party.
The patent royalties' exemption operates as follows: companies
will deduct from their taxable income 80% of the patent income.
The 20% left from the patent income (after deduction) remains
taxable, in effect decreasing the maximum effective tax rate
from 33.99 % to 6.8 % of the patent income. The deduction has
no cap but if the patent royalties' deduction exceeds the
company's taxable income, it cannot be carried forward to the
following tax year.
Companies can combine this new measure with the other already
existing tax incentives, including the exemption of 95 % of
the dividends received by a Belgian company, and the Belgian
notional interest deduction (NID). It concerns only patent
incomes, thereby excluding other IP rights or assets such as
know-how, copyright, or trademarks.
Because the tax patent income deduction applies irrespective
of whether the patent has been developed or acquired, Belgium
should be kept in mind as a good location for companies with a
significant role in patent research and development, and patent
ownership.
June 19, 2007
Google will invest up to € 300 million in a new data information
center in Saint-Ghislain, Wallonia. It is from this center that
search demands from internet users throughout Europe will be met.
Google services, such as Google Earth or Google Maps, are more and
more in demand in Europe.
The center will will occupy 85 hectares in the industrial zone of
Ghlin-Baudour. Construction of the database center should start
this summer and be finished by 2008. The project will create 120
new jobs, in programming, security and maintenance. In addition,
Google will create up to 300 construction jobs during the building
of the center. Most of the employees will be recruited locally.
The site chosen presents many advantages, such as proximity to a
canal which will be used to cool off the company’s computer systems
at the site. In addition, the region’s fiber optic network will
guarantee optimal connectivity. The new data center will allow
optimal service for customers and fast access to the data they seek,
the company said in a statement.
Jean-Claude Marcourt, Wallonia’s Minister for Employment, Economy
and Foreign Trade, underlined that Google’s investment was the fifth
major investment by a U.S. company in a short period of time. The
Walloon Region will commit €5 million to the cost of the project,
which will also enjoy EU investment support.
Multiple regions in Europe competed for Google’s investment. “It is
a very significant boost to St. Ghislain and to the Walloon Region.
Google is a successful company and we are proud that it has chosen
to invest in our region,” Minister-President Di Rupo of Wallonia said.
Google, created in 1998 by two Stanford students, employs 12,000
people worldwide.
www.investinwallonia.be
U.S. investments in Belgium reached new record levels in 2005, according
to the newly released U.S. Direct Investment in Belgium 2007 Report by
the American Chamber of Commerce (AMCHAM) in Belgium. The study was
released on May 9th.
Belgium was the 5th largest recipient of U.S. foreign investments
worldwide in 2005. $6.5 billion was invested, a record annual increase.
Belgium’s stock of U.S. investment more than doubled to $36.7 billion in
2005 since 2000, according to the 2007 study.
U.S. affiliates account for almost 130,000 jobs in Belgium. Main sectors
of investment include pharmaceuticals, the petrochemical industry, and
retail trade. Overall Belgium was the 6th most important host country forforeign direct
investment (FDI) in 2005, hosting almost 5% of worldwide FDI.
The news that employment in the knowledge intensive sector has increased
by 124% since 1995 was very encouraging. It indicates that Belgium is winning
some of the investment it needs in order to grow its knowledge-based economy
and become a European leader in the implementation of the Lisbon Agenda. Foreign
companies account for 65% of all R&D expenses in Belgium, the highest percentage
in Europe after Ireland. R&D expenses by U.S. firms went up 67% between 1999
and 2004.
“We are proud that Belgium has become more attractive for US investment,”
said Denise R. Rutherford, President of AmCham Belgium. “The Belgian government,
the Brussels, Flemish and Walloon authorities and AmCham Belgium have been
doing good work together to make Belgium better for business. Recent measures
include the Notional Interest Deduction, lower salary withholding tax for
researchers, the 80% reduction of royalty taxation, simplified work permit
requirements, and the new Double Tax Treaty with the US.”
The survey among 136 U.S. companies in the AMCHAM study clearly indicates that
Belgium remains a wonderful place to live and work. They see their companies
continue to invest in Belgium rather than in neighboring countries.
www.amcham.be
In a statement the American Chamber of Commerce in Belgium (AMCHAM)
underlined its support for the new royalty tax regulation in
Belgium as a means to increase technological innovation through
research and development.
The Belgian Government recently approved a special tax deduction for
patent income for all Belgian companies and Belgian branches of
foreign companies. The deduction calls for a 80% reduction in the
taxation of tax royalties.
As a result, patent income would be subject to an effective Belgian
tax rate of only 6.8% in Belgium, a rate substantially lower than
the rates available for patent income in most other European
countries. “This dramatic tax cut will make Belgium one of the most
tax-friendly countries in the world for intellectual property”,
according to the AMCHAM statement.
There are additional aspects which make the patent tax regime very
competitive within Europe. First, it can be combined with other
beneficial features of Belgian tax law. Second, the regime does not
apply only to self-developed patents, but also to certain patents
acquired and licensed from third parties. No cap exists on the amount
of deduction that can be claimed. And a deduction of profits applies
for patents that are used in the production process.
All these elements combined make Belgium even more attractive as a
preferred location for R&D activities.
April 6, 2007
Since April 1st, 2007, non-Belgian employers, self-employed persons
or their employees who carry out short term or partial assignments
in Belgium must declare these activities in advance.
This mandatory "Limosa" declaration applies to:
+ Employees and apprentices, who come to Belgium to execute certain
temporary or partial work and who, because of the nature of their
short term assignment, are not subject to the Belgian social
security system.
+ Self-employed people and self-employed apprentices who come to work
in Belgium temporarily or partially, irrespective of whether they are
subject to the Belgian social security system.
Some exceptions to this general obligation exist. Certain persons may
be exempted, especially for short-term assignments.
For more information about the Limosa declaration, visit:
www.limosa.be
For more information about working in Belgium, please read:
www.werk.belgie.be or
www.emploi.belgique.be
March 22, 2007
Belgium continues to develop its future as a financial center for
niche sectors. The latest example is the trans-European pension funds.
Belgium has become the first EU country to adopt the European Directive
on trans-European pension funds into internal Belgian law.
Prime Minister Verhofstadt, Finance Minister Reynders and Minister
of Pensions Tobback promoted the legal changes on March 6th at the
conference “Pan-European Pension Funds. Now a Reality” in Geneva. The
new regime makes it very attractive for multinationals in Europe to register
their pension fund in Belgium, whereas their benefits could be enjoyed
throughout the EU.
Since January 1, 2007, dividends arising from such pension funds are exempt
from tax in Belgium, which means that capital gains on their investments increase.
Pension funds usually invest in three commodities: shares, bonds and/or property.
Currently many multinationals establish the funds in every country of activity,
but concentrating the funds in one country allows for more efficient management
and greater expertise. Mobility of employees among the branches of the multinational
in Europe will also be facilitated, because rights to extra pension can be maintained.
The tax advantages of the new regime are significant. A pension fund with shares
in a U.S. company that receives a gross dividend worth $100 would until recently
distribute an actual net dividend of less than $64, because the dividend would
be subject to 15% in U.S. tax and then 25% in Belgian tax. Today, that gross
dividend of $100 is also worth $100 net, thanks to the new Belgian tax allowance,
and the double taxation convention with the United States, which was concluded
at the end of 2006.
Belgian Labor Productivity Third Worldwide
March 22, 2007
Belgium was ranked third in the 2006 survey of labor
productivity by the American research institute The
Conference Board and the Groningen Growth and
Development Centre. Productivity in Belgium increased
by 1.9%, higher than the European average.
The survey annually compares the labor productivity of
tens of countries. Productivity is defined as the gross
domestic product per hour of work, expressed in purchase power.
Compared to 2005 Belgium moved up two places at the expense
of France and Ireland. Only Luxembourg and Norway have better scores.
www.invest.belgium.be
October 4, 2006
Belgium now has the lowest effective tax rate on capital, according to the 2006
Tax Competitiveness Report by the C.D. Howe Institute in Toronto. Every year the
institute scores 81 developed and developing countries according to their tax treatment
of business investment. C.D. Howe estimates that the Belgian effective tax rate on
capital declined from 23.5% in 2005 to –4.4.% in 2006, resulting from the introduction
of a notional deduction for equity financing. With both bond and equity financing
deductions, Belgian companies are able to claim a higher tax value of deductions
compared to the tax levied on income earned from investments, the study noted.
Among industrial and leading developing nations, China has the highest effective
tax rate (47 percent), largely driven by its non-refundable 17 percent value-added tax
applied to purchases of machinery. China is followed by Brazil, Germany, the U.S. and
Russia, all with rates near 40%. Belgium’s neighbors all have effective tax rates around 20%
(Netherlands, Luxembourg), or around 30% (UK, France).
Meanwhile, the Cadbury Schweppes ruling of the European Court of Justice signifies
that other European nations cannot try to recover the taxes saved in Belgium via the
notional interest deduction. Cadbury subsidiaries in Dublin had to pay taxes in line
with Britain's nominal corporate tax rate (30%), despite the Irish corporation tax being
much lower (12.5%). The European Court of Justice ruled in favor of Cadbury. UK rules,
it said, could only be justified if applied to "wholly artificial arrangements" designed
to circumvent national law or avoid tax.
For Belgium, the ruling implies that foreign companies with subsidiaries in Belgium
can enjoy notional interest deductions in the certainty that they will not have to
compensate for these abroad.
October 4, 2006
Begin the procedure to start a company on a Monday, and have it up and
running by the end of the week? In Belgium, it’s been possible since June 1st,
when the government dramatically cut the red tape.
Here’s how it would work. First the aspiring business owner wires the required
minimum capital to a bank. On the second day, (s)he goes to a notary to have an
electronic act of incorporation drafted. The act of incorporation is electronically
forwarded to a registered one-stop shop for businesses, which activates the company
registration number on the third day.
Not every notary has the ability yet to forward the act of incorporation
electronically, but Secretary of State for Administrative Reform Van Quickenborne
hopes this will be the case next year.
Thanks to the latest reforms, Belgium will become the fastest country in Europe for
a company set-up, according to data from the World Bank. In 2003 it still took 56 days
on average to get started in Belgium, and it declined to 27 days on average in 2005.
In its newly released report “Doing Business in 2007”,the World Bank also noted that
the cost to set up a business had also declined by 50% in 2005.
At the same time, entrepreneurship is on the rise, as the number of new start ups
in Belgium increased by 30% between 2003 and 2006. In 2005, some 57,000 new companies
were created in Belgium, and the number is likely to be even higher in 2006. The financial
information firm Graydon announced that in the first six months of 2006 32,900 start-ups
were registered. A new record and 6.37% up on the first half of 2005. On the other hand,
only 708 companies had to fold in July and August, the lowest figure since 1997.
www.kafka.be,
www.doingbusiness.org
July 10, 2006
According to a survey of a number of Belgian business leaders carried out by the
daily De Tijd, many companies are enthusiastic about Belgium’s latest tax cut for
corporations, the notional interest deduction. As reported in earlier editions of
Business Memo, the “notional” interest deduction on the venture capital of
businesses means that companies can deduct a fictitious interest on their net assets
from their taxable profits. Estimates are that this innovative new measure cuts the
corporate income rate on average to around 25%, but this figure could be even lower
for highly capitalized corporations.
This year alone, the Belgian companies of the Arcelor steel group
(Sidmar in Ghent, ALZ in Genk, Cockerill Sambre in Liège and Carinox and Industeel in Charleroi)
will pay € 31 million less in taxes thanks to the introduction of the notional interest.
The Dutch temp agency group Randstad is also moving its financial headquarters to
Belgium as a result of the new tax law.
For many businesses the new system makes up for the abolition of the financially
beneficial coordination centers. The measure also enables companies to boost their
net assets. nSince the beginning of this year several capital increases have already
been implemented for this reason. The Federal Government expects the treasury to
miss out on € 560 million as a result of the notional interest, but Prime Minister
Verhofstadt anticipates a broad recovery effect through increased economic activity.
March 16th 2006
On March 3, the Belgian government approved a plan by Federal
Minister for Public Health and Social Affairs Rudy Demotte to
create a new Federal Agency for Medications. The agency’s task
will be twofold: to control the quality of medicines on the
market, and to speed up the registration and reimbursement schemes
for new medicines in Belgium so that pharmaceutical companies in
the country can continue to compete in research and production
activities with competitors abroad.
If the Raad van State/Conseil d’Etat gives a positive advice, the
proposal can be approved by Parliament in time for the agency to
become operational next year.
The plan is the latest step by the Belgian government in a series
of initiatives to improve Belgium’s ability to compete in the
biomedical sciences. Recently a platform for dialogue with the
biomedical industry was created to discuss on a regular basis new
proposals in the area of public health, and innovation and
employment issues in the sector such as registration and
reimbursement of medicines. In addition, the requirement for
certain non-EU researchers to obtain work permits has been
abolished, and the current reduction of payroll taxes by 50% on
researchers will be expanded to all employees with PhD’s.
January 20th 2006
In the context of the recent Invest in Belgium tour in the U.S.,
Prime Minister Verhofstadt announced several steps to improve
Belgium’s ability to compete in the biomedical sciences.
Recently a platform for dialogue with the biomedical industry was
created to discuss on a regular basis new proposals in the area of
public health, and innovation and employment issues in the sector
such as registration and reimbursement of medicines. As reported
in the previous Business Memo, the requirement for certain non-EU
researchers to obtain work permits has already been abolished.
In the future, applications for approval of new medicines
in Belgium could be introduced locally before the European
Medicines Agency (EMEA) has given its European approval. This
would allow medicines to become immediately available on the
Belgian market after the European approval. To speed up the
registration process, a new medicine registration agency will be
created. In addition, the system of early rulings by the tax
authorities on new investments will be fully utilized, and the
current reduction of payroll taxes by 50% on researchers will be
expanded to all employees with PhD’s.
December 22nd 2005
In a further effort to stimulate innovation and economic growth,
the Belgian government announced on November 21 that it intends
to abolish work permits for foreign scientists and foreign
managers of international companies in Belgium. As of the
beginning of 2006, the new regulations will apply to scientists
from outside the EU who earn a gross salary of more than € 32,000
and work at a scientific institution or recognized private
research facility. They are expected to speed up the entry of
scientists by one to two months. It is widely accepted that the
recruitment of senior scientists often generates dozens of new
jobs.
The government plans similar exemptions to executives of
multinational companies from the middle of 2006. The managers
have to earn more than € 42,000 gross a year. At the same time,
foreign business travelers and employees who come to work in
Belgium for a short time, e.g. for a congress, training, or
maintenance work, will for the duration of their stay also be
exempt from the work permit requirement.
Significantly, the procedure for foreign independent professionals
to obtain a professional card in Belgium, for example to set up a
business, will be initiated in the future through one of the ‘One
Stop Shops’ for businesses, created in 2003. Previously
businessmen had to start the procedure to obtain a professional
card at the local town hall, whereas the ‘One Stop Shops’ would
see if the foreign business person had the required skills and
experience to start the envisioned business in Belgium. The
procedure for entrepreneurs residing abroad will remain unchanged.
www.kafka.be
Law Introducing a Tax Deduction for Risk Capital
(Notional Interest Deduction)
July 5th, 2005
Context
Recent studies have shown that Belgium has become one of the most
profitable countries for US companies to do business in the world. US
tax magazines (like Tax Notes) pointed out that, in the period from 1999
to 2002, the effective tax rate for US companies in Belgium decreased to
12%, while US profits in Belgium increased by 84%.
Dedicated to reinforce opportunities for local and international
investors, Belgium significantly reduced its corporate tax rate in 2003,
and has now amended its tax law to provide Belgian companies and Belgian
branches of foreign companies a tax deduction based on their equity as
of January 1, 2006.
What is it?
Under the so-called ‘notional interest deduction’, a new and
innovative measure in international tax law, all companies subject to
Belgian corporate tax will be able to deduct from their taxable income
an amount equal to the interest they would have paid on their capital in
the case of long-term debt financing.
At the same time, the 0.5% registration duty on capital contributions
will be abolished.
Objectives
The new rules are intended to ensure equal treatment of loan and
equity capital. They will have the following positive effects:
1. A general reduction of the effective corporate tax rate for all
companies, and a higher after-tax return on investment.
2. Encouragement of capital intensive investments in Belgium, and an
incentive for multinationals to examine the possibility of allocating
such activities as intra-group financing, central procurement and
factoring, to a Belgian group entity.
3. Continuing opportunities for tax-efficient, equity-funded,
inter-company financing from Belgian companies, such as the Belgian
Coordination Centers (BCC) already present in the country.
Timing
The bill implementing the notional interest deduction for companies
was adopted by the Belgian Parliament on 2 June 2005, and was published in the Belgian Official Gazette.
The notional interest deduction will enter into force as from assessment
year 2007 (this means, for companies that keep their books on a calendar
year basis, as from 1 January 2006). The equity capital on 31 December
2005 will, in principle, serve as the basis for the calculation of the
first deduction.
How Does It Work?
• The calculation of the tax deduction will begin with the ‘equity
capital’ as stated in the company’s opening balance sheet of the taxable
period.
• Based on Belgian accounting law, ‘equity capital’ includes capital,
share premiums, revaluation gains, reserves, carry-forward of profits or
losses and capital investment subsidies.
• Increases or decreases of the capital during the taxable period will
be taken into account on a pro rata basis.
• The equity capital will be adjusted by eliminating, among others, the
following items:
-The net book value of the shares the company holds in its own
share capital;
-Shareholdings recorded as financial fixed assets;
-The net book value of real estate (or entitlements in real estate),
or assets of permanent establishments, income of which would be
tax-exempt in Belgium based on double taxation treaties;
-Capital grants (subsidies)
2. The notional interest rate will be set each year and will follow
the average annual 10-year government bond rate. Currently, that rate is
around 3.5%.
The law sets a maximum deviation of 1% from one year to the next and a
maximum percentage of 6.5%. The government may change these percentages
by Royal Decree.
3. Small- and medium-sized companies may in some cases apply a 0.5%
higher deduction rate.
4. To the extent that the interest deduction does not have a direct tax
effect (e.g. in loss situations), the interest deduction can be carried
forward for the next seven years.
Legal Certainty for Investors
The notional interest deduction does not discriminate between
companies and complies fully with existing Belgian and EU law.
Discussions with EU authorities have taken place and the measure is
compatible with EU State Aid rules and the Code of Conduct.
March 25th, 2005
Recently the US tax magazines Tax Notes pointed out that US
profits in Belgium increased by 84% to 6.7 billion $ between 1999 and
2002, making Belgium one of the most profitable countries for US
companies to do business in the world.
The magazine sees a correlation with the decline of the effective tax
rate for US companies in Belgium from 26% to 12% during the same period,
one of the lowest rates in the world and only slightly higher than the
rate in low-tax Ireland (8%). On that basis Belgium was designated as an
‘emerging tax haven’ for US companies.
www.taxanalysts.com
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