1. Why Belgium?

Belgium is at the very top in Europe when it comes to the best location for industry and logistics. Situated in the heart of Europe, is has an outstanding strategic location. The country is known for its modern, private-enterprise economy with a highly developed infrastructure, diversified industrial and commercial base and highly educated inhabitants.

Investing in Belgium is therefore without a doubt a solid choice. Furthermore, in October 2015, the Belgian Federal Government reached a new agreement on the so-called ‘tax shift’. The primary goal of the Belgian government with this tax shift is reducing taxes on labour to increase competitiveness and create more jobs. Moreover, specific SME measures are taken to give support to SME and entrepreneurs.

2. Establishing a business

When establishing a business in Belgium, the entrepreneur has to decide on the legal status of the entity. There are two possibilities: either you start up a branch office, or you set up a Belgian subsidiary. This choice is very important as regards to legal and fiscal consequences.

A branch is not considered a distinct legal entity and is a an extension of the parent company. A subsidiary on the other hand is owned by the parent company but is regarded as an independent Belgian company.

3. Corporate conditions

A branch is more of an extension of the parent company. It cannot act by itself and has no board of directors. Its creation involves fewer formalities: there is no requirement for a minimum assigned capital and no intervention of a Belgian notary public is needed.

There are some practical steps to open a branch in Belgium. First of all, you will need to lay down some documents in the Commercial Court's Registry where you want to open your branch.[1] The branch is then registered in the Crossroads Bank for Enterprises and receives an enterprise number. After that, you are also required to register at a business counter (‘ondernemingsloket’)[2] to activate your corporate registration number to VAT. The administrative cost will depend but can be estimated around 500 EUR.[3]

As stated above, a foreign company that intends to open a branch office in Belgium must appoint a legal representative of the company. This is the person who will be authorized to represent the company in dealings with third parties and in legal proceedings for the activities of the branch.[4] The legal representative is required by law to carry out all disclosure formalities above.

The main disadvantage of a branch office is that the parent company is fully liable for the liabilities of the branch. A branch is thus usually an adequate vehicle for low cost projects, but it is not the ideal choice for substantial projects. In that case, it is recommended to create a distinct legal entity in Belgium. Off course setting up a subsidiary will create more obligations. A subsidiary can act by itself and has its own board of directors and internal rules. A subsidiary is required to hold shareholders’ meetings and comply with other corporate formalities.

The principal forms of business organization in Belgium are the limited liability company (SA/NV), the private limited liability company (SPRL/BVBA), the cooperative limited liability company (SCRL/CVBA), partnership (SNC/VOF) or SCS/Comm.V. Foreign investors are free to operate through any form of business entity recognized under Belgian law (typically a BVBA or a NV).

The limited liability company (SA/NV) is the most convenient form for big companies. The creation of a NV requires a minimum capital of 61.500 € liberated by at least two founders. This limited liablity company must be represented by a board of direction appointed during the creation process. The board is in charge of the daily management and the accountancy of the company and there have to be at least three directors.
The private limited liability company (SPRL/BVBA) is a better suited form for smaller companies, since it requires a smaller minimum capital than the SA and the shares are less easily transferable. A SPRL can be formed by one or more shareholders (individuals or legal entities). A minimum capital of 18,550 EUR must be provided and at least 6,200 EUR must be paid up before registration. If only one shareholder decides to set up the SPRL, the minimum amount paid upon incorporation must be 12,400 EUR.

When forming a limited liability company in Belgium, you first have to go to a Belgian notary to draft the act of incorporation of your company (to do this, you will have to make a business and financial plan[5] and open a bank account in the name of the company). An extract from these articles of incorporation must then be registered with the commercial court.[6] Notaries are able to register articles of incorporation electronically with the Central Enterprise Databank (BCE/KBO), the commercial court and the Belgian Official Gazette (Moniteur belge/Belgisch Staatsblad) in a single operation. As a result, a company can now be launched in just four days.[7] Companies are also required to register at a business counter after that to activate the business registration number as a VAT number. The cost of the constitution of a Belgian company depends from various elements, but will surely mount up to 2000 EURO.

4. Fiscal implications

4.1 Branch

From a tax point of view, branches are usually considered permanent establishments of non-resident companies. These non-resident companies are subject to tax in Belgium on the income that they derive from the activities of that "Belgian establishment."[8] To define wether you have a Belgian establishment and thus wether Belgium has the power tax, the double tax treaty with the home country of your company is of relevance.[9] When there is no double tax treaty concluded, the Belgian legislation is of relevance.[10] When you set up a branch in Belgium, your non-resident company is subject to Belgian income tax on the income that you derive for the activities from that branch. The profit that is attributed to the branch is thus taxed by the Belgian income tax. These branches are subject to the standard corporate income tax rate.

When the branch constitutes a permanent establishment in Belgium, it is required to apply for a VAT number if it engages in transactions as specified under the VAT Code in Belgium (e.g. deliveries to Belgian clients of orders placed abroad and delivered from a warehouse in Belgium).

Setting up a branch offers a number of tax advantages. For example, when the branch makes losses, in most cases these can be offset immediately against the profits of the head office. Transfers of profits from the Belgian branch to its foreign head office can be carried out tax free.

4.2 Corporate income tax

All companies or establishments are liable to corporate income tax in Belgium if three conditions are met: (1) they possess legal personality, (2) they have their statutory seat, their principal establishment, their seat of management or their seat of administration in Belgium and (3) they are engaged in a business or a profit-making activity. The tax rate in Belgium is 33.99%.[11] However, when the taxable profit does not exceed 322.500 EUR, targeted reduced rates can be applied. In order to qualify for these reduced rates, a company must fulfill a number of additional conditions relating to the activities of the company, the shareholding of the company, the rate of return of distributed profits and the remuneration of their managers. Companies in Belgium are obliged to make advance payments of taxes in four installments.

There are several measures under belgian law in order to reduce the tax basis of companies under certain specific conditions. For rather big companies, the main ones are the notional interest deduction (a percentage of equity of the company is deducted from the tax basis), the dividend-received deduction (an exemption of 95% of received dividends provided that holding and taxation requirements are met) and patent income deduction (80% of Belgian patent revenues are exempt and thus a 6,8% maximum effective tax rate applies on those revenues).

For smaller companies, there are lots of other legal rules, apart from the lower tax rate, that apply and that make it possible to lower the nominal rate. These various tax incentives make Belgium one of the most attractive places to locate and do business.

5. Conclusion

When establishing a business in Belgium as a non-resident, the investor has the choice between establishing a branch office in Belgium or setting up a Belgian subsidiary. When choosing to form a company with legal entity in Belgium, there are also multiple options. In each case, there are some necessary steps that need to be taken in order to constitute your business in Belgium.

The choice between a branch office and a subsidiary depends on various elements and all advantages and disadvantages should be taken into consideration. Our law firm will offer you counselling and personalized advice to establish your Belgian business in the best possible way.

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[1] Articles 81 and 82 Belgian Companies Code. There you will need to lay down a translation of the articles of incorporation of your company, the decision of the board to open a Belgian branch and to appoint a legal representative,?the annual accounts and balance sheets etc.

[2] You are free to choose any business counter, irrespective of where your business is located. Nine organisations have been accredited in Belgium as business counters.

[3] Registration CBE is 83,50 euro, activation VAT is 66,55 euro and publication in the Belgian official journal 262 euro. (http://www.acerta.be/klantenzone/infobank/bedragen/tarieven-voor-verrichtingen-in-de-kb). With preparation of the documents by an accountant, the total cost will of course be higher).

[4] The legal representative does not need to be a Belgian national or a Belgian resident.

[5] In case of bankruptcy within the three first years of activity, the court of commerce may ask to provide a copy of the financial plan. Should appear that your company was underfunded, you may be held personally answerable.

[6] This must be done in the legal district in which their registered office is located and must be done within 15 days following the founding of the company.

[7] http://business.belgium.be/en/managing_your_business/setting_up_your_business/main_steps/articles_of_incorporation/

[8] Art. 229 BITC.

[9] In a double tax treaty that folllows the OECD Model convention, a permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The article gives some examples of a PE, and also some exclusions from the definition (http://www.oecd.org/ctp/treaties/2014-model-tax-convention-articles.pdf).

[10] T. LAUWERS, Handboek internationaal fiscaal recht, Gent, Academia Press, 2013, 158.

[11] The standard rate is 33%, but with surcharges of 3%, this gives a combined rate of 33.99%.