Doing business in Belgium offers major advantages

Situated in the heart of Europe, Belgium is a favourable location for investment. The headquarters of the European Union, international organizations such as NATO, and lobbyists, have made Belgium, and in particular its capital, Brussels, influential places where major political, economic and social decisions are taken.

In addition to a stable legal climate for foreign investments, Belgium has excellent logistics and road and shipping infrastructure to connect to major European cities. Indian companies are using the port of Antwerp, the second largest in Europe, to expand their exports to Europe and India has become a privileged trading partner of Belgium in sectors such as information technology, pharmaceuticals and chemicals.

Options for investors

A foreign investor wishing to do business in Belgium can incorporate a Belgian legal entity. The SA/NV (public limited liability company) and SPRL/BVBA (private limited liability company) are the most common choices. An SA/NV must have at least three directors while an SPRL/BVBA may have only one. Directorships may be held by a natural person or by a legal entity, which must appoint a natural person as a “permanent representative”.

[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”2″ ]

Other options for a foreign investor are to open a branch office or create a partnership. Entities set up by foreign investors have the same obligations and benefits as domestic entities.

Incorporating a legal entity or opening a branch office involves various formalities, such as affiliation with a social security fund and application for a Belgian VAT registration number.

As for M&A deals and takeover bids, when a natural or legal person holds 30% or more of the voting securities in a Belgian public listed company, that person is required to make a bid to all shareholders in the target company. The offer must be notified to the Financial Services and Markets Authority.

Tax, labour law & mergers

Belgium has a general corporate income tax rate of 33.99%. The effective tax rate is often significantly lower thanks to deductions such as the “notional interest deduction”, which pertains to a deemed interest on the total equity of the company (resident and non-resident) that the company may deduct from its taxable basis. Dividends are taxed at 25%, which may be reduced to 21% under certain circumstances. Interest payments are subject to a withholding tax of 21%.

Belgian companies benefit from the EU Parent-Subsidiary Directive and the EU Interest-Royalty Directive, which offer important withholding tax exemptions on dividends, interest and royalty payments.

Belgium also offers double tax avoidance treaties with more than 90 countries. The treaty with India provides for a reduced tax rate on outbound dividend payments and interest payments.

The tax administration has a well-functioning ruling commission which delivers advance rulings that are legally binding on the tax administration for a renewable period of five years.

Belgium has a well-developed system protecting workers. Companies that plan to hire employees must register with the Belgian social security administration, apply for insurance covering work accidents and health, and register the employees for child benefits and annual vacation payments.

When a company has more than 50 workers, a labour union has to be set up through an election process. Belgium also has a system of social consultation through which workers and employers negotiate and conclude collective labour agreements on working conditions and wages in different sectors.

Concentrations that meet certain thresholds (through merger, acquisition of control, or creation of joint venture, are subject to mandatory pre-notification under the EU and Belgian merger control regimes, either to the EU’s Directorate General for Competition or to the Belgian Competition Council.

Under the EU Merger Regulation, the merger rules apply if the merging parties’ aggregate worldwide turnover exceeds €5 billion (US$6.5 billion) and each of at least two merging parties’ EU-wide turnover exceeds €250 million. A merger is also likely to have a EU dimension when the combined aggregate worldwide turnover of all merging parties exceeds €2.5 billion and the combined aggregate turnover of all the parties exceeds a certain thresholds in at least three member states.

Under the Act on the Protection of Economic Competition, a transaction falls within the scope of the Belgian merger control regime when the EU thresholds are not met, but the parties’ aggregate worldwide turnover exceeds €100 million and each of at least two of the companies concerned has a turnover in Belgium exceeding €40 million.

If the merger does not significantly impede effective competition, it will be approved without conditions. If the merger weakens competition, the merging parties might propose commitments to avoid prohibition.

[/ihc-hide-content]

Daniel H Sharma, a partner in the litigation and regulatory group in Frankfurt and Brussels, and Benjamin Parameswaran, a partner in the corporate/M&A group in Hamburg and Cologne, jointly head DLA Piper’s India group for continental Europe. DLA Piper is the world’s largest legal practice with more than 4,200 lawyers in 76 offices across 30 countries.