bdo guide to doing business in belgium 2013

5/21/2018 BDO Guide to Doing Business in Belgium 2013

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BDO GUIDE TO DOING BUSINESS INBELGIUM

2013


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Introduction

The aim of this publication, which has been prepared for the exclusive use of BDO

Member Firms and their clients and prospective clients, is to provide background

information for setting up and running a business in Belgium, in compliance with the

legislation as enacted till 15 June 2013. It is of use to anyone who is thinking of

establishing a business in Belgium as a separate entity, as a branch of a foreign company or

as a subsidiary of an existing foreign company, and to anyone who is considering coming

to work or live permanently in Belgium.

This publication describes the business environment in Belgium and outlines the

financial and legal implications of running, or working for, a Belgian business. The most

important issues are included, but it is not feasible to discuss every subject in detail

within this format. Accordingly, Your Guide to Doing Business in Belgium 2013 is written

in general terms and is not intended to be comprehensive. If you would like to know

more, please contact the BDO team with which you normally deal, who can provide you

with information on any further issues and on the impact of any legislation subsequentto 15 June 2013.

BDO International is a worldwide network of accounting and consulting firms, called BDO

Member Firms, serving international clients. Each BDO Member Firm is an independent

legal entity in its own country. The network is coordinated by BDO International

Limited, incorporated in the United Kingdom. Service provision within the BDO network

is coordinated by Brussels Worldwide Services BVBA, a limited liability company

incorporated in Belgium with its statutory seat in Brussels.

Founded in Europe in 1963, it has grown to be the fifth largest in the world the BDO

network now has more than 1000 offices in 135 countries, with more than 48.000partners and staff providing professional auditing, accounting, tax and consulting

services on every continent.

BDOs special skills lie in applying its local knowledge, experience and understanding of

the international context to provide an integrated global service. In BDO, common

operating and quality control procedures are not a constraint on innovation and

independence of thought, but the starting point. It is a vigorous organisation committed

to total client service.

BDOs reputation derives from consistently offering imaginative and objective advice

within the clients time constraints. BDO Member Firms take pride in their clientssuccess and their relationships with them. It is a personal relationship that combines

the benefits of professional knowledge, integrity and an entrepreneurial approach, with

an understanding of a clients business and an ability to communicate effectively. This

ensures the highest-quality objective professional service, tailored to meet the

individual needs of every client, whether they be governments, multinational

companies, national or local businesses, or private individuals.

BDO Services Burg. Ven. CVBA / Soc. Civ. SCRL, a limited liability company incorporatedin Belgium, is a member of BDO International Limited, a UK company limited by

gu arantee, and forms part of the internat ional BDO netwo rk of independent memberfirms. BD O is the brand name for the BD O net work and for each of the BDO MemberFirms.


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Contents

1 The Business Environment ........................................................................................7

1.1 General information ............................................................................................7

1.1.1 Geography ......................................................................................................7

1.1.2 History.......................................................................................................... 7

1.1.3 Government and politics ................................................................................... 7

1.1.4 Language ........................................................................................................8

1.1.5 Currency ........................................................................................................8

1.1.6 Inflation ........................................................................................................ 8

1.1.7 Time, weights and measures ................................................................................8

1.1.8 Belgium and the European Union ...........................................................................8

1.2 Business entities .................................................................................................9

1.2.1 Main types of business entity............................................................................... 9

1.2.2 Procedures of incorporation................................................................................ 9

1.2.3 Joint-stock company ........................................................................................ 101.2.4 Limited liability company................................................................................. 11

1.2.5 Reporting obligations ...................................................................................... 12

1.2.6 Partnerships ................................................................................................. 13

1.2.7 Branches ..................................................................................................... 13

1.2.8 Associations.................................................................................................. 13

1.2.9 Joint ventures ............................................................................................... 14

1.3 Restructuring .................................................................................................. 14

1.3.1 Mergers and take-overs.................................................................................... 14

1.3.2 Liquidation .................................................................................................. 14

1.3.3 Bankruptcy................................................................................................... 15

1.3.4 Continuity of companies .................................................................................. 151.4 Labour relations and working conditions ................................................................. 15

1.4.1 Collective bargaining ...................................................................................... 15

1.4.2 Employees representation at company level ......................................................... 16

1.4.3 Employers organizations ................................................................................. 17

1.4.4 Working conditions ......................................................................................... 17

1.4.5 Residence and work permits and related formalities ................................................ 19

2 Finance and Investment ......................................................................................... 21

2.1 Banking system ................................................................................................ 21

2.2 Financial institutions ......................................................................................... 21

2.3 Accounting and Audit......................................................................................... 222.3.1 Statutory requirements regarding books and records................................................ 22

2.3.2 Accounting requirements .................................................................................. 22

2.3.3 Accounting records.......................................................................................... 22

2.3.4 Chart of accounts........................................................................................... 23

2.3.5 Contents and form of financial statements ............................................................ 23

2.3.6 Valuation..................................................................................................... 24

2.3.7 Consolidated financial statements ...................................................................... 24


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2.3.8 Audit requirements.......................................................................................... 25

2.4 Exchange and investment controls ......................................................................... 26

2.5 Investment incentives......................................................................................... 27

2.5.1 Non-tax incentives .......................................................................................... 27

2.5.2 Tax incentives................................................................................................ 28

3 The Tax System ................................................................................................... 28

3.1 Taxing authorities ............................................................................................ 28

3.2 Principal taxes.................................................................................................. 28

3.3 Corporate tax structure...................................................................................... 29

3.4 Income tax structure ......................................................................................... 29

3.5 International aspects ......................................................................................... 29

4 Taxes on Business ............................................................................................... 29

4.1 Corporate tax system ......................................................................................... 29

4.1.1 Taxable entities ............................................................................................ 29

4.1.2 Territoriality and scope .................................................................................... 30

4.1.3 Gross income ................................................................................................. 30

4.1.4 Deductions................................................................................................... 31

4.1.5 Losses.......................................................................................................... 35

4.1.6 Groups of companies........................................................................................ 35

4.1.7 Coordination centres....................................................................................... 36

4.1.8 Thin capitalisation ......................................................................................... 36

4.1.9 Transfer pricing............................................................................................. 37

4.1.10 Controlled foreign company (CFC) rules ............................................................... 37

4.1.11 General anti-avoidance rule ............................................................................. 37

4.1.12 Taxation of foreign companies trading in Belgium................................................... 38

4.1.13 Taxation of foreign operations ......................................................................... 38

4.1.14 Partnerships and joint ventures ......................................................................... 38

4.1.15 Rates of corporate tax .................................................................................... 39

4.1.16 Returns and assessment................................................................................... 39

4.2 Value added tax ................................................................................................ 40

4.2.1 Taxable activities........................................................................................... 40

4.2.2 Registration.................................................................................................. 41

4.2.3 Exempt supplies ............................................................................................ 41

4.2.4 Input tax deduction ........................................................................................ 41

4.2.5 Tax rates ..................................................................................................... 42

4.2.6 Tax invoices ................................................................................................. 42

4.2.7 Territoriality ................................................................................................ 42

4.2.8 Returns ....................................................................................................... 43

5 Taxes on Individuals ............................................................................................. 43

5.1 Income tax ...................................................................................................... 43

5.1.1 Territoriality and Residence.............................................................................. 43

5.1.2 Structure of income tax .................................................................................... 43

5.1.3 Tax filing obligations....................................................................................... 44


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5.1.4 Taxation of immovable income ........................................................................... 44

5.1.5 Taxation of investment income........................................................................... 44

5.1.6 Taxation of employment income ......................................................................... 45

5.1.7 Personal allowances and deductions..................................................................... 46

5.1.8 Rates of income tax......................................................................................... 48

5.1.9 Local income taxes......................................................................................... 485.2 Inheritance tax and gift tax.................................................................................. 48

5.2.1 Territoriality and scope .................................................................................... 48

5.2.2 Taxable persons.............................................................................................. 49

5.2.3 Tax rates ...................................................................................................... 49

5.3 Wealth tax ..................................................................................................... 50

6 Other taxes ........................................................................................................ 50

6.1 Registration duties............................................................................................. 50

6.2 Capital duty .................................................................................................... 51

6.3 Real estate tax ................................................................................................. 51

7 Social Security System........................................................................................... 52

7.1 General .......................................................................................................... 52

7.2 Social security scheme for employees ..................................................................... 52

7.3 Social security scheme for self-employed persons ...................................................... 53

7.4 Social security surcharge (for employees subject to Belgian social security) ...................... 54

8 Appendix ........................................................................................................... 55


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BDO Guide To Doing Business in Belgium 2013

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1. The Business Environment

1.1 General information

1.1.1 Geography

The Kingdom of Belgium, covering an area of some 30.562 km2, borders the Netherlands

to the north, France to the south, and Germany and Luxembourg to the east. To the

west, it is bounded by the North Sea. Belgium is split into two major regions, the

Flemish (Flanders) and the Walloon (Wallonia). The whole nation is divided into 10

provinces.

The population of Belgium is estimated at about 11,2 million. The largest cities are the

capital city of Brussels (population of 1.151.000), followed by Antwerp (507.000), Ghent(249.000), Charleroi (205.000) and Lige (197.000).

1.1.2 History

The Kingdom of Belgium is a relatively new country by European standards since it was

only founded in 1831. It can nevertheless look back on a very long history, which was

largely determined by the European balance of power.

The earliest historical events go back almost 2000 years and indicate that the region

that is now Belgium was invaded from the north by German tribes, whilst the southern

part of the region was occupied by Latinised Celtic people. These two groups settleddown and caused the establishment of a linguistic boundary and the foundation of the

current multilingual situation in Belgium.

Throughout its early history and until the early 1800s, the Belgian region was governed

by other nations, including Spain, Austria, France and the Netherlands. At the end of

the Napoleonic Wars, Belgium was included in the United Kingdom of the Netherlands

under the Dutch monarchy (House of Orange). Following an uprising in 1830, and with

the backing of the principal European powers, Belgium became a sovereign state in

1831, under Prince Leopold of Saxe-Coburg, who became King Leopold I of the Belgians.

1.1.3 Government and politics

The Belgian constitution of 1831 founded a hereditary monarchy with a bicameral

national parliament and a national government with strong central powers. The current

monarch is His Majesty King Albert II. However, the presence of two different linguistic

and cultural groupings influenced the political evolution of the country in many ways in

subsequent years.


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In 1970, cultural autonomy was granted and four linguistic regions were established:

Flanders, Wallonia, the bilingual region of Brussels, and a small German-speaking part in

the east of the country.

In 1980, the principle of two linguistic communities (Dutch and French-speaking) andthree regional entities (Flanders, Wallonia and Brussels) were defined in the

constitution. The constitutional reforms of 1988-1989, of 1993 and 2012 enlarged the

competencies attributed to the communities and the regions, confirmed the autonomy

of the Brussels region and defined its institutions.

The federal government is presided over by the Prime Minister. Currently, the Prime

Minister is Elio Di Rupo of the Francophone Socialists (PS), who presides over a

government composed of representatives of his own party, the Flemish socialists (SPA)

the Francophone Liberals (MR), the Flemish Liberals (VLD), the Flemish Christian

Democrats (CD&V) and the Francophone Centre Democrats and Humanists (CDH).

1.1.4 Language

Belgium has three official languages: Dutch is spoken by the Flemish people in the

region of Flanders (58% of Belgian population), French is spoken by the Walloons in

Wallonia (31%) and German in a small area situated in the East of Belgium (1% of the

population). The capital region of Brussels is officially bilingual Dutch/French (10%).

1.1.5 Currency

The unit of currency has been the euro (EUR) since 1 January 2002. It replaced the

Belgian franc (BEF) at a parity of BEF 40,3399 = EUR 1.

1.1.6 Inflation

Over the past few years inflation has been under strict governmental control. The

annual rate of inflation in 2011 was 3,53% and in 2012 2,84%. For 2013 it is estimated

to reach 1,5 %.

1.1.7 Time, weights and measures

Belgium is one hour ahead of Greenwich Mean Time (two hours ahead in summer). Like

all other continental European countries, Belgium uses the metric system of

measurement (gramme, metre, litre, degrees Celsius).

1.1.8 Belgium and the European Union

Given their ideal location in the heart of Europe, Belgium and Brussels play an

important role in the extension of the European common market. Long before the

establishment of the European Community, Belgium had already developed privileged

economic ties with the Netherlands and Luxembourg through Benelux. When the Treaty

of Rome was signed in 1957, Belgium was one of the six initial signatories.


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Given its European importance, Belgium has many advantages for foreign investors:

The quality of its labour force enjoys a worldwide reputation. Belgium is the 5th

most productive country in the world (after Japan), as is its multilingualism (tri-

and quadrilingualism are common) Situated in the centre of a market of 332 million European consumers with

excellent transportation links, it is not surprising that Belgium has become the

home base of more than 1.000 major foreign investors

Various international schools

Various international institutions (such as NATO)

1.2 Business entities

1.2.1 Main types of business entity

Most business is conducted via the following entities:

the joint-stock company (naamloze vennootschap NV; socit anonyme SA)

the limited-liability company (besloten vennootschap met beperkte

aansprakelijkheid BVBA; socit prive responsabilit limite SPRL)

the general partnership (vennootschap onder firma VOF; socit en nom

collectif SNC)

the limited partnership (gewone commanditaire vennootschap Comm. V; socit

en commandite simple SCS)

the partnership limited by shares (commanditaire vennootschap op aandelen

Comm. VA; socit en commandite par actions SCA) the cooperative limited-liability company (coperatieve vennootschap met

beperkte aansprakelijkheid CVBA; socit cooperative responsabilit limite

SCRL)

There is no specific law governing or limiting the formation or purchase of a Belgian

company by foreign investors, nor are there any rules requiring Belgian participation in

the entitys capital or management, or limiting its right to acquire or construct

industrial or commercial buildings.

Belgian company law recognizes the commercial company in various forms. A foreign

company wishing to engage in trade or manufacture in Belgium may decide to create asubsidiary or a branch. No prior authorization is required except for specific types of

business (e.g. banking, insurance and transport).

1.2.2 Procedures of incorporation

A company can be incorporated by direct creation or by public subscription. In both

cases a Belgian notary will be required and a financial plan must be submitted prior to

incorporation.


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Founders can, under certain conditions, be held liable in case of bankruptcy within

three years of incorporation.

Partnerships can be incorporated by agreement between the parties, without the

intervention of a notary.

Once the company is incorporated:

the company has to be registered in the Crossroads Bank of Enterprises

(Kruispuntbank van Ondernemingen KBO; Banque Carrefour des Entreprises

BCE)

the company number (which is given by the Crossroads Bank) has to be activated

as a VAT-number (if applicable)

the company has to join a social security fund.

1.2.3 Joint- stock company

Shareholders

There must be at least two shareholders who may be individuals or companies, residents

or non-residents. The shareholders are liable only for the capital that they contribute.

If the company has a sole shareholder, this shareholder will be held fully liable for the

debts of the company from the moment he has become the sole shareholder until there

is a second shareholder or the company is dissolved or transformed into a limited

liability company. The company has one year time to regulate this situation.

Share capital

The minimum share capital is EUR 61.500.

The capital must be fully subscribed. If part of the capital has not been

subscribed, liability will pass to the founders who are then considered subscribers

of the unsubscribed capital.

Each issued share must be at least 25% paid-up upon incorporation, amounting in

aggregate to no less than EUR 61.500.

Shares may be in the form of registered shares or dematerialized shares.

Contributions-in-cash require a statement of a Belgian bank that the amount was

deposited on a blocked Belgian account.

Contributions-in-kind are permissible but require a report drafted by a company

auditor and describing the contribution and the methods of evaluation used. Also

a special report of the founders is required.

Increases in capital must be approved by the general meeting of shareholders, or

in some cases, by the executive board.


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Essential characteristics

The shareholders liability is limited to their contribution. The capital is

represented by equivalent shares with or without nominal value. The shares,

either with or without voting rights, can either be registered and entered in theshare register of the company, or be issued under intangible form

(dematerialized shares). The transfer of registered shares is effected by entries

made and signed in the share register.

A dematerialized share is represented by an inscription on account of the owner

by an approved institution responsible for keeping the records and can be

transferred from one account to another. The transfer of shares can be restricted

by the articles of incorporation or in a shareholders agreement. Till 31 December

2007 bearer shares could also be issued, but since that date this is not longer

possible. All the existing bearer shares must be converted into either registered

shares or dematerialized shares before 1 January 2014.

A shareholders meeting must be held at least once a year to approve thefinancial statements and to determine the distributable profit.

The annual accounts must be deposited with the Belgian National Bank within 30

days following their approval by the general shareholders meeting. A statement

concerning the balance sheet must also be published in the annexes of the

Belgian Official Gazette (Belgisch Staatsblad/ Moniteur belge)

The duration of its legal existence is unlimited, unless otherwise specified in the

articles of association or charter of incorporation.

In principle all the powers of the company belong to the General Meeting of

Shareholders. This body delegates power to the executive board of directors and

appoints if legally required one or more statutory auditors. There must be at

least three directors who are not subject to any residence or nationalityrequirements. The number of directors can, however, be limited to two in the

case of two shareholders. The directors must not be appointed for a term

exceeding six years. Daily management may be delegated to a committee or to a

managing director.

1.2.4 Limited liability company

Shareholders

A limited liability company must have one or more shareholders, who may be individuals

or companies. If a company becomes sole shareholder of a limited-liability company itwill be held fully liable for the debts of the company from the moment it has become

the sole shareholder until there is a second shareholder or the company is dissolved.

The company has one year time to regulate this situation.


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Share capital

The minimum amount of capital required is EUR 18.550.

The capital must be fully subscribed. If part of the capital has not been

subscribed, liability will pass to the founders who are then considered subscribersof the unsubscribed capital.

At least EUR 6.200 must be paid in. Shares representing contributions-in-kind

must always be fully paid up. Shares in cash must be paid up to at least 20%.

Shares should be in the form of registered shares.

Contributions-in-cash require a statement of a Belgian bank that the amount was

deposited on a blocked Belgian account.

Contributions-in-kind are permissible but require a report drafted by a company

auditor and describing the contribution and the methods of evaluation used. Also

a special report of the founders is required.

Essential characteristics

The limited-liability company is a company in which the shareholders liability is

limited to their contribution. Its capital is represented by equivalent shares.

All shares, whether with or without voting rights, are registered and are entered

in the share register of the company. The shares can only be transferred by an

entry in the companys share register. This transfer is normally subject to the

shareholders approval. An approval is not required when the shares are

transferred to other shareholders, to their spouses or to their next of kin (unless

otherwise stipulated in the articles of association).

A shareholders meeting must be held at least once a year to approve the

financial statements and to determine the distributable profit. If there is onlyone shareholder, that shareholders decisions are to be registered at the

registered office (zetel; sige) of the company.

The annual accounts must be deposited with the Belgian National Bank within 30

days following their approval by the shareholders general meeting. A statement

concerning the balance sheet must also be published in the annexes of the

Belgian Official Gazette (Belgisch Staatsblad / Moniteur belge).

The duration of the companys legal existence is unlimited, unless otherwise

specified in the articles of association or charter of incorporation.

In principle all the powers of the company belong to the General Meeting of

Shareholders. This body delegates power to one or more managing directors and

appoints if legally required one or more statutory auditors. There must be atleast one managing director who is not subject to any residence or nationality

requirements. The managing directors can be appointed for a definite or

indefinite term.

1.2.5 Reporting obligations

Besides the preparation of an annual inventory and annual accounts, the administrative

body of the company should also, if legally required, prepare a management report.


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These documents are to be submitted to the General Meeting.

For listed companies additional reporting obligations apply with respect to corporate

governance (implemented by the law of 6 April 2010 amending the Company Code).

The contents and presentation of annual financial statements are governed by theCompanies Code.

Profits may, in principle, be fully distributed. However, 5% must be deducted from the

profits and deposited into a legal reserve fund until the legal reserve amounts up to

one-tenth of the share capital.

1.2.6 Partnerships

Partnerships are less commonly used in Belgium than in AngloSaxon countries. They

generally do not require a minimum capital but are required to have one or more

(general) partners with unlimited liability.

1.2.7 Branches

A foreign company may freely set up a branch in Belgium. Branches are governed by the

same regulations as Belgian companies as regards management and operations in

Belgium. Foreign companies wishing to establish a Belgian branch must comply with the

following formalities:

File a certified true copy of the parent companys articles of incorporation at the

Clerks office of the competent Commercial Court, an extract of its commercial

register, the nomination of its directors and a statement by the parent companys

executive board authorizing the establishment of the branch and the delegation

of powers of the branch management, indicating the name and address of its

official representative in Belgium. All documents need to be translated into the

language of the competent Commercial Court and if legally required apostilled

or legalized.

Publish certain data of the parent company and of the Belgian branch office in

the Belgian Official Gazette.

Register in the Crossroads Bank of Enterprises, obtain a company number (that

can be activated as a VAT-number if applicable), join a social security fund, and

keep appropriate legal and accounting records.

Deposit the annual accounts of the parent company at the National Bank of

Belgium.

1.2.8 Associations

Forms of associations can be general or limited. In general associations, all associates

are jointly and severally liable for all debts and liabilities of the association. In a

particular type of association, one or more of the partners (but not all) may limit their

liability to the amount of their investment.


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Association agreements need not be authenticated by a notary, nor are there any

requirements for the publication of association agreements or financial statements.

1.2.9 Joint ventures

A joint venture generally involves a contract-based co-operation on a project between

two or more parties. No preliminary authorisation is required. A separate chart of

accounts for its operations must be kept and the joint venture must register with the

VAT authorities. The profits or losses realised by a joint venture are dealt with in the

taxable results of the participants and not by the joint venture itself.

1.3 Restructuring

1.3.1 Mergers and take-overs

For mergers no preliminary authorisation is required. Procedure for take-over bids ofquoted companies is handled by the Financial Services and Market Authority (FSMA) and

it is advisable to inform this Authority from the start of any such project, so that it may

indicate the suitable procedure.

The Law of 2 May 2007 requires quoted companies to inform the FSMA and the firm

involved if they purchase 5% or more of the firms shares, or when they increase their

shareholding by 5% or more.

1.3.2 Liquidation

The dissolution of a company may be decided at any time by a special meeting of theshareholders held in the presence of a notary, deliberating in the form prescribed for

amendments to the articles of association.

When, as a result of losses, the net worth of the company is reduced by an amount

below half of the companys capital, the directors must submit to a General Meeting of

Shareholders the question whether the company should carry on its activities.

In both cases the executive board of directors should make a special report supporting

its proposals.

The same rules apply when the net worth is (as a consequence of trading losses)

reduced below one-quarter of the companys capital. In this case, the dissolution may

be pronounced by shareholders owning one-quarter of the voting shares. If the

executive board decides on dissolution of the company, a liquidator must be appointed

to proceed with the realisation of all assets and liabilities.

The dissolution of a public or private limited company can also be pronounced by the

Commercial Court at the request of any interested party when the net worth is reduced

below the minimum amount required by law.


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1.3.3 Bankruptcy

A company (or individual trader) that has been forced to stop payments to its creditors

will incur criminal penalties if this fact is not reported within one month to the

Commercial Court, which may declare it bankrupt and subject to compulsoryliquidation. Bankruptcy may also be declared upon the legal suit of a creditor.

In the case of bankruptcy within three years of establishment, the founders could be

held personally liable if the initial capital seemed insufficient. Where bankruptcy is

declared, transactions made during a period of six months or more prior to the time of

such a declaration are considered suspect, and such items as transfers without proper

consideration and transfer of merchandise in payment for a debt may be declared void.

1.3.4 Continuity of companies

A Belgian company which has problems of liquidity and solvability can ask the

Commercial Court to grant it suspension of payment of its debts for a certain period, in

which the company tries to reach an agreement with all of its creditors or some of

them. During this procedure, it is also possible to transfer the company (or a part of it)

under supervision of the Court.

1.4 Labour relations and working conditions

1.4.1 Collective bargaining

Collective bargaining in Belgium is highly structured with a central level at the topcovering the whole of the private sector (the National Labour Council), an industrial

level beneath, covering specific industrial sectors, and company level negotiations at

the bottom. In each case the lower level can only agree improvements on what has been

negotiated at the level above and the agreements are generally binding for collective

bargaining agreements at national and industrial level once they are published in the

Official Gazette with a Royal Decree.

The National Labour Council is composed of an equal number of employees

representatives (five members of the trade unions) and employers representatives (five

members of the employers federations).

At industrial level negotiations are carried on by the trade unions and the employers

federations meeting in labour management committees. The agreements reached in

these labour management committees are binding on all employers in the industries

they cover.

At company level, the trade union delegations (together with the local union

organisations) negotiate with individual employers.


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The normal cycle of negotiations is two-yearly with the national level negotiations being

followed by industry level negotiations and then company-level negotiations.

1.4.2 Employees representation at company level

Workplace representation in Belgium runs through two separate channels:

the works council represents all personnel, although it is only elected in larger

workplaces (in companies with an average of 100 employees or more);

the trade union delegation.

Trade-union representation is regulated by a collective bargaining agreement.

Representation at company level is not set-up automatically but has to be requested by

one or more trade union organizations. The trade union representatives are employees

of the company who are either elected or appointed to represent the affiliated

employees. By joining a union which is not obliged in Belgium, workers can influence

issues relating to their work, such as salaries, working hours, benefits, occupationalhealth and safety, among many other things.

Belgium has a high percentage of working people who are members of a union but

knows a quite calm social climate due to the fact that employers and employees very

regularly meet at different levels, and social negotiations form part of the social

structure.

The main tasks of the trade unions are the following:

To negotiate with the employer on salaries, hours, benefits and working

conditions; To monitor whether the employees rights in the workplace are being respected;

To reinforce and improve standards regarding health and safety, economic issues

and other issues with respect to the industry and functions;

To deal with disputes with respect to the application of labour law and collective

bargaining agreements.

There are also separate bodies for health and safety (Health and Safety Committee

Comit voor Preventie en Bescherming op het Werk Comit pour la Prvention et la

Protection au Travail) elected by all personnel, provided there are at least an average

of 50 employees.

These health and safety committees also have information and consultation rights on

economic and social issues, where there are between 50 and 100 employees.

Both employees representatives of the Work Council and the Health and Safety

Committee are elected once every four years.


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1.4.3 Employers organizations

The Federation of Belgian Enterprises (VBO-FEB), the principal Belgian employers'

association, is made up of some forty industry-level federations. Each of these

federations appoints an authorized representative to sit on the VBO-FEB CentralCouncil.

Other employers' organizations include the National Christian Federation of Small Firms

and Traders, Regional Flemish and Walloon associations (the Vlaams Economisch

Verbond and the Union Wallonne des Entreprises), and the Federation of Christian

Employers. The regional organizations are likely to become increasingly important

because more employment related issues are dealt with at regional level.

1.4.4 Working conditions

General

The working conditions of employees are not only determined by collective bargaining

agreements but also in employment contracts concluded between the employer and

employee as well as in the work regulations of the company.

According to the present legislation the difference between white collar workers

(employees mainly performing intellectual activities) and blue collar workers

(employees mainly performing manual work) still exists but is considered to be an

unlawful discrimination according to the Constitutional Court.

Employment contracts

An employment contract is a contract under which a person, the employee, undertakes

to work, in exchange for payment, for another person, the employer, and to do so under

his authority. The four essential elements in an employment contract are therefore: the

contract, the nature of the work, the remuneration and the employers authority (a

relationship of subordination).

Remuneration

In Belgium, the level of gross salaries are not fixed by law. They are in principle

determined by collective bargaining agreements, which are concluded between trade

union representatives and employers, either at industrial level or at company level,

except for the monthly guaranteed minimum wage determined at national level by the

National Labour Council.

The gross guaranteed minimum wage for employees of at least 21 years old and working

full-time amounts to EUR 1.501 as from 1 December 2012. Young people under the age

of 21 years are entitled only to a lower amount.


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Some employers grant their employees additional or non-statutory fringe benefits.

These vary widely and are often laid down in the provision of collective bargaining

agreements. Some examples are luncheon vouchers, payment of a thirteenth month,

premiums for group insurance, etc.

Every wage discrimination particularly on gender grounds, is not allowed.

Working time

In Belgium, working hours may not exceed 8 hours per day or 38 hours per week. It is in

principle not allowed to work more than these legal working hours, outside the

applicable working schedules, but exemptions are possible under certain conditions.

In most cases where working beyond the statutory working hours is authorized, either in

the context of regular work arrangements or in the context of overtime (except in case

of flexible working hours), compensation leave must in principle be granted.

Working on Sundays or on public holidays is forbidden by law, but exemptions exist, for

example work in certain undertakings (hotels, catering establishments, and health care

establishments and services).

Night work is prohibited between 8 p.m. and 6 a.m. but exemptions may be obtained

under certain conditions, for instance due to the nature of the work (hotels,

entertainment, newspaper firms, health care, factories, etc. ).

Termination of the employment

An employment contract can end as follows:

upon expiry of the term for fixed-term contracts or upon the completion of the

work if the contract was concluded for a specific work;

by mutual (written) agreement between the employee and employer;

in case of force majeure having a long term impact or upon the death of the

employee or the employer under certain conditions;

immediate termination because of a serious cause; each party can terminate the

contract without notice or compensation in lieu of notice because of a serious

cause following a strict procedure.

When the contract has been concluded for an indefinite period, each party can

terminate the contract by giving notice, in writing mentioning the starting date of

notice and the duration of the notice period.

Termination of a contract concluded for an indefinite period is also possible with

immediate effect and the payment of a compensation in lieu of notice.


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In some cases and with respect to certain categories of employees, the law determines

limitations on the right to dismiss an employee (for instance, the employee is protected

against dismissal once the employer has been informed of her pregnancy).

Specific rules apply in case of dismissal during the trial period.

For employment contracts concluded as from 1 January 2012, new rules regarding

dismissal apply for both white and blue collar workers. These rules include a first step

to unify the regulations of white and blue collar workers but currently different rules

still apply.

1.4.5 Residence and work permits and related formalities

Residence permits

All foreign nationals intending to stay in Belgium for more than 90 days within a 6

months period should apply for a VISA D with the Belgian Embassy or Belgian Consulate

General in the home country. In general, when a person comes to Belgium to perform

professional activities, the Belgian work permit or professional card should be obtained

first before the VISA D is applied for.

After arrival in Belgium, the foreign national should present himself to the municipality

of the Belgian place of residence within 8 days. A proof of registration is delivered. The

necessary documents need to be provided and after a police visit at the Belgian place of

residence and a positive evaluation, the residence permit is delivered.

Nationals of the European Economic Area (EEA) and Switzerland can enter Belgium and

start up the registration procedure based upon their ID-card or passport.

Work permits

Every company that employs a non-EEA national or non-Swiss national on the Belgian

territory needs to apply for an authorization to employ the individual and a work permit

B on behalf of that individual. Only after delivery, the employee can start the

employment activities in Belgium.

The Belgian law is by principle very strict to grant work permits as they are in general

only delivered if one can prove that there is a shortage on the Belgian labour market

(bottleneck occupations) and a bilateral agreement is concluded between Belgium and

the country of the foreign national. In practice, there are several categories for whom

these obligations do not apply based upon the nature of the activities (e.g. highly

qualified employees, managerial functions, specialized technicians ) or the residence

status (e.g. family member of an EU-national) of the employees.


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Note that due to the enlargement of the European Union, transitional measures are still

in force for Romanian and Bulgarian nationals. They require work permits, in principle

till 31 December 2013, but a simplified application procedure applies for bottleneck

occupations. They can on the other hand enter Belgium based upon the free movement

of services within the EU and perform activities as a self-employed person.

Professional cards

Generally speaking, all foreign persons not having the EEA or Swiss nationality wishing

to exercise a self-employed professional activity in Belgium are required to hold a

Belgian professional card.

Self-employed activities are all activities not covered by the regulations on the

employment of foreign employees. Also persons appointed as directors of a Belgian

company require a professional card. Even non-remunerated directors, who might not

have to affiliate with a social security fund for self-employed persons in Belgium, do

require a professional card.

There are limited exemptions available such as the one for business trips to Belgium

upon the condition that the stay of the foreign national, residing abroad, in Belgium

does not exceed 3 consecutive months.

The application for the professional card must be made at the Belgian Consulate or

Embassy covering the applicants residential area in his home country.

Limosa

Employees, self-employed persons and trainees who come to work in Belgium

temporarily must be reported to the Belgian social security authority. This declaration

is called the Limosa declaration and can be done electronically (www.limosa.be ).It should be done prior to the start of the activities in Belgium. There are certain

exemptions from this obligation, mainly depending on the duration and the nature of

the activities in Belgium.

The Limosa tracking system entered into force as of January 1, 2007 and aims to

monitor foreign business presence in Belgium. It also allows the Social Inspectorate to

easily trace foreign nationals in Belgium and verify their compliance with other

obligations such as the work permit.

Recently, the European Court of Justice declared the Limosa declaration for self-

employed persons not compatible with the freedom to provide services due to the

burdensome administrative procedure and detailed information to be provided.

Consequently, the notification for self-employed persons is temporarily no longer

compulsory but the system will be adapted in order to be compliant.


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2. Finance and Investment

2.1 Banking system

The banking system consists on the one hand of the bodies responsible for the

regulation of the money markets and for the implementation of monetary policy, and

on the other hand, of the basic financial institutions: deposit banks, public credit

institutions and private saving banks. The basic legislation that governs the banking

system is the Banking Act of 1935.

Although the authorities instituted under the legislation are not concentrated into a

single organisation, there is a close cooperation and prior consultation is even

required by law between the Minister of Finance, the Banking Commission, the

National Bank of Belgium and, within the National Bank, the Belgium-Luxembourg

Exchange Institute.

The National Bank implements monetary policy, acts as state banker and intervenes as

lender of last resort in credit operations.

The role of the Financial Services and Markets Authority (FSMA) is to supervise the

individual financial institutions: banks, mutual funds, finance companies, holding

companies and saving banks. Furthermore, it supervises new issues and public tenders

of stocks, shares and other securities, in order to protect the potential investor from

any misleading information.

Regulation of exchange operations is a constituent of the fiscal policy conducted by the

National Bank. Since 1922, Belgium has been linked to the Grand Duchy of Luxembourgin an economic union, and for this reason, exchange control has been handled by a

separate organisation and has been transferred to a body competent to handle

exchange control for both countries. The Belgo-Luxemburg Exchange Institute is

responsible for actions affecting the movement of capital across borders.

2.2 Financial institutions

It is important to specify the various financial institutions:

Credit institutions are financial companies whose activities consist of receiving

deposits and other refundable moneys from the public, to issue loans for their

own clients.

Financial establishments are companies whose main activity consists of taking up

shares, or exercising one or more activities that result in mutual benefit.


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Nevertheless, most of the large banks established in Belgium cover all the activities in

the financial sector, either directly or indirectly.

Faced with the financial crisis, the Belgian banking landscape has been overhauled.

Banks were recapitalized and reorganized to build strong financial institutions.

Private institutions account for the largest part of the financial sector, both in number

and in volume. Basically, the private institutions and the largest banks in particular

offer all the financial products and services required by Belgian and foreign clients.

2.3 Accounting and Audit

2.3.1 Statutory requirements regarding books and records

Accounting principles, based on the EC Fourth Directive, are laid down in the law of 17

July 1975, the Royal Decree of 8 October 1976 and subsequent Royal Decrees.

2.3.2 Accounting requirements

All businesses are required to keep books and records complying with accounting

principles, and to draw up financial statements including a balance sheet and a profit

and loss account. Books, records and financial statements must be drawn up in French,

Dutch or German, depending on the region where the business is located, and expressed

in euros. The financial year of a company is normally twelve months. This period may be

either extended or shortened, as frequently occurs during the first financial period. The

closing date is determined by the articles of association.

2.3.3 Accounting records

Generally, the following books and records must be kept and retained for at least seven

years:

Auxiliary books recording the daily operations (bank journal, purchase journal,

sales journal)

A legal journal in which the monthly movements of the auxiliary books are

summarised

An inventory book for the annual registration of the inventory of assets,

liabilities, contingent assets, and commitments and contingent liabilities. Thisinventory is prepared and recorded following the layout of the chart of accounts

of the enterprise.


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2.3.4 Chart of accounts

The system for filing Belgian financial statements is governed by the law of 17 July 1975

on accounting procedures and the Royal Decree of 30 January 2001 (the Belgian

Accounting Act). It applies a system of accounting based on a minimum standard chartof accounts (minimum algemeen rekeningstelsel) laid down by article 2 of the Royal

Decree of 12 September 1983.

Whilst every company is required to maintain an accounting system appropriate to its

size and activity, its chart of accounts must comply with the form and presentation laid

down in the minimum standard chart of accounts (MSCA). The MSCA is relatively

comprehensive and covers the majority of transaction types to be found in most

businesses. Should certain transaction types not be covered or should more detail

separation of transactions be necessary, then a company can always create new

accounts, but they must remain within the structure laid out by the MSCA.

2.3.5 Contents and form of financial statements

Financial statements must be prepared in a predetermined format, which is in line with

the EC Fourth directive. The financial statements that must be filed are the following:

Balance sheet after profit appropriation

Income statement

Explanatory notes.

The annual general meeting to approve the accounts should be held within six months of

the close of the financial year. Within one month of the date of the annual GeneralMeeting, the approved financial statements must be deposited with the National Bank of

Belgium, which forwards a copy to the Commercial Court and to any other interested

party.

The balance sheet

The balance sheet includes, on the asset side, a summary of:

Fixed assets

Stock

Receivables

Cash in hand/bank

Other assets.

On the liability side, there is a summary of:

Shareholders equity

Provisions for risks and charges

Borrowings


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Payables and other liabilities.

The information must be given in the same terms for both the most recent and

preceding years.

The income statement

The income statement should be fully detailed as set out in Exhibit 2 of the Royal

Decree of 8 October 1976. The main headings are as follows:

Operating revenue

Operating costs and expenses

Financial results

Extraordinary results

Income taxes

Profit appropriation.

2.3.6 Valuation

The board of directors principally determines the valuation principles to be used. In

Belgium, companies are allowed to prepare only one set of annual accounts for both

commercial and taxation purposes. Therefore, the accounting rules included in the tax

legislation have tended to become standard practice. Consequently, conservative

valuation principles prevail and companies adopt the historical cost convention.

Certain fixed assets may be revaluated to market values. Any surplus must be

transferred to a separate non-distributable reserve. Valuation principles must be

consistently applied. Changes must be explained and justified in the notes to the

financial statements.

2.3.7 Consolidated financial statements

Consolidated accounts were introduced in Belgium by the Royal Decree of 6 March 1990,

which is based on the EC Seventh Directive. All commercial enterprises in Belgium are

subject to this Royal Decree if they have one or more subsidiaries.

An enterprise may be exempt from preparing consolidated accounts if the enterprise

itself is a subsidiary of a parent company that prepares and publishes audited

consolidated accounts and a consolidated directors report.

An enterprise is also exempt from the obligation to prepare consolidated accounts if the

enterprise and its subsidiaries do not, on a consolidated basis, exceed more than one of

the following limits:

Turnover, excluding VAT, of EUR 29.200.000

Balance sheet total of EUR 14.600.000

Average number of 250 employees during the year.


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The exemptions referred to above do not apply where all or part of the shares issued by

one of the enterprises to be consolidated have been admitted to an official listing on a

stock exchange established in a member state of the European Union.

The consolidated accounts must be audited by the statutory auditor of the consolidatingenterprise, or by one or more auditors appointed by the general meeting of the

enterprise.

The consolidated accounts and reports must be made available to the shareholders of

the consolidating enterprise, submitted to the general meeting and published under the

same conditions and within the same time limits as the annual accounts.

2.3.8 Audit requirements

Enterprises meeting more than one of the following three criteria must appoint one or

more statutory auditors (commissaires) for a renewable period of three years:

An average of 50 employees during the year

An annual turnover, excluding value-added tax, of EUR 7.300.000

A balance-sheet total of EUR 3.650.000

Enterprises in which the average number of employees during the period exceeds 100, if

the company concerned is part of a company group that is obliged to issue consolidated

accounts or companies whose shares are quoted on a stock exchange and exceeds the

aforementioned criteria on a consolidated basis, one or more statutory auditors must be

appointed. These conditions apply to the individual company or to the group to which it

belongs.

The statutory auditor is appointed by the General Meeting of Shareholders.

A statutory auditor has an unlimited right of oversight and inspection of all the

operations of the company and must report to the shareholders on the annual accounts

of the company and on the board of directors report.

The statutory auditors report must be made available to the shareholders at least 15

days before the annual shareholders meeting. A copy of the report must be made

available to the public as an exhibit with the annual accounts.

The statutory auditor must also report specifically to the works council. This reporting

involves giving an opinion on the statutory annual accounts and certifying the economic

and financial information given to the council.


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All statutory auditors must be selected from the list of members of the Institute of

Chartered Accountants (Institut des Reviseurs dEntreprises/Instituut der

Bedrijfsrevisoren). The Institut des Reviseurs dEntreprises has issued auditing

standards to be followed by all its members. Although not as numerous these auditing

standards are similar to the standards applied in the other northern European countries.

The Institut requires its members to make an assessment of the adequacy of internal

control procedures, and comment in their opinion on the extent to which they have

relied on an administrative organisation that includes a system of internal control

appropriate to the nature and the extent of the enterprises activities.

The Company Code emphasises the importance of the independence of auditors. The

Law of 2 August 2002 (Corporate Governance Act) amending article 133 of the Company

Code affects the manner in which external audits are carried out. An auditor, one of his

employees, affiliates or a partner with whom he has a professional relationship cannot

during his mandate or within a period of two years prior to his mandate perform otherservices such as drafting of financial statements, IT consulting, outsourcing internal

audit, representation in fiscal litigation, acting as company directors, decision-making.

In quoted companies and companies required to draft consolidated accounts, total fees

for allowed non-auditing services (e.g. tax advice) cannot exceed the total statutory

auditors fee. This rule is applied at group level and not per separate company. This

rule does not apply if:

the company receives a prior consent of the audit committee, as established

within the company by the articles of association

the advice and control commission (providing advice on compatibility of specific

services with the auditors independence) granted a positive advice

a committee of mutually independent auditors was set up within the company

A company auditor is not allowed for a period of two years after the termination of his

mandate to accept a position in a company belonging to a group whose accounts he has

audited.

2.4 Exchange and investment controls

In practice, freedom of exchange exists for all purposes. There are no restrictions onforeign ownership and no registration requirements for capital, loans, technology

agreements, and the like. All foreign investments, including earnings, can be freely

repatriated. There are also no restrictions of foreign business investments or ownership

in Belgium.


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2.5 Investment incentives

Both tax and non-tax incentives are available to encourage investment.

2.5.1 Non-tax incentives

With the federalization of Belgium and the harmonization of investment incentives and

subsidies under European Union legislation, investment incentives are regionally

organized. A discussion of all available initiatives is not within the scope of this

publ ication. The following incentives may be ava il able .

Interest rebates

Interest rebates may be given on investment loans granted by some financial

institutions.

Capital grants

Under certain conditions, the regional governments may grant capital grants to

companies (which often benefit of a special tax regime).

State guarantee

The regional governments may guarantee the reimbursement of investment loans. An

important system in Flemish region is the Gigarant guaranties, which involve a state

guarantee of the Flemish government for capital needs over EUR 1.500.000.

Investment companies

National and regional investment companies may participate in corporations. An

important and successful example is the Flemish Archimedes investment fund.

More information

For more information reference is made to the following contactpoints:

For investments in Brussels-Capital Region:

Brussels Agentschap voor de Onderneming/Agence Bruxelloise pour lEntreprise

Avenue du Port 86 C, bte 211, B-1000 Brussels

[email protected]

www.abe.irisnet.be

www.ecosubsibru.be


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For investment in Flanders

Enterprise Flanders

Koning Albert II-laan, 35, bus 12 B-1030 Brussels

[email protected] investment officer can be found via www.investmentinflanders.com which can

provide assistance for foreign investors.

For investment in the Walloon Region

Public incentives in de Walloon Region (Midas)

www.aides-entreprises.be

2.5.2 Tax incentives

For tax incentives, see under Chapter 4.

3. The Tax System

3.1 Taxing authorities

Taxes are levied by the federal government, the three regions, the provinces and thecommunes. Federal taxes are codified in the Income Tax Code ( Code des impts sur les

revenus / Wetboek van de Inkomstenbelastingen), the Inheritance Tax Code (Code des

droits de succession / Wetboek der Successierechten), the VAT Code (Code de la taxe

sur la valeur ajoute / Wetboek van de Belasting over de Toegevoegde Waarde ), the

Stamp Duties Code (Code des droits denregistrement, dhypothque et de greffe/

Wetboek der registratie-,hypotheek- en greffierechten) and the Sundry Taxes and

Duties Code (Code des droits et taxes divers / Wetboek diverse rechten en taksen ).

Customs and excise duties have their own separate statutes.

3.2 Principal taxes

Direct taxes:

Corporate income tax

Individual income tax

Indirect taxes:


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Value added tax (VAT)

Registration duties

Inheritance and gift taxes

Customs and excise duty

Miscellaneous taxes:

Stamp duty

3.3 Corporate tax structure

For companies no distinction is made according to the nature of the income. All kinds of

income earned are considered as business income and taxed in that way.

3.4 Income tax structure

There are four categories of income that have to be distinguished:

Earned income

Income from movable property

Income from immovable property

Miscellaneous income

3.5 International aspects

Non-residents (companies or individuals) are subject to Belgian tax on the income

derived from Belgian sources. Belgian double tax treaties generally provide that the

foreign entity subject to tax in Belgium benefits from a tax credit or tax exemption in

its country of residence, thus avoiding double taxation.

4. Taxes on Business

4.1 Corporate tax system

4.1.1 Taxable entities

Corporate tax is payable by companies, associations, partnerships, co-operative

societies, establishments and organisations that are engaged in profit-making activities

or in the operation of a business. Only entities with legal personality are subject to

corporate income tax.


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4.1.2 Territoriality and scope

Companies resident in Belgium are taxable on their worldwide income and gains,

whereas non-resident companies are liable to Belgian corporate tax on their Belgian-

source income only.

A legal entity is a resident of Belgium if it has its registered office, main establishment

or place of management in Belgium.

4.1.3 Gross income

Accounting period

The tax accounting period refers to the financial accounting period.

Tax assessment year

If the financial year coincides with the calendar year, the assessment year is the

following calendar year. If the financial year does not coincide with the calendar year,

the assessment year is the calendar year during which the financial year ends.

Accounting methods and business prof its

The companys profits are determined in accordance with generally accepted accounting

principles (GAAP).

The bookkeeping result is, however, adjusted for tax purposes. Non-allowable expensesor excess depreciation are added back, while some other items are deducted.

Inventory valuation

Belgian tax law does not contain specific provisions regarding methods of valuation of

stock. Therefore, the rules of accounting law apply for tax purposes. According to

accounting law, stock must be valued at cost or replacement value, whichever is lower.

As to the methods of valuation, the FIFO and LIFO methods, the unit method and the

average weighted price method are allowed. The base-stock method is not allowed.

Capital gains/losses

Capital gains realised on the disposal of business assets are regarded as business income

and, therefore, normally subject to taxation at the ordinary rates. Non-realised capital

gains are exempt. Capital gains on shares or participations are subject to different

regimes:

Capital gains realized on shares held for a continuous period of at least 1 year in

a company subject to a normal tax regime are exempt when realized by small


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and medium-sized enterprises (definition see under Depreciation below);

Capital gains satisfying the above-mentioned conditions realized by other

companies are subject to a separate tax rate of 0,412 % (against which no tax

credits can be offset)

Capital gains satisfying the taxation requirement, but held for less than 1 year

are subject to a 25,75% tax rate.

Capital gains not satisfying the taxation requirement are subject to tax at the

ordinary corporate tax rates.

Tax on some other capital gains can be deferred. Capital gains realised on fixed assets

held for business purposes for more than five years prior to the disposal and gains

realised in respect of damages, expropriations or similar events, may be subject to

corporate income tax over the period of depreciation of the reinvested assets if the

sales price is reinvested adequately in depreciable non-financial fixed assets within

three years (or five years for buildings, ships and aircrafts).

Capital losses are normally tax-deductible, except for capital losses on shares orparticipations. Capital losses on shares or participations are non-deductible, unless the

capital loss would have been derived by liquidation. In this case, the amount of loss of

paid-in capital can be deducted.

4.1.4 Deductions

To be deductible, business expenses must meet the following conditions:

They must be incurred or borne by the taxpayer during the accounting year

The expenses must be made with the intent of obtaining business income

Their amount and authenticity must be proved.

The most important deductible expenses are:

Salaries, bonuses and fringe benefits

Social security payments

Travel, repair, maintenance, publicity, insurance

Car expenses (deduction of most car related costs is limited in function of the CO2-

emission of the car)

Expenses for public relations and representation (deduction limited to 50%)

Restaurant expenses (limited to 69%)

Rental expenses

Research and development expenses

Various taxes, such as registration and property tax, and customs duties.

Non-deductible expenses

All business-related expenses are deductible insofar the general conditions for

deduction as mentioned above are fulfilled. The following expenses, however, are not


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deductible:

Personal expenses

Corporate tax

Penalties

Interest and gifts exceeding certain limits

Excess depreciation

Excessive profit transfers to foreign related parties

Gifts

Gifts are deductible if they are made to certain organisations and if their value does not

exceed the smaller of EUR 500.000 and 5% of taxable income.

Royalties and management fees

Royalties and management fees are generally deductible.

Interest expense

Interest is only deductible to the extent that it does not exceed the market rate.

Interest paid to directors and shareholders may in some circumstances be considered as

dividends.

Interest paid to related companies or to foreign recipients that are subject to a

favourable tax regime constitute a non-deductible expense to the extent that a 5 to1

debt equity ratio is exceeded (an exception applies for centralised treasury

management).

Depreciation

Depreciation of business assets is calculated on the basis of cost price and the useful

life of the assets. It is allowed as of the financial year in which the assets are acquired

or produced, and must be taken every year. However, in the year of acquisition or

bringing into use, depreciation is allowed on a pro rata temporis basis. This restriction

does not apply to small and medium sized enterprises.

For this purpose, a small and medium-sized enterprise (SME) is one that conforms to at

least two of the following measures:

An average of no more than 50 employees during the year

An annual turnover, excluding value-added tax, of no more than EUR 7.300.000

A balance-sheet total of no more than EUR 3.650.000

An enterprise that has an average number of employees of more than 100 over the year

is considered not to be a SME, even if it falls within the turnover and balance-sheet

limits.


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For companies forming part of a group these measures should be calculated on a

consolidated basis.

Deferred depreciation is not permitted.

The law provides for two methods of depreciation: the straight-line method and the

declining-balance method. Straight-line depreciation is the normal method.

Depreciation periods and rates are normally fixed by agreement between the taxpayer

and the tax authorities, although for certain assets rates are set by administrative

instructions (e.g. commercial buildings 3%; industrial buildings 5%; machinery and

equipment 10% or 33%, depending on the type; and rolling stock 20%).

Declining-balance depreciation is generally optional.

Accelerated depreciation is available under law or administrative rulings. Qualifying

assets include:

Newly launched seagoing ships (depreciation in eight years: 20% in the first year, 15% in

the following two years and 10% in the remaining years) and other ships (10% per year)

Plant and machinery, with the exception of buildings, used for scientific research

(depreciation in three years, i.e. 33.33% per year)

Qualifying new assets acquired by companies in economic sectors of major importance to

the Belgian economy (depreciation in three years, i.e. 33.33% per year)

Costs related to the acquisition of a depreciable asset (immediate depreciation, or at a

rate fixed by the taxpayer only applicable to SMEs) Costs of establishment, including costs related to the creation of a company (immediate

depreciation).

Provisions

Under certain conditions prescribed in law or administrative rulings, the following tax-

free provisions can be created:

Provision for bad debts. A tax-free provision for probable losses on debt claims may be

created if certain requirements are satisfied, including a clear description of the losses

and their deductibility as business losses when actually incurred. The risk of losses mustbe justified by special circumstances that have occurred during the tax year. The

provision remains tax-free as long as the taxpayer can show the likelihood of the losses.

Provisions for probable charges. A tax-free provision for specific charges that the

taxpayer expects to arise may be created, without limits, if certain conditions are met.

The conditions include the eventual deductibility of the charge as a business expense,

and the recording of the claim as a liability in a separate account. The provision remains

tax-free as long as the taxpayer can show the likelihood of the charges.


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Investment reserve for SMEs

Small and medium-sized enterprises (SMEs) may make a deductible provision to aninvestment reserve.

The maximum size of the investment reserve is 50% of the retained profits before any

provision to the reserve, but is subject to an absolute limit of EUR 37.500. The

investment reserve must be invested within three years in depreciable (tangible or

intangible) assets, for which the company is entitled to an investment deduction. If the

reserve is not fully used within three years, the remaining balance must be added back

to taxable profits.

Notional interest deduction

As from assessment year 2007, all Belgian companies and Belgian branches of foreign

companies subject to (non-resident) corporate income tax in Belgium, regardless of

their size and activities, are able to apply a so-called notional interest deduction.

The notional interest deduction consists in a deduction for risk capital equal to a

certain percentage of the companys net equity (capital and reserves) in Belgium, of the

preceding financial year, subject to certain adjustments designed to avoid abuses. The

rationale of this system is to restore the imbalance in tax treatment in Belgium between

debt financing and equity financing.

The deduction is calculated by multiplying the equity by a fixed percentage determinedby the government on the basis of the interest rate on 10-year linear government bonds

(OLOs) of the previous year, with a maximum of 3% (3,5 % for SMEs). For assessment

year 2014 the rate is 2,742 % (3,242 % for SMEs).

No advance tax ruling is required for claiming the notional interest deduction.

If a company has no or insufficient profits, the unused notional interest deduction can

as form assessment year 2013 no longer be carried forward. The unused stock of

notional interest deduction available at the end of assessment year 2012 can still be

carried forward for a maximum of seven years under certain limitations.

If a company sets up an investment reserve in a tax year, the notional interest

deduction cannot be used in that tax year and the two following tax years.

Patent income deduction

Resident companies and Belgian permanent establishments of non-resident companies

may deduct 80 % of the income derived from patents licensed to a related or unrelated

party insofar as the payments are consistent with the arms length principle.


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Conversely, only 20 % of such income is taxable, resulting in an effective tax rate of

6,8% (20% of 33,99%). The deduction only applies to newpatents that have not led to

the sale of patented goods or services by the company or a licence-holder beforeJanuary 2007. The patent must be developed or improved by a research centre that

constitutes a business department or branch of activities of the company. The latter

condition will probably be abolished as from assessment year 2014 for SMEs.

With respect to patents used by a resident company or a Belgian permanent

establishment to produce patented products itself, the deduction of 80 % applies to the

embedded royalties, i.e. the part of the turnover of the produced products,

corresponding to the licence fee that would have been received if the patents would

have been licensed to an unrelated party.

The deduction does not apply to income form research and development performedunder a development contract or a cost-sharing agreement. Specific anti-abuse

provisions apply.

If there is insufficient taxable income to offset the patent income deduction, the

unused part of the deduction is lost and cannot be transferred to a subsequent

assessment year.

4.1.5 Losses

Carry-forward of losses is unlimited in time. Losses may not be carried forward if there

is a change in ownership that cannot be justified by financial and economic reasons.Carry-back of losses is not allowed.

Special rules limit the deduction of losses where the company is involved in certain tax-

exempt reorganisations, such as mergers and splits. If profits are shifted to a related

company, losses are not deductible from these profits.

4.1.6 Groups of companies

Group treatment

There are no general provisions in Belgian law regarding group taxation.

Inter-company dividends (participation exemption)

Dividends received from a participation in a resident or non-resident company that is

subject to tax are 95% exempt from corporate income tax.

For the 95% exemption to apply, the following conditions should be met:


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A minimum participation in the share capital of the dividend-distributing company of 10%

or a minimum investment of EUR 2.500.000.

The shares must be held in complete ownership for an uninterrupted period of at least

one year.

The distributing company must be subject to a corporate income tax similar to Belgian

corporation tax (for non EU companies the minimum nominal tax rate or effective tax

burden must be 15 %).

Mergers

Belgian law provides a favourable tax regime for mergers. The regime applies equally to

divisions and partial mergers. Companies are exempt from co

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