Belgium

Country Name Belgium
Country Region Western Europe

Economic and Political Environment

This modern, open, and private-enterprise-based economy has capitalized on its central geographic location, highly developed transport network, and diversified industrial and commercial base. Industry is concentrated mainly in the more heavily-populated region of Flanders in the north. With few natural resources, Belgium imports substantial quantities of raw materials and exports a large volume of manufactures, making its economy vulnerable to volatility in world markets, yet also able to benefit from them. Roughly three-quarters of Belgium's trade is with other EU countries, and Belgium has benefited most from its proximity to Germany.

In 2010 Belgian GDP grew by 2.1%, the unemployment rate rose slightly, and the government reduced the budget deficit, which had worsened in 2008 and 2009 because of large-scale bail-outs in the financial sector. Belgium's budget deficit decreased from 6% of GDP to 4.8% in 2010, while public debt was just under 100% of GDP.

Belgian banks were severely affected by the international financial crisis with three major banks receiving capital injections from the government. An ageing population and rising social expenditures are mid- to long-term challenges to public finances.

Key economic indicators:

• Population: 10,431,477 (July 2011 est.)
• GDP (purchasing power parity): $396.9 billion (2010 est.)
• Per capita GDP: $37,900 (2010 est.)
• Real GDP growth: 2.1% (2010 est.)
• Unemployment: 8.5% (2010 est.)
• Public debt: 98.6% of GDP (2010 est.)

Currency:

Euro

The Banking Environment

Supervision of the banking sector is not a task of the central bank of Belgium (the “Nationale Bank van België” or NBB) but of the Banking and Finance Commission (the “Commissie voor Bank- en Financiewezen”).

The NBB is the Belgium member of the European System of Central Banks.

The 1997-1998 wave of consolidation leaves the Belgian banking sector concentrated around a handful of key players. The five biggest institutions account for more than 85% of total assets of the banking sector. Fortis Bank is the largest bank and is the result of the merger of Générale de Banque with Fortis’s banking affiliate ASLK-CGER. It has a market share of around 28% in credits to the private sector. Second in line is KBC Bank (the product of the merger of CERA Bank with Kredietbank) with a market share of around 20% in credits to the private sector. The third player, BBL, is part of the Dutch financial group ING. As a whole, Belgian banks remain sound due to the conservative structure of their balance sheets and their prudent management. Domestic asset quality has reached its peak. Finally, bancassurance (selling insurance products through bank branches) is very successful in Belgium: the 3 top institutions all adopt this strategy and are part of a larger integrated financial services group.

The environment is very open, banking fees are generally low and automation is high, particularly in the domestic business.

Accounts are available in EUR and foreign currency, and can have a credit line attached.

If no credit line is attached, it is referred to as a Transaction account (e.g. the KBC-transaction account).

Non-residents frequently hold a Collection account, an account of a non-resident for collecting money due from Belgium companies and to transfer it to an account in the homeland of the account holder.

Deposit accounts are readily available in EUR and foreign currency.

Cash Management Features

Belgium is an attractive environment from which to conduct treasury activities, and from which to send cross-border payments in EUR.

Although no new Royal Decrees for Coordination Centres can be issued, the location of Belgium, transport links, banking environment, etc., continue to promote it as a location for international financial business.

As a result it is important to deal (a) with a bank that is not in turn bound by the value-dating practices of a second bank and (b) with a bank where a reasonable proportion of the customer’s business will be book transfers, i.e. sender or receiver’s account is in the same bank. Since 75% of customer deposits are in only four institutions, the main bank should be one of these. The ISABEL open-to-all electronic banking system facilitates the domestic business.

All normal liquidity management techniques are offered. The existence of domestic withholding tax results in certain structural options being preferred, e.g. credit interest only paid on the aggregate credit balance after overdraft balances in the system are totalled and deducted. This is the case even if the withholding tax paid by the customer can be offset against their corporation tax liability.

Tax Considerat

As of tax year 2004, the basic rate of corporate taxation is 33.99% (a basic rate of 33% with an additional 3% austerity surcharge calculated on the rate of income tax on taxable income). A staggered series of reduced rates apply for companies whose taxable income does not exceed EUR 322,500 and who are not excluded from the reduced tax rates (companies excluded from the reduced tax rates includes companies such as holding companies and companies owned 50% or more by other legal entities).

For Belgian residents, domestic dividends are subject to a 25% withholding tax deducted at source (which is creditable against corporate income tax and refundable on behalf of the beneficiary). However, the following categories of dividends are eligible for a reduced withholding tax rate of 15%:

Dividends from shares or securities issued as from 1st January 1994 by public offer to saving.

Dividends from shares or securities which are part of a nominative subscription with the issuer or placed in public custody with a bank, a public credit institution or a savings institution supervised by the CBF when these shares are issued as from 1st January 1994 in exchange for cash contribution.

Dividends distributed by investment companies (such as BEVEK/SICAV, BEVAK/SICAF, VBS/SIC).

In case of dividend distributions by a Belgian company to a European or Belgian company, a withholding tax exemption can in principle be claimed based on the EU Parent-Subsidiary Directive as implemented in Belgian internal legislation. Such dividend payments are exempt from Belgian withholding tax if they satisfy particular conditions, which include: the parent company holds at least 25% of the capital of the Belgian subsidiary and the relevant holding was held, or will be held, without interruption for a continuous period of at least one year.

A withholding tax of 15% is in principle levied on interest and royalties, subject to specified exemptions. Royalties payable to Belgian residents are not subject to withholding tax.

A withholding tax of 10% applies on distributions (excluding returns of paid-up capital) made by a Belgian company in case of a liquidation.

VAT is imposed on all companies with an annual turnover above EUR 5,580. A general rate of 21% is payable on the purchase of goods and performance of services. Intermediate reduced rates of 12% and 6% apply to certain commodities.

Belgium has transfer-pricing rules based around the OECD rules, which operate by reference to arm’s length principles under which profits can be adjusted.

There are thin capitalisation rules as set out below.

Interest paid to a non-resident company that is not subject to corporate tax or which benefits from a considerably more advantageous tax regime than the Belgian one (as far as interest income is concerned) is not tax deductible to the extent that the related loans exceed a debt/equity ratio of 7:1. The excess interest is not recharacterised as a dividend payment but is not tax deductible for the Belgian company.

Interest paid or attributed by a Belgian company on advances/loans granted by an individual shareholder or by directors, acting managers or persons (including legal entities) with a similar function to the Belgian interest paying company will be deemed to be dividends if:

- the interest rate exceeds the market interest rate; or

the total amount of the interest-generating advances exceeds the paid-up capital (at the end of the taxable period) plus taxed reserves (as at the beginning of the taxable period).

To the extent that one of these limits is exceeded, the exceeding portion of the interest is treated as dividend payment. The requalification into dividends implies that the excess is added to the taxable income of the company as distributed profits and is in principle subject to a withholding tax.

Employers are liable for social security contributions varying between 33% and 35% according to the employee’s function. The contributions are deductible for corporate income tax purposes.

Employers are also obliged to withhold from payroll at progressive rates (up to approximately 50%) the employees’ contributions to the state pension, health insurance and social security schemes.

Central Bank Reporting

The following – if the transaction is above EUR12,500 – have to be reported to the NBB, giving the proper code for the type of supply involved:

All payment transactions between residents and non-residents.

Transactions of residents over their accounts held abroad.

Transactions between non-residents involving accounts in Belgium.

Non-resident companies who open an account to collect payments in Belgium frequently do not have to report the transfers into this account from other accounts in Belgium: these payments are considered domestic transfers if in EUR.

Foreign Exchange Controls

None.

Belgian banks have aggressively adopted the EU Regulation on cross-border payments in euro below EUR12,500, whereby the banks have supported their clients in the usage of IBAN+BIC and the achievement of lower price levels.

Payments and Collections

Payment Instruments

Credit transfers are by far the dominant payment instrument. They exist in paper and electronic form. Direct debits have gained in usage. Debit cards are in wide usage, far more than credit cards. Cheques are scarcely used.

Credit transfers are being used for larger amounts.

Direct debits are taking over from credit transfers for utility bills.

The retail user is happy to adopt cards and tokens.

Cheques

These are scarcely seen in Belgium since the retirement of the Eurocheque guarantee scheme. Such cheques as remain can be cleared through the CHB (“Clearing House of Belgium”) system if they are above EUR 10,000 and otherwise through UCV/CEC.

Paper-based instruments clear through the CHB which is established only in Brussels and Antwerp.

Settlement is on the same day as presentation : presentation can occur up to 11:45 CET.

The instruments that go through this clearing are:

Cheques over EUR 10,000

Postal drafts

Certified cheques

Bills of exchange

Corrections of CEC operations (but not returns or new submissions of operations that were returned)

Returns of CHB operations.

Participants (34 direct and 56 indirect) bring to the CHB two bordereaux of items per participant – one for debit items and one for credit items (no bordereau is presented if there are no items of a particular type on a particular participant). The CHB totals the bordereaux per presenting participant (debit and credit) and then creates a view from the other angle – the participants’ view of what was presented to each of them by others. The CHB then ensures that all participants agree their credits and debits and that all totals match. The CHB then expresses the result as an amount to be credited or debited to the ELLIPS account of each participant that day.

Electronic Payments

A high proportion of all payments are made electronically.

ELLIPS

ELLIPS stands for “Electronic Large-value Interbank Payment System” It is Belgium’s RTGS system. Ellips is mainly used for large-value payments (obligatory for amounts exceeding EUR 500,000) and for all other payments whereby finality and irrevocability are essential.

Being a real-time gross settlement system, each individual payment is checked against the credit limit of the sending participant bank and is irrevocably executed after positive advice, thus achieving finality of payment. Ellips is the Belgian link to TARGET.

ELLIPS is run by the NBB. It has 16 direct and 75 indirect participants. Opening times are the TARGET time: 07:00 – 17:00 CET for customer payments and until 18:00 for interbank.

Participants must meet several requirements around solvency, operational capabilities and legal guarantees.

ELLIPS operates on SWIFT, rather than having a proprietary IT infrastructure.

The NBB offers an electronic banking service to participants whereby they can view their balance and transactions on their main current account at the NBB, their activity on sub-accounts (UCV/CEC and CHB), and their queues of payments waiting to be debited and credited.

Belgian Payment Volumes

Liquidity Management

Many structures are available. The prime issue is domestic withholding tax, hence the tendency to remunerate only the net balance in a pool, and not the individual ones.

Notional Pooling

Notional Pooling between resident accounts is common: the periodic calculation of interest is based on the compensated credit and debit balances of various current accounts, all held in the same currency in the same country by the same legal entity. Individual credit balances are not remunerated, so withholding tax would only apply where the overall pool was in credit.

Zero- Balancing

Zero- Balancing is equally common. Each individual transaction on each participating current account, with exception of the central account, is automatically evened out. In other words, each debit transaction is funded out of the central account and each credit transaction is off-set by a transfer in favour of the central account. These automatic transfers of funds, which do not result in any float loss for the account holder, are based on a contractual agreement between the participating companies and the Bank, whereby the latter is authorized to bring the balance on the participating accounts automatically to zero on a daily basis.

A secondary issue is value-dating, because it is reasonably common for banks to debit payments with back-value and credit them with forward value.

So a competent bank is required with a sweep product that picks out the proper available balance, and can isolate the sweep from the impact of tomorrow’s payment that will be debited with value today.

Electronic Banking

All kinds of companies use eb. EB is now accessible on a multibank basis through ISABEL, a standard service accessible through the Internet sponsored by the ABB.

This multi-bank electronic banking system is based on a co-operation between the major Belgian Banks and counts today over thirty participating banks.

The service scope includes all common banking services including balance and transaction reporting, domestic, international and remote debit transfer capabilities and a wide range of financial and economic information.

The Isabel software consists of three sub-layers:

the common multi-bank payments products (domestic and cross-border transfers, ....)

a bank generic product sub-layer (product offered only by one bank)

an information provider sub-layer.

The exact criteria and the requirements for the other configurations are displayed on the website www.isabel.be

Legal Entity Types that exist in the corresponding country

Belgian Legal Entity Types - Mainstream

Belgian legal Entity Types - Non-mainstream

Belgian Legal Entity Types - Other legal Entity types that exist: