The Belgian Government pursues an active policy of encouraging foreign investment by means of incentives. In recent years, however, many national aid schemes have been abolished or amended due to stricter enforcement of the EC rules prohibiting state aid in many instances. Today, the majority of public incentives that comply with EC law are granted by the regional Governments rather than central Government. Public incentives are granted by a number of different institutions: primarily the regional Governments for Brussels, Flanders and Wallonia; in addition, central Government and various public institutions and funds, as well as local authorities.

Specific investment projects in Belgium (research and development, employment and training) may also benefit from aid provided by the European Communities. Investment incentives can be classified as either direct assistance, given in the form of interest subsidies, capital grants or investment grants, or tax advantages (investment deduction, the special favourable treatment of coordination and distribution centres).

Formation of a New Business Entity
Foreign investment in the form of a business entity will either take the form of a corporation (para 2.2), usually a société anonyme (company limited by shares), or a branch of a foreign corporation (para 2.3). There are other forms which lend themselves to cooperation between two or more companies which may come within consideration, such as the société coopérative, the groupement d'intérêt économique or entities which, in principle, are accepted as limited partnerships under US tax regulations, such as the société en commandite. The formation of a Belgian société anonyme is not subject to any prior governmental authorisation and can be completed very quickly.

A societé anonyme must be incorporated by a minimum of two shareholders, which may be corporate entities as well as individuals.

The founding shareholders must appear, in person or by proxy, before a Belgian notary public. The founding shareholders must draw up a financial plan, showing the viability of the société anonyme to be formed.

The minimum capital to be subscribed (and which must be fully paid up) for a société anonyme is fixed at BF1,250,000. Where the amount of subscribed capital is greater than BF1,250,000, each share must be paid up to the extent of 25%, the minimum paid up capital not falling below BF1,250,000; the balance can be called up as and when the board of directors might see fit.

The capital of a société anonyme is represented by shares, with or without par value, in the form of either bearer shares or registered shares. Beneficiary shares, similar to profit-sharing certificates and which do not represent capital, may also be issued, for example, in recognition of services rendered by founding shareholders.

The société anonyme is managed by a board of directors, who must number at least three. They do not need to be shareholders. They do not have to be either Belgian citizens or resident in Belgium. The directors are elected by the shareholders at a general meeting for a period of a maximum of six years, and are eligible for re-election. They may be dismissed at any time by the shareholders in a general meeting.

In order to register a branch of a foreign corporation in Belgium, a certified copy of its memorandum and articles of association or statutes is required to be filed with the commercial court. There must also be filed certified copies of the resolutions to register the Belgian branch, to appoint a legal representative for the corporation in Belgium and to set out the representative's powers. For this purpose, these documents must be certified by a notary public, whose signature must be certified by a Belgian consulate or bear an apostille as provided for by the Hague Convention of 5 October 1961. Where these documents are not drawn up in one of the national languages (French, Dutch or German), a sworn translation must be intimated in the Schedules to the Moniteur belge.

The legal representative need not be a Belgian national or resident in Belgium. Business entities must be registered with the Commercial Registration Office and the value-added tax authorities.

There are three official languages in Belgium: French, Dutch and German. The entity's official corporate documents and relations with its employees will have to be in one or another of these languages depending upon the exact location of the business.

Mergers and Acquisitions
The Act of 29 June 1993, incorporated the Third and Sixth EC Directives on mergers (fusions) and demergers (scissions), respectively, into Belgian company law. Mergers and demergers can, in principle, be carried out without any tax consequences, and they require no authorisation as such. Private acquisitions can take the form of either an asset acquisition or a share acquisition. The decision will depend upon a variety of factors, both economic and legal and, in particular, on the tax status of each of the purchaser and seller.

Any gain realised by the seller in selling the assets is subject to income tax at ordinary rates, though it is possible to defer the tax. The assets may be depreciated in the books of the purchaser, and goodwill may be written off. However, real estate acquisitions are subject to a 12.5% registration duty, levied on the price of the property. If the assets have been acquired by means of financing, interest paid is tax-deductible.

Take-over bids are governed by the Act of 2 March 1989 brought into force by the Royal Decree of 8 November 1989. The Act imposes an obligation to disclose major shareholdings in companies listed on a stock exchange. Pursuant to this Act, any person intending to acquire control of a company whose shares are publicly quoted must previously notify the planned transfer of control to the Banking and Finance Commission. If the price at which the transfer is to take place is over the then market value, the transferee must launch a take-over bid.

Belgian anti-trust legislation (the Economic Competition (protection) Act of August 5, 1991) must be taken into consideration when reviewing possible mergers and acquisitions.

Joint Ventures
Joint ventures are a very popular method of accessing the Belgian market, particularly in technology related sectors and in the chemical and car industries. Special attention has to be paid to competition regulations applying at either EU or national level, and to the necessary operating licences. The conditions under which transfers of shares may be restricted are governed by law. Shareholders' agreements pertaining to voting rights, where permitted, may not be entered into for more than five years.

Joint ventures which are not in the form of a partnership are jointly owned companies and are taxable on the same basis as Belgian corporations. The owners, therefore of the joint venture are taxable as shareholders. Joint ventures give easier access to the market via a shared investment.

Agency and Distribution Agreements
An agent is an independent commercial intermediary (ie having no employment relationship) who acts in the name and on behalf of a principal for the sale of the latter's products. There are, as yet, no specific provisions in Belgian law governing agency agreements.

This situation will change when Belgium implements the EC Directive of 18 December 1986, which should have been done by 1 January 1990.

An independent agent is not regarded as a permanent establishment and is not subject to income tax. The principal's costs are kept as low as his power of control. By contrast, Belgium does have specific legislation on distribution agreements. The provisions of the Act of 27 July 1961 are mandatory and relate to the termination of exclusive or quasi-exclusive open-ended distribution agreements. A distributor is a commercial intermediary, either a self-employed individual or a corporation, that buys and sells products in its own name and on its own behalf. It will often be granted exclusive rights in connection with either a particular territory or a particular clientele. The supplier's costs are limited, as are his power of control. The major risks lie in the solvency of the distributor, counterfeiting, product liability, and the distributor's entitlements upon termination, which can be quite expensive for the supplier. The supplier is not subject to income tax in Belgium. There are no specific rules in Belgian law governing franchising. Parties are thus free to regulate their mutual rights and obligations as they wish, within the framework of the general principles of contract law and public policy. However, the 1961 Act on the termination of distribution agreements is often regarded as applying to the franchising of products.

A commercial representation agreement is an agreement whereby an employee, the commercial representative, agrees to solicit potential customers with a view to negotiating and/or concluding contracts under the authority, for the account and in the name of an employer. Commercial representation agreements are subject to strict mandatory regulation under the Employment Contracts Act of 3 July 1978. By nature, the employer enjoys wide powers of control, although his tax and social security expenses and the other costs are quite significant.

Industrial Relations and Social Security

Employment law plays an important role in the life of all entrepreneurs in Belgium, whether they employ local labour or introduce foreign personnel to their Belgian operations. The mandatory provisions of Belgian employment law apply to all persons employed in the country. These provisions relate essentially to the termination of employment contracts, employment conditions, the duration of the employment relationship and salary protection. The law provides for specific rules depending on the category concerned (blue-collar worker, white-collar employee, commercial representative), or on whether the employment contract has been entered into for a limited or unlimited period or for a precisely defined job, on a full-time or on a part-time basis.

When employing personnel in Belgium, careful attention must be paid to the language used in the contract of employment and in any other documents intended for the employees. A number of bodies must be set up by all undertakings with at least 100 workers: a conseil d'entreprise (works council) and comité de sécurité d'hygiène et d'embellissement des lieux de travail (health and safety committee). An undertaking which normally employs at least 50 persons need only form a health and safety committee.

As a rule, it is the Belgian labour courts that will have jurisdiction; however, in accordance with the EC Convention of 1968 on jurisdiction and the recognition of judgments, EC parties may choose to submit their disputes to some other EC court for resolution.

Both productivity and labour costs are high. The Belgian social security rates basically apply to all persons employed in Belgium and whose employer is established in Belgium or, if established abroad, has a place of business in Belgium to which the employees are attached. The employee's personal social security contributions amount to 13.07% and the employer's contributions to an average of 35%.

For further information contact Claude Verbraeken, Partner, Liedekerke, Wolters, Waelbroeck and Kirkpatrick, Brussels on +322 627 1411.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.