Openness to Foreign Investment
Belgium has traditionally maintained an open economy, highly dependent on imports and international trade for its well-being. Since WWII, foreign investment has played a vital role in the Belgian economy, providing technology and employment. Both the federal and the regional governments encourage foreign investment on a national treatment basis. Foreign corporations account for about one-third of the top 3,000 corporations in Belgium.
TI Corruption Perceptions Index 2009 Rank 21
Heritage Economic Freedom Index 2009, Rank 20
World Bank Doing Business 2010, Rank 22
Conversion and Transfer Policies
Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in Euros as well as in other currencies.
On May 1, 1998, Belgium was one of the 11 EU member states that agreed to form a de facto currency union (European monetary union), with the euro as its single currency. On January 1, 1999, exchange rates were irrevocably fixed among euro zone currencies, with 1 euro equal to 40.3399 Belgian Francs (bf). Euro coins and bank notes were introduced in early 2002. Old bf notes can only be exchanged for Euros at National Bank of Belgium offices; old bf coins can no longer be converted as of January 1, 2005.
Belgium has no debt-to-equity requirements. Dividends may be remitted freely, except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during its operations or upon the closing thereof.
Expropriation and Compensation
There are no outstanding expropriation or nationalization cases in Belgium with U.S. investors. There is no pattern of discrimination against foreign investment in Belgium.
When the Belgian government does use its eminent domain powers to acquire property compulsorily for a public purpose, adequate compensation is paid to the property owners. Recourse to the courts is available if necessary. The only expropriations that occurred during the last decade were related to infrastructure projects such as port expansion, roads, and railroads. In the future, expropriations to reserve space for nuclear waste storage are expected, but the sites will not be near areas of existing economic activity.
Belgium's legal system is independent of the government and is a means for resolving commercial disputes or protecting property rights. As in many countries, the Belgian courts labor under a growing caseload and backlogs cause delays. There are several levels of appeal.
Bankruptcy in Belgium is covered by an 1851 law and is under the supervision of the commercial courts. Bankruptcy applies only to businesses and may be initiated by a creditor or the company. The commercial court appoints both a judge-auditor to preside over the bankruptcy proceeding and a receiver responsible for selling available assets to pay creditors. Belgian bankruptcy law recognizes several classes of preferred or secured creditors. Judgments in commercial cases, including bankruptcy cases, are generally made in euro. Belgium has a system under which firms in difficulty can restructure their debts through agreement with their creditors. This system is in some respects similar to chapter 11 in the U.S. One major difference with the U.S. is that persons going bankrupt are forever prohibited from starting up a new company.
Belgium is a member of the International Center for the Settlement of Investment Disputes (ICSID) and regularly includes provision for ICSID arbitration in investment agreements. The government accepts binding international arbitration of disputes between foreign investors and the state; the most recent example is the international arbitration between the Belgian and the Dutch governments regarding a railway line dispute, the so-called ‘Iron Rhine’.
Performance Requirements and Incentives
Since the law of August 1980 on regional devolution in Belgium, investment incentives and subsidies have been the responsibility of Belgian's three regions: Brussels, Flanders, and Wallonia. Nonetheless, most tax measures remain under the control of the federal government, as do the parameters (social security, wage agreements) that govern general salary and benefit levels. In general, all regional and national incentives are available to foreign and domestic investors alike. Belgian investment incentive programs at all levels of government are limited by EU regulations, and thus are kept in line with those of the other EU member states. The European Commission has tended to discourage certain investment incentives, in the belief that they distort the single market, impair structural change, and threaten EU convergence as well as social and economic cohesion. Belgium thus has seen its number of underdeveloped areas, into which the EU allowed certain investment subsidies, further curtailed in 2007 and 2008.
Under the Belgian constitution, promotion of foreign investment is the responsibility of the Belgian regions through the regional investment agencies - Flanders Foreign Investment office (FIT), the Office for Foreign Investment (OFI-AWEX) in Wallonia, and the Brussels Enterprise Agency. In their investment policies, the regions emphasize promoting innovation, research and development, energy saving, environmental cleanliness, exports, and most of all, employment. In order to provide coordinated service to foreign investors, the Belgian government established a Federal Agency for Foreign Investors (FAFI), in 1996, at the Ministry of Economic Affairs. This agency is controversial with the regional governments. In addition, the Finance Ministry established a foreign investment tax unit in 2000 to provide assistance and to make the tax administration more "user friendly" to foreign investors.
Performance requirements in Belgium usually relate to the number of jobs created. There are no known cases where export targets or local purchase requirements were imposed, with the exception of military offset programs, which were reintroduced by the Verhofstadt II government in 2006. While the government reserves the right to reclaim incentives if the investor fails to meet his employment commitments, enforcement is rare. In one case in the 1990s, the Flemish administration sued an American firm to recover incentives after the firm was forced by environmental regulations to close its plant.
In 2005 the Belgian Federal Finance Ministry proposed a new investment incentive program in the form of a notional interest rate deduction. This was adopted by Parliament, and as of January 1, 2006, the new tax law permits a corporation established in Belgium, foreign and domestic, to deduct from its taxable profits a percentage of its adjusted net assets linked to the rate of the Belgian long-term state bond. The law permits all companies operating in Belgium to deduct the "notional" interest rate that would be paid on their locally invested capital - whether or not they actually had paid such interest. This amount gets deducted from profits, thus lowering the sum on which Belgian corporate taxes (currently 33.99%) are calculated. In February 2008, the Belgian bond interest rate was set at 4.3 percent; therefore a company could deduct from its profits 4.3 percent of its qualifying net capital. The applicable interest rate will be adjusted annually, but will never be allowed to vary more than 1 percent (100 basis points) in one year nor exceed 6.5 percent. In its proposed budget for 2010 and 2011, the government proposed to lower slightly the interest rate--and thus the benefit--as a way to help reduce its deficit.
Right to Private Ownership and Establishment
Both domestic and foreign private entities have the right to establish business enterprises. This right is well established in Belgium's constitution and in law. The right to acquire or sell interests in business enterprises is similarly protected by law.
No restrictions in Belgium apply specifically to foreign investors. Foreign interests may enter into joint ventures and partnerships on the same basis as domestic parties, except for certain professions such as doctors, lawyers, accountants and architects. All investors, Belgian or foreign, must obtain special permission to open department stores, provide transportation and security services, produce and sell certain food items, cut and polish diamonds, or sell firearms and ammunition.
There is competitive equality between public and private enterprises with respect to market access, credit and other business operations such as licenses and supplies.
Protection of Property Rights
Property rights in Belgium are well protected by law. The courts are independent and considered effective in enforcing property rights. Belgium generally meets very high standards in the protection of intellectual property rights. Rights granted under American patent, trademark, or copyright law can only be enforced in the United States, its territories and possessions. The European Union has taken a number of initiatives to promote intellectual property protection, but in cases of non-implementation, national laws continue to apply. Despite legal protection of intellectual property, Belgium experiences the commercial and private infringement - particularly internet music piracy and copying of software – common to most EU states.
Transparency of Regulatory System
The Belgian government has adopted a generally transparent competition policy and effective laws foster competition. Tax, labor, health, safety, and other laws and policies to avoid distortions or impediments to the efficient mobilization and allocation of investment exist comparable to those in other European Union member states. Nevertheless, foreign and domestic investors in some sectors face stringent regulations designed to protect small- and medium-sized enterprises. Many companies in Belgium also try to limit their number of employees to 49, the threshold above which certain employee committees must be set up, such as for safety and trade union interests.
Recognizing the need to streamline administrative procedures in many areas, the federal government in 2004 set up a special task force to simplify official procedures. It also agreed to streamline laws regarding the telecommunications sector into one comprehensive volume after new entrants in this sector had complained about a lack of transparency. It also beefed up its Competition Policy Authority with a number of renowned academic experts. The American Chamber of Commerce has called attention to the adverse impact of cumbersome procedures and unnecessary red tape on foreign investors; although foreign companies do not necessarily suffer more from this than Belgium firms.
Efficient Capital Markets and Portfolio Investment
Belgium has in place policies to facilitate the free flow of financial resources. Credit is allocated at market rates and is available to foreign and domestic investors without discrimination. Belgium is fully served by the international banking community and is implementing all relevant EU financial directives.
Because the Belgian economy is directed toward international trade, more than half of its banking activities involve foreign countries. Belgium’s major banks are represented in the financial and commercial centers of dozens of countries by subsidiaries, branch offices and representative offices. In 2009, 107 different banks were represented in Belgium; 51 Belgian or foreign-owned institutions are incorporated under Belgian law, and 56 institutions are incorporated under foreign law. Belgium is one of the countries with the highest number of banks per capita in the world; nonetheless it is a highly concentrated banking market, with about 80 percent of bank deposits held by the five largest banks. Mergers and acquisitions were a prominent feature in the Belgian banking sector throughout the 1990s. The total assets of the Belgian banking in 2009 were approximately $1,68 billion. The banking system is considered sound, but was particularly hard hit by the financial crisis that began in the fall of 2008; the federal and regional governments had to step in with lending and guarantees for the three largest banks. The country's banks use modern, automated systems for domestic and international transactions. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has its headquarters in Brussels. Euroclear, a clearing entity for transactions in stocks and other securities, is also located in Brussels.
Belgium also has a well-established stock market. In fact, the first stock market ever was organized in Bruges in the 14th century. At the end of 2000, the Brussels stock market merged with the Paris and Amsterdam bourses into Euronext, a Pan-European stock-trading platform. In 2006, Euronext and NY Stock Exchange shareholders voted to merge the two exchanges. On Euronext, a company may increase its capital either by capitalizing reserves or by issuing new shares. An increase in capital requires a legal registration procedure. New shares may be offered either to the public or to existing shareholders. Public notice is not required if the offer is to existing shareholders, who may subscribe to the new shares directly. An issue of bonds to the public is subject to the same requirements as a public issue of shares: the company's capital must be entirely paid up, and existing shareholders must be given preferential subscription rights.
In Belgium, there are many cases of cross-shareholding and stable shareholder arrangements, but never with the express intent to keep out foreign investors. Likewise, anti-takeover defenses are designed to protect against all potential hostile takeovers, not only foreign hostile takeovers.
Competition from State-Owned Enterprises
Since the EU started to liberalize network industries such as electricity, gas, water, telecom and railways, there have been constant complaints in Belgium about unfair competition from the historical incumbents, i.e. the former state monopolists. Complaints have ranged from lower salaries (railways) to lower VAT rates (gas and electricity) and a regulator who was judge and party at the same time (telecom). Although these complaints have now largely subsided, one often finds these former monopolists as market leaders in their sector, mainly because they were able to charge high admission costs for access to a network which they themselves had already written off a long time ago. Corporate governance at the boards of these historical monopolists is still virtually nonexistent, board seats are divided proportionally according to party affiliation, but there is no direct reporting to cabinet ministers.
Belgium does have a sovereign wealth fund in the form of the Federal Participation Company, an entity created in 2004 and now mainly used as a vehicle to manage the banking assets which the GOB took on board during the 2008 banking crisis.
Corporate Social Responsibility
There is a general awareness of corporate social responsibility among producers and consumers. Boards of directors are encouraged to pay attention to corporate social responsibility in the 2009 Belgian Code on corporate governance.
Belgium is a peaceful, democratic nation comprised of federal, regional, and municipal political units: the Belgian federal government, the regional governments of Flanders, Wallonia, and the Brussels capital region, and 487 communes (municipalities). Political tensions do exist between the Flemish and Walloons but they are addressed in democratic institutions, and played out in socially acceptable venues. There is also some tension within the immigrant communities, which sometimes result in acts of violence. There have been cases of violence against immigrants by neo-Nazis or other extremist youth; there were also some violent acts committed by North African youth in response to the perceived police abuse of a North African. A Brussels incident resulted in several nights of sporadic violence near the city’s Gare du Midi train station, which was perpetrated by small groups of immigrant youth.
Belgian anti-bribery legislation was revised completely in March 1999, and the competence of Belgian courts was extended to extraterritorial bribery. Bribing foreign officials is a criminal offense in Belgium.
(Under Article 3 of the Belgian criminal code, jurisdiction is established over offenses committed within Belgian territory by Belgian or foreign nationals. Act 99/808 added article 10 related to the code of criminal procedure. This provides for jurisdiction in certain cases over persons (foreign as well as Belgian nationals) who commit bribery offenses outside the territory of Belgium. Various limitations apply, however. For example, if the bribe recipient exercises a public function in an EU member state, Belgian prosecution may not proceed without the formal consent of the other state.
Under Belgian law, the definition of corruption is extended considerably. Henceforth, it will count as passive bribery if a government official or employer requests or accepts a benefit for himself or somebody else in exchange for behaving in a certain way. Active bribery is defined as the proposal of a promise or benefit in exchange for undertaking a specific action. Until 1999, Belgian anti-corruption law did not cover attempts at passive bribery. The most controversial innovation was the introduction of the concept of 'private corruption', i.e. corruption among private individuals. Corruption by public officials carries heavy fines and/or imprisonment between 5 and 10 years. Private individuals face similar fines and slightly shorter prison terms (between six months and 2 years). The current law not only holds individuals accountable, but also the company for which they work. Contrary to earlier legislation, payment of bribes to secure or maintain public procurement or administrative authorization through bribery in foreign countries is no longer tax deductible. Recent court cases in Belgium suggest that corruption is most serious in government procurement, defense contracting, and public works contracting. American companies have not, however, identified corruption as a barrier to investment.
The responsibility for enforcing corruption laws is shared by the Ministry of Justice through investigating magistrates of the courts and the Ministry of the Interior through the Belgian federal police, which has jurisdiction in all criminal cases. A special unit, the Central Service for Combating Corruption, has been created for enforcement purposes, but still lacks the necessary staff.
In a 1990s corruption case, eight persons were convicted, including a former defense minister. The court found that the minister's immediate staff had commissioned research surveys and projects from a specific research institute. The institute had refunded part of its fees to the minister's staff, which used the money for paying salaries of certain ministerial aides and for campaign funds. The former minister was given a suspended two-year prison sentence, a $4,000 fine, and a five-year suspension of his civil and political rights.
Following the Iraq war in 2003, the Volcker Commission in 2004 drew up a list of foreign entities that bribed Iraqi officials in the so-called oil for food program. More than 20 Belgian companies were thus fingered, but Belgian judicial authorities to date have been very slow in prosecuting these cases.
According to 2009 publications, Transparency International ranks Belgium as one of the least corrupt countries in the world.
Bilateral Investment AgreementsBelgium has bilateral investment treaties in force with Albania, Algeria, Argentina, Armenia, Bangladesh, Bolivia, Bulgaria, Burkina Faso, Burundi, Chili, China, Croatia, Cyprus, Egypt, El Salvador, Estonia, Philippines, Gabon, Georgia, Hungary, Hong Kong, India, Indonesia, Yemen, Cameroon, Kazakhstan, Kuwait, Korea, Lebanon, Lithuania, Macedonia, Malta, Morocco, Mexico, Moldavia, Mongolia, Ukraine, Uzbekistan, Paraguay, Romania, Rwanda, Saudi Arabia, Singapore, Slovenia, South Africa, Sri-Lanka, Thailand, Czech Republic, Tunisia, Uruguay, Russia, Venezuela, Vietnam, and Zaire (now Democratic Republic of the Congo). Additionally, Belgium and Luxembourg have jointly signed (as The Belgium Luxembourg Economic Union - BLEU) as-yet-unimplemented agreements with Cuba, Bulgaria, Liberia, Mauritania, and Thailand. Belgium and Luxembourg also have joint investment treaties with Poland and Russia, but these are not BLEU agreements. All these agreements provide for mutual protection of investments.
OPIC and Other Investment Insurance Programs
Belgium, as a developed country, does not qualify for OPIC programs. No other countries operate investment insurance programs in Belgium.
The Belgian labor force is generally well trained, highly motivated and very productive. Workers have an excellent command of foreign languages, particularly in Flanders. There is a low unemployment rate among skilled workers, such as local managers. Enlargement of the EU in May 2004 and January 2007 facilitated the entry of skilled workers into Belgium from new member states, however registration procedures were required until mid-2009 for entrants from some new EU member states. Non-EU nationals must apply for work permits before they can be employed. Minimum wages vary according to the age and responsibility level of the employee, and are adjusted for cost of living.
Belgian workers are highly unionized and usually enjoy good salaries and benefits. Belgian wage and social security contributions, along with those in Germany, are among the highest in Western Europe. . By the end of 2009, Belgium’s EU-harmonized unemployment figure stood at 7.9 percent, slightly below the EU average of 8 percent. High wage levels and pockets of high unemployment coexist, reflecting both strong productivity in new technology sector investments and weak skills available from Belgium's long-term unemployed, whose overall education level is significantly lower than that of the general population. As a consequence of the high wage costs, over the years employers have tended to invest more in capital than in labor. At the same time, a shortage exists of workers with training in computer hardware and software, automation and marketing. The resulting bottlenecks cause wage pressures, while trade unions were successful in stalling the entry of citizens from certain new EU countries onto the Belgian labor market until mid-2009.
Belgian's comprehensive social security package is composed of five major elements: family allowance, unemployment insurance, retirement, medical benefits and a sick leave program that guarantees salary in event of illness. Currently, average employer payments to the social security system stand at 35 percent of salary, while employee contributions comprise 13 percent. In addition, many private companies offer supplemental programs for medical benefits and retirement.
Belgian labor unions, while maintaining a national superstructure, are, in effect, divided along linguistic lines. The two main confederations, the Confederation of Christian Unions and the General Labor Federation of Belgium, maintain close relationships with the Christian Democratic and Socialist political parties, respectively. They exert a strong influence in the country -- politically and socially. A national bargaining process covers inter-professional agreements that the trade union confederations negotiate biennially with the government and the employers' associations. In addition to these negotiations, bargaining on wages and working conditions takes place in the various industrial sectors and at the plant level. About 53 percent of employees from the public service and private sector are labor union members.
Foreign firms, which generally pay well, usually enjoy harmonious labor relations. Nonetheless, problems can occur, particularly in connection with the shutting down or restructuring of operations. Many strikes are one-day symbolic actions, but longer industrial actions have also occurred. Such was the case at both foreign (including U.S.) and national firms in 2009.
Firing a Belgian employee can be very expensive. An employee may be dismissed immediately for cause, such as embezzlement or other illegal activity, but when a reduction in force occurs, the procedure is far more complicated. For white-collar workers, the minimum standard is three months' notice or severance pay, or a combination of the two, for each five-year period or fraction thereof the employee has worked for the company. In the case of blue-collar workers, the minimum is four weeks' notice or the wage equivalent. Belgium is a strict adherent to ILO labor conventions.
In those instances where the employer and employee cannot agree on the amount of severance pay or indemnity, the case is referred to the courts for a decision. To avoid these complications, some firms consider providing for a "trial period" (of up to one year) in any employer-employee contract. These cases are handled by commercial courts.
Belgium was one of the first countries in the EU to harmonize its legislation with the EU Works Council Directive of December 1994. Its flexible approach to the consultation and information requirements specified in the Directive compares favorably with that of other EU member states.
Foreign-Trade Zones/Free Ports
There are no foreign trade zones or free ports as such in Belgium. However, the country utilizes the concept of customs warehouses. A customs warehouse is a warehouse approved by the customs authorities, where imported goods may be stored without payment of customs duties and VAT. Only non-EU goods can be placed under a customs warehouse regime. In principle, non-EU goods of any kind may be admitted, regardless of their nature, quantity, and country of origin or destination. Individuals and companies wishing to operate a customs warehouse must be established in the EU and obtain authorization from the customs authorities. Authorization may be obtained by filing a written request and by demonstrating an economic need for the warehouse.
Foreign Direct Investment Statistics
BELGIUM DIRECT INVESTMENT POSITION IN THE U.S.
2004 – 2008
(Millions of dollars - stock)
U.S. DIRECT INVESTMENT POSITION IN BELGIUM
2004 – 2008
(Millions of dollars - stock)
Foreign Investment Offices:
Invest in Wallonia http://www.investinwallonia.be/ofi-belgium/accueil.php
Flanders Investment & Trade (FIT): www.investinflanders.com
Brussels Enterprise Agency (BEA): http://www.abe-bao.be/mystart.aspx
Belgium Trade and Industry Associations:
The Belgium Foreign Trade Agency: http://www.abh-ace.org/frameset/aceiframe.html?Language=uk
Vlaams Economisch Verbond (VEV-Flemish Economic Union): www.vev.be
Union Wallonne des Entreprises (Wallonian Enterprise Association): www.uwe.be
AGORIA (The Multisector Federation for the Technology Industry): www.agoria.be
Federation of Enterprises in Belgium (FEB): www.vbo-feb.be
Belgium Bioindustries Association (BBA): www.bba-bio.be
Federation of Automotive Industry (FEBIAC): www.febiac.be
Essenscia - Belgian Federation for Chemistry and Life Sciences Industries: http://www.essenscia.be/EN/page.aspx/879
Federation Petroliere Belge: www.petrolfed.be
Federation of Textile Industry (Fedustria): www.febeltex.be