For a foreign investor interested in commencing commercial operations in Flanders, or Belgium as a whole, one of the first matters to consider is the type of business entity to establish.

Most foreign companies investing in Belgium either open a branch office or establish a subsidiary.

This section summarizes the main considerations when choosing between a branch, a subsidiary or another type of business entity.

Branch vs. Subsidiary

What is the legal distinction between a branch and a subsidiary for the purposes of setting up a foreign business presence?

A branch is not a legal corporate entity separate from the foreign company, whereas a subsidiary is considered a separate Belgian company. Practically speaking, a branch is merely an extension of the parent company; it does not have its own stock or its own board of directors, and its establishment generally involves fewer corporate formalities. However, in practice, filing a branch is a demanding process that requires the execution of formal duties and the translation of documents, which in some cases may represent a bigger constraint than those applicable to incorporating a company.

The subsidiary will have its own stock, articles of incorporation and bylaws. The subsidiary must hold shareholders' meetings and observe other corporate formalities. Usually, the subsidiary will be owned and controlled by the parent company.

What are the considerations in choosing between establishing a branch or a subsidiary?

Most foreign companies operating in Belgium choose to do so as a subsidiary of the parent company.

Establishing a subsidiary has the following advantages:

• Because the subsidiary and the parent company are separate legal entities, the parent company is not exposed to any liabilities of the subsidiary: indeed, the liability of the Belgian subsidiary is limited to its own assets. In contrast, a foreign investor remains fully liable for all the commitments of its branch office in Belgium: as a consequence, obligations incurred through such a branch can be enforced on the assets of the foreign investor, even if they are situated abroad.
• From a marketing viewpoint, a subsidiary will be regarded as a Belgian or European company, rather than a foreign entity;
• A subsidiary can benefit from several tax advantages:
  • The ability to repatriate or distribute net profits with little or no dividend withholding tax;
  • Subsidiaries can benefit from the advantages given under the double tax treaties concluded by Belgium;
  • In most cases, qualification as a "parent company" under the EU Parent-Subsidiary Directive.
• Annual filing requirements are less stringent for subsidiaries than for branches. A branch's annual filing will reveal financial information about the foreign entity that it may prefer to keep confidential. This may be of particular concern to privately held US companies.

Establishing a branch has the following advantages:

• There is no minimum assigned capital requirement for setting up a Belgian branch;
• The opening of the branch does not require the intervention of a Belgian notary;
• Belgian corporate law, with a few exceptions, does not impose requirements such as a board of directors, distribution of profits or shareholders' meetings. However, Belgian corporate law does require the appointment of a legal representative;
• There are certain tax advantages related to setting up a branch operation, including:
  • No dividend withholding tax on branch profits;
  • In most cases, losses made by the branch can be offset immediately against foreign profits of the head office;
  • Transfers of profits from the Belgian branch to its foreign head office can be made tax free.

What considerations must a company take into account when deciding to establish a branch or a subsidiary?

Companies are advised to choose carefully the legal format of their foreign entity since it may have an impact on their tax position due to "check the box" regulations.

Types of Subsidiaries

What types of subsidiaries can be established?

The most common types of company are the public limited liability company ("naamloze vennootschap", abbreviated to "NV"), the private limited liability company ("besloten vennootschap met beperkte aansprakelijkheid", abbreviated to "BVBA") and the co-operative company with limited liability ("coöperatieve vennootschap met beperkte aansprakelijkheid", abbreviated to "CVBA"). In these three types of company the partners' liability is limited to their contribution to the company.

Public limited liability company
In Belgium, the public limited liability company is selected mainly for larger enterprises.

Minimum capital

Its capital must amount to at least 61,500 EUR. Each issued share must be at least 25% paid in upon incorporation, with a minimum of 61,500 EUR. This minimum share capital must be paid in by the founders (at least two) who may be individuals or companies, residents or non-residents, Belgian citizens or not.

Shares

A public limited liability company can issue nominative or bearer shares. As from 1 January 2008, the bearer shares should be converted into dematerialized titles. A dematerialized title is represented by an inscription in account in the name of its owner by an approved institution responsible for keeping the accounts. The dematerialized title can be transferred from one account to another.

Management

At least three directors (individuals or companies, residents or non-residents, Belgian citizens or not, shareholders or not) must be appointed to the public limited company. Where there are no more than two founders or shareholders, two directors are sufficient. When a company is appointed as a director Belgian corporate law requires the appointment of a permanent representative in order to perform the mandate of the company-director.

Private limited company

A private limited liability company is particularly interesting for small and privately held companies. When choosing this type of company, the investor should take into account that in certain aspects the BVBA is less flexible than the NV (e.g. there is no possibility of issuing convertible bonds or profit certificates, no possibility of paying interim dividends etc).

Minimum capital

Its minimum capital is only 18,550 EUR. Each issued share must be at least 20% paid in upon incorporation, with a minimum of 6,200 EUR. If the company has only one founder a minimum of 12,400 EUR needs to be paid-up. The share capital must be paid in by the founders (one or more) who may be individuals or companies, residents or non-residents, Belgian citizens or not.

Shares

All shares are nominative shares and have to be registered in a shareholders' register. Bearer shares cannot be subscribed. The transfer of shares takes the form of a declaration of transfer in the shareholders' register and is subject to certain transfer restrictions (a refusal right is granted to the non transferring partners).
The restrictions regarding the transfer of shares can be considered to be one of the disadvantages of the private limited company format.

Management

A private limited liability company is managed by one or more managers (individuals or companies, residents or non-residents, Belgian citizens or not) who may or may not be shareholders. When a company is appointed as manager a permanent representative needs to be appointed in order to perform the mandate of the company-manager.

Co-operative company

The co-operative company with limited liability is a very flexible company format designed for a corporation having a variable number of shareholders with variable contributions.

Minimum capital

Three partners are needed in order to constitute such a company. Its capital has two parts:

• A fixed amount, established in the articles of association, which must represent at least 18,550 EUR of issued capital and which must be paid in to an amount of 6,200 EUR;
• A variable portion, which varies with the entry and exit of partners, capital increases or the taking back of shares.
• One quarter of all capital contributions must be paid in.

Shares

Its shares are always nominative. The transfer of shares takes the form of a declaration of transfer in the shareholders' register.

Management

A co-operative company with limited liability is managed by one or more managers who may or may not be partners.

Other Types of Business Entities

What other types of business entities may a foreign company establish?

Besides establishing a branch or a subsidiary, there are several other possibilities. Some individuals choose to operate as unincorporated sole proprietorships. Although partnerships, both general and limited, exist in Belgium, they are far less common than in other countries such as the United States.

There are several other legal structures that may be of interest to foreign investors. Organizations such as trade and other associations may choose to establish alternative entities such as non-profit organizations, philanthropic organizations or economic interest groupings. Also, joint ventures often opt for less common legal structures.

A prospective investor should discuss with his or her legal, tax and financial advisors which of these structures is most appropriate to his or her specific situation.