Belgium Co-ordination Centres

Back to Belgium Information: Low-Tax and Incentive Regimes

Co-ordination Centres

Belgian Co-ordination centres were examined by the European Commission as possibly breaking State Aid rules, and as part of the Code of Conduct Committee's examination of 'unfair tax competition'. The Belgian authorities prepared legislation during 2002 to bring the co-ordination centre regime into compliance with EU rules, and agreement was finally reached with the EU in 2003 after a case in the European Court of Justice. Changes to the regime took effect from 2004. Under transitional arrangements laid down by the EC, Co-ordination Centres could, in certain circumstances, continue operating until 2010; key fiscal changes are indicated below.

Back to Top

Fiscal Advantages of Co-ordination Centres

Co-ordination Centres enjoyed the following fiscal advantages:

i) Corporate Income Tax on Profits: Although the co-ordination centre paid normal Belgium corporate income tax rates of up to 33.99% (including the 3% so-called crisis surcharge) what differs is that instead of the co-ordination centre being taxed on its trading profits it was taxed on between 4%-10% of its total "business expenses" (with the percentage being a matter for negotiation with the fiscal authorities). Until 2004, salary and financial costs were excluded from "business expenses" for the purposes of the assessment. Thus a co-ordination centre which had high business profits, high financial and salary costs but low business expenses (other than salary and financial costs) would pay considerably less corporation tax than other Belgian corporate entities.

ii) Withholding Taxes: There were no withholding taxes imposed by law on outgoing dividends, royalties or loan interest remitted by a co-ordination centre unless the recipient was a resident individual or non-profit making exempt company. In Belgium withholding taxes stand at between 15%-25% so the absence of a withholding tax levy on the activities of co-ordination centres was a substantial fiscal concession.

iii) Share Capital Duty: Until 2004, co-ordination centres were exempted from payment of capital duty on any issue or increase of share capital. This duty currently stands at 0.5%. From 2004, a duty of 0.25% was imposed on co-ordination centres. The duty was abolished in 2006.

iv) Real Estate Taxes: In Belgium real estate taxes are based on a notional net rental value as determined by the tax authorities. They include a regional tax, a provincial tax and a communal tax. These taxes vary according to the region, the province and the commune in which the real estate is located and whilst their payment can be deducted from profits it cannot be credited against corporate income tax (i.e. it gets the least favorable fiscal treatment). As a rule of thumb the sum total of these property taxes amounts to approximately 25%-30% of a property's annual rental value such that this tax is considered a significant business expense. Co-ordination centres were exempted from real estate property taxes (unless the property is leased to group members) which gave them a considerable fiscal advantage over other Belgian corporate entities.

v) Corporate Income Tax on Outgoing Dividends: 5% of the dividends received by a Belgian corporate shareholder from a co-ordination centre were taxed at the standard corporate income tax rate of 33.99%. Even then the Belgian corporate shareholder was not taxed on dividends received unless he held at least 5% of the share capital of the co-ordination centre. This concession applied to all "qualifying" Belgian holding companies and is not unique to co-ordination centres. (For further information see the section entitled Belgian Holding Companies). In the case of non-resident shareholders any corporate income tax payable on dividend income remitted by a co-ordination centre to the non-resident shareholder is a question for the domestic tax laws of the jurisdiction in which the non-resident corporate shareholder resides.

vi) Work Permits & Special Income Tax Allowances: Foreign executives and researchers employed by co-ordination centres were exempted from the requirement to obtain work permits and enjoy special income tax rates and concessions (For further information see the section entitled Special Expatriate Fiscal Regime).

(N.B. co-ordination centres are now subject to a 400,000 Belgian franc annual tax per employee up to a maximum of 4m Belgian francs. Nonetheless this tax has had little impact on the number of centres being established. By 2002 more than 400 of them had been established.)

(N.B. No new Co-ordination centres are being formed as a result of a ruling by the European Court of Justice in 2003. Certain existing Co-ordination centres could continue operating until 2010 under transitional arrangements).

Back to Top

Pre-conditions for Qualification as a Co-ordination Centre

Co-ordination centre status was only granted to very large industrial conglomerates which are able to meet the following pre-conditions:

i) Multinational Group: The entity applying to set up a co-ordination centre must be part of a multinational group with subsidiaries in at least 4 different countries for a period of at least 2 years before the request for co-ordination centre status is submitted. A 20% cross shareholding was sufficient to make a company a member of the group.

ii) Minimum Turnover & Equity Requirements: The multinational group must have:

• Total Consolidated Equity: A total consolidated equity of at least 1 billion Belgian francs (US$30m) of which the non-Belgian portion must be either 20% of the total group's consolidated equity or a lesser percentage with a value of at least 500 million Belgian francs (US$15m).

• Total Consolidated Turnover: A total consolidated turnover of at least 10 billion Belgian francs (US$300m) of which the non Belgian portion must amount to at least 5 billion Belgian francs (US$150m) or a lesser amount which constitutes not less than 20% of the group's total consolidated turnover.

iii) Minimum of 10 Employees: By the second year of operations the co-ordination centre must have at least 10 employees.

iv) Royal Decree: co-ordination centre status was granted by Royal Decree for an initial period of 10 years renewable thereafter. A written request must be submitted to and the approval obtained of the Ministers of employment, economics, finance and small businesses. The request must contain details of all planned activities.

Back to Top

Restricted & Permitted Activities

i) Restricted Activities: Co-ordination centre companies were restricted in what activities they could carry out . For example:

• Holding Companies: They cannot hold shares in other companies i.e. they must be subsidiaries and not holding companies.

• Industrial or Commercial Activities: They cannot carry out industrial or commercial activities.

• Banking, Insurance or Financial Services: They cannot be companies in the banking, insurance or financial services sectors

ii) Permitted Activities: Co-ordination centers could provide "financial and business" services to their group companies. Financial and business activities include the following:

• Leasing: By purchasing and leasing assets to other group members all the group leasing income is received in a tax-free environment.

• Re-invoicing: By purchasing off one group member at a low price and selling to another group member at a high price profits can be retained in a tax free environment (subject to transfer pricing rules, evidently).

• Financing Activities: The co-ordination centre can become the hub for financing, insurance and re-insurance activities, achieving economies of scale and the centralisation of profits from loan interest and insurance in a tax-free environment.

• Centralisation of Group Activities: Centralisation of administrative, accounting, purchasing and advertising activities of all the group members, with members being billed for services provided and with the income from these services being received in a tax free environment.

Back to Top

Back to Belgium Information: Low-Tax and Incentive Regimes