VII: INVESTMENT CLIMATE 1. Openness to Foreign Investment: Belgium has traditionally maintained an open economy, highly dependent on imported inputs and international trade for its well-being. Since World War II, foreign investment has played a vital part in the Belgian economy, providing much technology and employment. Given the importance of trade and investment, Belgium generally discourages protectionism. The government actively encourages foreign investment on a national treatment basis. Foreign corporations in Belgium account for about one third of the top 3,100 corporations and generate close to half of the value added in the economy. With a U.S. direct investment position of $10.771 billion at the end of 1992, more than 1,300 U.S. companies are present, ranging from offices with one person to firms with thousands of employees. U.S. companies give employment to some five percent of the active population, and other foreign firms another four percent. Over the past ten years, all new foreign investments accounted for some 9,700 projects. According to statistics from the Ministry of Economic Affairs, total foreign investment in Belgium is concentrated mostly in metals (45 percent), oil (21 percent), and chemicals (13 percent). Foreign companies investing in Belgium are generally eligible for the same tax-related investment incentives and subject to the same accounting requirements as domestic investors. The Government actively encourages foreign investment. Any foreign company wishing to engage in trade or manufacture in Belgium can set up a subsidiary or branch. Belgian nationals are not required to own part of the equity of the enterprise, and the repatriation of capital and profits is unrestricted. Any form of incorporation may be chosen, though the "societe anonyme"/"naamloze vennootschap" is the basic type of public limited liability company and usually the most suitable for the subsidiary of a foreign company. Certain restrictive rules apply to all investors. Belgian and foreign investors alike must obtain special permission to open department stores, provide transportation, produce and sell certain food items, cut and polish diamonds, and sell firearms and ammunition. Most companies are required to report price changes to the Ministry of Economic Affairs. Despite the still good foreign investment climate, members of the American Chamber of Commerce Board have recently noted several continuing concerns: The tendency for tax rates to rise and/or vary as Belgium seeks to reduce its public sector deficit, overly long periods before spouses of foreign executives can receive residence visas, poor service provided by the state telecommunications firm, and difficulties in coordinating the sometimes conflicting requirements of federal, regional, and local authorities. Takeover legislation: The Belgian Parliament adopted a new takeover law on March 2, 1989, which required all owners of at least five percent of a corporation's total voting stock to notify both the Ministry of Economic Affairs and the Banking and Finance Commission (Belgium's equivalent of the U.S. Securities and Exchange Commission). For each additional ownership increment of five percentage points, further disclosures are required. In exchange for this enhanced protection against raiders, all companies listed on the Brussels Stock Exchange are required to provide detailed information on their corporate ownership structure to the Banking and Finance Commission. In case of a takeover or a public offer, a company must deposit a file with the Banking and Finance Commission stating its own financial credentials and the details of the deal. Under EU law, very large mergers ($3 billion from 1993 onwards) must also be approved by the EU Commission (DG IV, the Directorate General for Competition Policy). Belgian corporate legislation was changed in 1990 to prevent golden parachutes as well as poison pills and other techniques used by corporate raiders. Screening: A more stringent bill requiring the screening of foreign investment in strategic sectors (mainly the energy sector) failed to pass in 1990. The only current potential screening is found in the law of April 20, 1991, regarding the structure of public sector firms, which stipulates that any takeover must be approved by the majority shareholder, i.e.. the Government of Belgium. Sectoral/geographic limits: In essence there are no sectoral or geographic limitations on foreign investment. Flanders, Brussels and Wallonia, the three regions in Belgium, actively compete with each other to attract new investment projects. At present, railways, telephone, and civil aviation systems are state-operated and closed to private competition. The government, however, has begun a program of selective privatization to reduce the public sector deficit. Several small financial institutions have been privatized, and privatization of the state telecommunications firm is about to begin. Preferences in the form of more lucrative incentives exist for certain economically depressed areas and for particular sectors, especially high tech. No restrictions limit investment to certain geographic areas or sectors. 2. Transfer Policies: The Belgian Government encourages reinvestment of profits but does not impose barriers to the repatriation of earnings or capital. On March 1, 1990, Belgium abolished its two-tiered exchange rate system. Residents may undertake foreign exchange operations freely, subject to reports for statistical purposes. Non-residents may use any currency to invest in Belgium and may repatriate funds in any currency that is traded on the free market. The Belgo-Luxembourg Exchange Institute (BLEI) exercises control over exchange transactions. Taxation: A flat tax rate exists for corporations, but manufacturing and service corporations' taxable income under BF 13 million is taxed at a reduced rate. Corporations are taxed on income at a standard rate of 39 percent and a reduced rate ranging from 29 percent to 37 percent. Branches of foreign offices are taxed on total profits at a rate of 43 percent, or a lower rate in accordance with the provisions contained in a double taxation treaty. Under the present bilateral treaty between Belgium and the United States, that rate is 39 percent. Taxable income is defined as operating profits, inventory valuation, capital gains, and exchange differences. Tax deductions are given for depreciation and interest payments. Personal Income Taxes: Belgian residents are taxed on their worldwide income. Non-residents are subject to taxes on income earned and collected in Belgium. Capital gains and investment income received outside the country are not taxable for non-residents working in Belgium. Tax rates for personal income range from 25 to 55 percent. Indirect Taxes: A Value Added Tax (VAT) is charged on the sale of all goods and services within Belgium. The standard VAT rate in Belgium is 20.5 percent. A reduced rate of six percent is applied to basic necessities, with an intermediate rate of 12 percent on some commodities. Other payments include social security contributions and corporate taxes. The corporate rate was lowered to 39 percent in 1991. Nonetheless, various academic studies demonstrate that after deductions the effective corporate tax rate equals about 28 percent. The withholding tax on interest income was reduced from 25 to 10 percent in March 1990, but the withholding tax on dividends is still 25 percent for residents. The United States and Belgium have negotiated a treaty avoiding double taxation for U.S. companies operating in Belgium. This treaty provides for a special reciprocal reduction of the withholding rate on corporate dividends and royalties of five percent rather than a level of 15 percent. Interests paid to U.S. companies are taxed at 10 percent. A tax circular for expatriate executives and research staff covers the Belgian tax status for several categories of expatriates temporarily residing in Belgium. Known as the "Circular Regime", it grants certain major exemptions from Belgian taxation and has been considered generally satisfactory by the American business community in Belgium. Social Security Agreement: In July 1984, a Social Security Agreement between the United States and Belgium entered into force. This agreement is known as a social security totalization agreement which applies to citizens of each country working in the other country. In short, the agreement allows such workers to be eligible for monthly retirement, disability, or survivors benefits under the social security system of one or both countries. It also ensures that workers are not required to pay social security taxes in both countries on the same earnings. Details on the application of the agreement to a particular situation should be obtained from the Social Security Administration, OIO-Totalization, P.O. Box 17049, Baltimore, MD 21235. The U.S. Embassy in Brussels can also provide a list of lawyers in Belgium specializing in helping Belgian and American citizens understand and benefit from the agreement. With respect to discriminatory or preferential export and import policies, Belgium's practices track with those established by the European Union. Import price controls do not exist. There are no export duties or taxes. Foreign interests may enter into joint ventures and partnerships on the same basis as domestic parties, except for certain professions such as doctors, lawyers and architects. Foreign investors have access to the local credit market on the same terms and conditions as domestic investors. Belgium, like all other EU-member states, is implementing the EU's Second Banking Directive, as well as the Fourth Investment Directive (regulating the insurance sector). Under the EU program for financial integration, subsidiaries of financial institutions headquartered in other member states will continue to be governed by the principle of national treatment. As a result, such subsidiaries will be treated in the same manner as other incorporated entities in the host state. For example, a German banking subsidiary of a U.K. bank could set up branches throughout the Union under German rules with respect to permissible activities. 3. and 4. Expropriation and Compensation/Dispute Settlement: Apparently there are no outstanding expropriation/nationalization cases in Belgium with U.S. investors. There is, however, one major continuing investment dispute of which the Embassy is aware: -- In 1988 W.R. Grace company decided to accept $7 million in investment subsidies from the Flemish Regional Government and place its production unit for silicon dioxide and hydrogen fluoride in Belgium. Construction was completed in 1991 on a project valued at over $100 million. The Grace unit was located adjacent to the Prayon-Rupel phosphoric acid facility because that plant was both a source of the sulfuric acid used in the Grace process and was a consumer of the diluted sulfuric acid that was a by-product of the Grace operation. The Prayon-Rupel phosphoric acid operation in turn depended on its ability to dispose of the gypsum it generated in authorized disposal sites. After initially granting a disposal license for gypsum to Prayon-Rupel, in 1992 the Flemish Regional Government reversed its decision leaving Prayon-Rupel without an authorized disposal site and unable to continue its production relationship with the Grace unit. Grace then decided to shut down its production unit. Grace regards the Flemish Government's decision a breach of promise and is seeking compensation in Belgian courts. Despite the Grace case, there is however no pattern of discrimination against foreign investment in Belgium. 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. 5. Investment Incentives and Performance Requirements: Starting with the law of August 1980 on Regional Devolution in Belgium, the budgets for investment incentives were devolved to Belgium's three regions: Flanders, Brussels, and Wallonia. Tax measures designed to attract new investment, however, remain the privilege of the Federal Government. In general, all incentives, regional or national, are available to foreign and domestic investors alike. Belgian investment incentive programs at all levels of government seem likely to shrink in the next several years as pressures to limit them from the European Union and from declining national and regional budget resources intensify. The EU Commission believes that investment incentives distort the single market, impair structural change, and threaten EU convergence and social and economic cohesion. Belgium has historically been near the top of the EU in providing state aids including investment incentives, well above the EU average. Under Belgium's new federal state, the three regional governments will administer most kinds of investment incentives, and the federal government will retain little control. The regions will put new emphasis on meeting more generalized objectives such as promoting innovation, research and development, energy saving, environmental cleanliness, exports, and most of all, employment. Given the changing nature of investment incentives offered by the three regions, interested parties should contact the relevant regional investment companies/authorities, as follows: (1) Regional Investment Company for Brussels, 32 Rue de Stassart, 1050 Brussels; (2) Flanders' Investment Office, Markiesstraat 1, 1000 Brussels; (3) Regional Investment Company for Wallonia (S.R.I.W.), Rue Mazy 25-27, 5100 Namur (Jambes). The Federal Government also provides investment-related information at the following address: Ministry of Economic Affairs, Foreign Investors Service, Square de Meeus 23, 1040 Brussels. As part of an ongoing effort to assist the potential foreign investor, the American Chamber of Commerce in Belgium runs an investment referral service which provides information on investment incentives throughout Belgium. The investor may contact the Chamber directly at 50 Avenue des Arts, Box 5, 1040 Brussels or via fax at (32) (2) 513-7928. Federal programs: Notwithstanding the devolution of investment subsidies to the three regions, the Federal Government still controls the important policy variable of tax deductions for certain types of investment: development zones, new venture capital companies, coordination centers, and distribution centers. Coordination Centers: Coordination Centers serve companies of an international group. A center consists of affiliated companies maintaining at least a 20 percent direct or indirect participation in one or more other companies under common agreement. Newly created coordination centers are granted special tax status for a period of 10 years. They can be established as branches of foreign companies or as Belgian stockholding companies and can be located anywhere in Belgium. During the 10-year period, recognized coordination centers are taxed on notional income calculated as a percentage of expenses incurred. The taxing authorities generally use a rate ranging between eight and 12 percent of one center's expenses. Salary costs and financing expenses are disregarded in determining the amount of expenses to which the percentage is applied. Coordination centers are also exempt from real estate taxes, withholding taxes on dividends, withholding taxes on interests and registration taxes. About 300 coordination centers are now active in Belgium, many of which are American in ownership. Development zones: High-tech investments in depressed areas of the country are eligible for a 10-year tax holiday and certain exemptions concerning the personal income taxation of their foreign executives. High technology investment is specifically defined to include advanced data processing, software technology, micro-electronics including optro-electronics, office automation, robotics, telecommunications and bio-engineering. An enterprise qualifying under this scheme must not only be in the high-technology field, but it must employ between 20 and 200 people and have its entire operation within the development zone. Distribution centers: Belgian tax authorities have also established special corporate tax rules for foreign companies which establish a distribution center in Belgium if certain conditions are met. The newly established distribution center may operate as a branch of a foreign company or a Belgian subsidiary. No specific rules apply to minimum employment, turnover, in contrast with such rules for coordination centers. Qualifying distribution centers can realize significant tax savings. The Embassy is currently working with the American Chamber of Commerce to improve some of the regulations regarding distribution centers, allowing them extra freedom to actually process the stored goods and develop some related activities such as billing, publicity, etc... No performance requirements are applicable to foreign investors, nor does it appear likely that the government will establish such requirements. 6. Right to Private Ownership and Establishment: No restrictions in Belgium apply specifically to foreign investors. All investors, Belgian or foreign, must obtain special permission to open department stores, provide transportation, produce and sell certain food items, cut and polish diamonds, and sell firearms and ammunition. 7. Protection of Property Rights: The rights granted under U.S. patent, trademark, or copyright law can be enforced in the United States, its territories and possessions only. The EU, for its part, has taken a number of initiatives to provide intellectual property protection, but not all measures haven been implemented. In cases of non-implementation, national laws still prevail. Patents: Belgium is also a member of the World Intellectual Property Organization (WIPO) and the European Patent Convention (EPC). A single European patent, valid throughout the EU, does not yet exist, since the community patent convention has only been ratified by Germany and Greece. In the meantime, the patent applicant can choose between a national and a multiple-country patent. In the latter case, a single application to the European Patent Office in Munich (European Patent Office, Erhardstrasse 27, D-80331 Muenchen, Germany, Tel: 49-89-23990, Fax: 49-89-23992850) is required for obtaining patents valid in a number of countries within the EU, and Austria, Liechtenstein, Sweden, Monaco, and Switzerland. A patent thus granted will not be valid in Belgium unless a copy of the grant in one of Belgium's three national languages is filed with the Belgian Office of Industrial Property described below. To obtain a national patent in Belgium, the inventor or his/her assignee must file a request with the Office of Industrial Property in the Ministry of Economic Affairs. After a search of the European Patent Office in Munich, if requested by the inventor, the Belgian government will issue the patent without guarantee of patentability. National patents are valid for twenty years if a search has occurred. If not, the validity is reduced to six years. Once granted, the patent is registered with the Register of Patents, again located in the Ministry of Economic Affairs. Trademarks: While now in force, the EU Trademark Office still needs to be established in Alicante, Spain and the first EU trademark registrations are not expected until mid-1995. In the meantime, trademark registration is handled on a national basis. Trademarks in Belgium are regulated by the Uniform Benelux Law of 1962, which offers protection in Belgium, the Netherlands and Luxembourg. An application for trademark can be filed either with the Belgian National Office in the Ministry of Economic Affairs or with the Benelux Trade Mark Bureau located in The Netherlands (Bankastraat 51, The Hague). A search is required to ascertain the existence of a similar or identical trademark for the same category of product. If granted, protection lasts for ten years from the date of application and can be renewed for further periods of ten years each. Trademarks must be used within three years of registration or within any uninterrupted period of five years. Copyrights: Belgium is a member of the Berne Convention and the Universal Copyright Convention of Geneva. As a member of the UCC, to which the U.S. and 50 other countries belong, Belgium accords authors automatic copyright protection throughout all UCC countries when registered with this organization. Protection exists for the life of the author, plus 50 years after death. In addition, Belgium has passed a revised copyright law which brings Belgian practice into conformity with existing EU directives. However, EU directives permit some variation in each member state and U.S. firms wishing to protect their copyrights in Belgium should consult local legal counsel. This is particularly true regarding reciprocity provisions in the new law. Priority areas for harmonization of national law throughout the European Union have been identified in the European Commission's green paper and follow-up paper. Steps have been taken in the field of - Computer Programs (adopted): Software protected as literary work. - Satellite Transmissions (adopted and in force): Authorizations from the copyright holder only in the member state from which the transmission occurs. - Cable Broadcasts (adopted and in force): Rights for the simultaneous, unaltered retransmission by cable of programs would be negotiated exclusively within collective management societies. - Rental/Lending and related rights (adopted): Exclusive right permitting authorities, performers and producers, film and record producers to authorize or forbid the rental or lending of their works. Derogations possible. The directive harmonizes member state legislation on certain neighboring rights concerning fixation reproduction, distribution, broadcasting, and communications to the public. - Databases (proposal): Harmonization of EU copyright rules affecting databases, including an "unfair extraction" clause. - Copyright period (in force since July 1, 1995): Copyright protection 70 years after the death of the author; for neighboring rights: 50 years. - Design and Model protection (proposal): 25 year period of protection for industrial models and designs. As in copyright, the need to consult local legal counsel applies equally to patents and trademarks. 8. Regulatory System: Laws and Procedures: The Belgian Government has adopted a generally transparent policy and effective laws to 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 large retail operations face stringent regulations which protect small- and medium-sized enterprises. 9. Efficient Capital Markets and Portfolio Investment: Belgium has in place ample 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 European Union financial directives. 10. Political Violence: The Embassy is aware of no incidents of politically motivated damage to foreign investments in Belgium in recent years. 11. Bilateral Investment Agreements: Belgium by itself has bilateral investment treaties with Indonesia and Zaire. As a partner in the Belgium-Luxembourg Economic Union (BLEU), it has bilateral investment treaties or agreements with Tunisia, Morocco, Republic of Korea, Egypt, Romania, Singapore, Malaysia, Cameroon, Bangladesh, Ceylon, Hungary, Rwanda and China. Additionally, BLEU agreements have been signed but not yet implemented with Mauritania, Liberia, Thailand, Turkey, Malta, Poland, Bulgaria, U.S.S.R., Burundi and Czechoslovakia. In essence, these agreements/treaties provide for mutual protection of investments. 12. OPIC and other Investment Insurance Programs Belgium, as a developed country, does not qualify for OPIC programs. Apparently no investment insurance programs for Belgium are operated by other countries. 13. Labor: Belgian workers are highly unionized (63 percent of the work force), highly productive, and usually enjoy high salaries. At the same time, in recent years the unemployment rate as measured according to the EU's definition has approached 9-10 percent. High wage levels and high levels of unemployment can coexist because most of Belgium's long-term unemployed are virtually unemployable without major retraining---their overall educational level is significantly lower than that of the general population. At the same time, a shortage exists for workers with training in computer hardware and software, automation and marketing. The resulting bottlenecks cause wage pressures. The Belgian comprehensive and individual social security package is composed of five major elements: family allowance, unemployment insurance, retirement, medical benefits and a sick leave program which guarantees salary in event of illness. Currently, employer payments to the social security system stand at 35.02 percent, while employee contributions comprise 13.07 percent. In addition, many private companies offer supplemental programs of medical benefits and retirement. Belgian labor unions, while maintaining a national superstructure, are, in effect, divided along French and Dutch 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, socially and industrially. A national bargaining process covers inter-professional agreements, which the trade union confederations negotiate biennially with the government and the employers' associations. In addition to these negotiations, or occasionally after the failure of talks, the unions negotiate further agreements within the various industrial sectors. Foreign firms, which generally pay well, usually have 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 occurred. Firing a Belgian employee can be extremely 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 for which the employee has worked for the company. In the case of blue collar workers, the minimum is two weeks notice or the wage equivalent. 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, firms should provide for a "trial period" in any employer-employee contract. 14. Foreign Trade Zones/Free Ports: Belgium does not have foreign trade zones or free ports as such. Belgian customs regulations, however, provide for the duty-and tax-free import of goods which are declared to be in the country temporarily for processing and transshipment. The goods may be stored in public or private bonded warehouses which are located throughout the country. The major Belgian seaports---Antwerp, Brugge, Brussels, Ghent, Oostende and Zeebrugge---have customs free zones, as does the Brussels International Airport at Zaventem. For more information on this type of operation, a U.S. company should contact the American Embassy in Brussels or the following: Ministry of Finance Customs Administration Rijksadministratief Centrum Bus 37 Kruidtuinlaan 50 1010 Brussels Contact: Mr. Andre Rombaut Tel: 32/2/210.32.35 Fax: 32/2/210.33.13 or Fax: 32/2/210.32.76 15. Capital Outflow Policy: Belgium does not restrict capital outflow. When foreign investment is considered to be in the Belgian national interest because it would stimulate exports, provide royalty income through technology transfer, or help to supply needed imports, the Belgian Corporation for International Investment (SBI) may provide assistance. Subsidiaries of foreign companies established in Belgium are eligible for and have received SBI aid. SBI is 58 percent government owned but financially self-sustaining. It participates in Belgian foreign investment by holding equity shares, convertible debentures, or long-term convertible loans in foreign undertakings. SBI activities are not restricted to any geographic area. 16. Foreign Direct Investment Statistics: TABLE I BELGIAN DIRECT INVESTMENT POSITION IN THE U.S. 1989 - 1992 (current millions of dollars) 1989 1990 1991 1992 Petroleum NA NA NA NA Manufacturing 941 1,473 1,225 1,390 Wholesaling 588 509 653 1,104 Banking -71 NA NA NA Finance NA 2,059 -80 -158 Services 66 NA 80 58 Other 47 24 9 91 Total 3,972 4,230 3,653 4,066 Source: United States Department of Commerce, Survey of Current Business, July 1993. TABLE II U.S. DIRECT INVESTMENT POSITION IN BELGIUM 1989 - 1992 (current millions of dollars) 1989 1990 1991 1992 Petroleum 246 327 294 291 Manufacturing 4,041 4,331 4,002 5,940 Wholesaling 1,790 2,177 2,145 1,811 Banking 199 NA NA NA Finance 1,335 2,059 1,775 2,072 Services 295 352 438 502 Other 35 NA NA NA Total 7,941 9,462 8,830 10,771 Source: United States Department of Commerce, Survey of Current Business, August 1992 TABLE III INVESTMENT - Total foreign direct investments - 1991 36.67 (U.S.$ billions) (1) - U.S. investments - 1992 10.8 (U.S.$ billions) (2) - As a % of total foreign investment - (3) 24.0 - Principal foreign investors: U.S., Germany, Netherlands, and France. (1) This figure is an extrapolation from the figures which follow. No part of the national or regional governments keeps total investment figures. Therefore, we have extrapolated from known figures in order to produce a figure for total investment. (2) Survey of Current Business - August 1992. Based on book value and not current asset value. (3) Ministry of Economic Affairs. This percentage probably underestimates by a wide margin the actual share of U.S. investment in Belgium, since it is based on book value and not on current value. Since much U.S. investment in Belgium took place a number of years ago, the actual share of total investment based on current value is estimated to be closer to 40%.