Belgium Builds its Case for Attracting More Foreign Investment

Belgium is on a mission to attract foreign direct investment. To help reach that goal, the government has introduced new incentive programs to encourage companies to locate in this important Western European nation.

Among them is an innovative tax instrument or “Notional Interest Deduction” that allows all companies subject to Belgian corporate tax to deduct from their taxable income an amount equal to the interest they would have paid on their capital in the case of long-term debt financing.

“We are the only country in Europe to allow this,” said Guy Verhofstadt, prime minister of Belgium.

Essentially, the notional interest law lowers the effective corporate tax rate in Belgium on average to around 25 percent. But, as experts pointed out, the rate can be substantially lower for financing and leasing companies or branches. The overall aim is to increase the attractiveness of Belgium for capital-intensive companies and equity-funded headquarters.

The notional interest deduction will be accessible to all Belgian resident-companies and Belgian branches of non-resident companies.

Just as Belgian coordination centers have proved to be a success for many U.S.-based multinationals, as well as a growing number of European and Asian groups during the past several decades, the notional interest deduction is expected to raise Belgium’s profile on the international tax scene.

Belgium’s region of Wallonia is also furthering the effort by developing an ambitious action plan to reinvigorate its economy, encourage the creation of new businesses and to help to develop existing ones.

Dubbed the “Marshall Plan for Priority Action,” the program comes with a budget of more than 1 billion euros to be spent during the next four years. During that time, Wallonia will focus on five priorities: reduce corporate taxes, stimulate new business, boost research and development, strengthen the skills of its work force, and create competitiveness clusters.

Belgium is already strong in attracting overseas investment. The World Investment Report, published by the UN Trade and Development organization UNCTAD, said that at $34.4 billion, Belgium was the sixth leading recipient of foreign direct investment in 2004. The nation ranked No. 13 in the world as a location for foreign R&D operations.

Belgium has long offered advantages for companies in a number of key industry sectors, including logistics and distribution, automotive, service centers, biotech and other innovative industries.