Risk & Economy » Brexit » Wallonia’s sweet spot

Wallonia, located in the triangle between Amsterdam, Frankfurt and Paris, three of Europe’s main commercial hubs, has always been at the beating heart of the continent’s commercial activities.

With UK companies having to address a multitude of challenges including disruption and the dangers of Brexit, the Belgian region is being viewed as an attractive destination for firms reassessing their logistics needs.

Many multinationals, like H&M and Coca-Cola, maintain testing facilities in Belgium for the European market. With 60% of Europe’s purchasing power and 50% of Europe’s population within a 500 km radius, tested products can easily find their way to European customers.

Franck Toussaint, a supply chain expert at the Wallonia Export-Investment Agency, says that as the geopolitical aspects of Europe change in an evolving global economy, the region is well placed to capitalise on developing trends.

He says that in recent years Wallonia’s focus on industries such as steel and fashion have been replaced by new sectors such as aerospace, logistics and biopharma- which employs 30,000 workers in region equivalent to over 1% of its 3.5m population. “We have world leaders such as GSK with 10,000 people, so products such as vaccines need good logistics,” says Toussaint.

He says that the region’s position at the crossroads of Europe ensures it has a powerful infrastructure featuring road networks that connect with the rest of Europe, good river connections to the big seaports of Amsterdam and Antwerp, and rail connections that extend to China.

In addition, there is the fast-growing cargo airport at Liège, where companies like ecommerce giant Alibaba, which last year set up a 220,000 sq m European hub, are based. “In 2018, 8m shipments in ecommerce took at Liege airport, in the first quarter of 2019 the number was 48m,” comments Toussaint.

Much of the growth of the infrastructure in the region has been down to the vision of planners over two decades ago, according to Toussaint, who has spent 20 years looking at logistics challenges worldwide. “Companies are having to find new solutions when they build, as in the UK and elsewhere it has become more unstable for the supply chain solution, so they have to adapt the way they do procurement.

“Where they put distribution centres and manufacturing, sometimes at the request of clients, is often to respond to more pressure to get products on time, with as short a delay as possible,” he says.

“For companies that want to avoid disruption we are a stable and safe solution, as we try to mitigate risks, and we try and be as reactive as possible,” adds Toussaint.

One example is the relatively modest cost of land in Wallonia compared to France and Germany. Also competitive is the time it takes to get building permits (on average three months in Wallonia) says Toussaint, as well as competitive costs of building and of hiring staff. “Staff costs are generally lower than in the Netherlands, France and Germany, despite having an experienced workforce,” he says. According to the IMD World Competitiveness Center, Belgium continues to be home to the world’s third most talented workforce.

Untaxing issues

Nicolas Honhon, senior tax counsellor for the federal Department of Finance, is based at the Belgian embassy in London, where specialists often come to London to explain opportunities for companies looking to locate to Belgium.

He says Wallonia is consistent with other regions in Belgium, of Brussels and Flanders, in offering a number of ways to attract companies: the importance of a business-friendly environment, stable legislation, business certainty and a beneficial tax system that he says “should help businesses create jobs by fostering ecosystems”.

Regarding a business-friendly environment, Honhon says says the corporation tax rate in Belgium from 2020 will be 25%, or 20% for the first bracket of Euro100,000 for SMEs.

“It is said social security in Belgium is quite expensive, but that’s a poor perception because there are many reductions,” says Honhon. “It’s the only amount you have to pay. You don’t need extra insurance as you do in the Netherlands, where the company needs to insure employees themselves, for example.

“If you have a long-term illness in Belgium the employer pays just one month, and after that, the social security pays. In the Netherlands if you have a long-term illness the company has to pay for two years, so they have to pay an extra private insurance,” says Honhon. “If you want to hire a first employee in Belgium, you pay zero social security,” he adds.

Changes to taxation laws have resulted in several labor cost reduction initiatives. In addition, reductions to social security contributions (SSC) rates, fringe benefits and tax shifts greatly reduce employers’ tax burdens and simplify the overall tax code.

Companies can enjoy a fiscal advantage for employees working in shifts, at night, or in a continuous regime. The employer is exempted from paying part of the payroll tax that he or she has deducted from the employee’s wages. This exemption amounts to 22.8% of the total taxable wages, including the bonuses for working in shifts or night work. For continuous work this exemption amounts to 25% of the total taxable wages, including the bonuses.

On sustainability, Honhon says in Belgium the tax system is very simple. “This is in order to attract foreign investors- and to attract good brains into businesses. We want to create jobs that stay in Belgium, so sustainability is very important for us,” he adds.

Honhon says on business certainty, Belgium has a ruling commission, a department independent from the Ministry of Finance, where you can address a question of tax issues. “It will tell you if what you’re doing is OK, so that you know the consequences when you invest in a country. From my point of view, it’s often more important than the tax system itself as it offers certainty,” says Honhon.

On the tax incentives Belgium has created, a number are in the R&D area. From 2019 and for the first time in Belgium’s income tax history, tax consolidation was introduced through “deduction of the group contribution”. In practice, Belgian companies will be able to transfer taxable profits to other Belgian affiliated companies with the aim of offsetting these profits against current year tax losses. The 95% dividends received deduction is increased to 100% resulting in a full participation exemption. Capital gains on shares whose dividends entitle to the dividends received deduction are also exempted.

“We have a tax box- which has been assessed by the OECD as the most effective in the world in 2017. “If you get income from an innovation, from new patents or IP, you can benefit from a deduction of up to 85% of the net income, so you are taxed on only 15% of income from innovation.

Within the EU, Belgium is a strong performer in R&D and innovation, thanks to the high quality of its educational system and research facilities, the availability of skilled workers and attractive fiscal incentives for R&D ventures. The World Economic Forum’s Global Competitiveness Report of 2016-2017 ranks Belgium at the top for R&D, innovation and collaboration between industry, academia and government. As a result, many innovative companies have their operations in Belgium.

Belgium’s flourishing innovation industry is buttressed by a favourable tax regime. According to the OECD, the Belgian tax package for R&D ranked second worldwide in 2017. Belgium offers an innovation income deduction scheme applicable to net earnings from innovation. According to the scheme, up to 85% of a company’s net earnings from innovation is exempted from corporate taxation, resulting in an effective tax rate of 4.4%.

“Finally, it is also important to note that Belgium has an attractive tax regime for holding companies,” he adds.

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