Belgium: How the pieces fit together

Author: | Published: 1 Oct 2010
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Banks, insurance companies and other asset managers (including private equity houses other than funds-of-funds) contributed strongly to the Belgian private equity market in 2009. Commitments from government agencies, the main source of capital in 2008 (€279 million) ($364 million) disappeared.

In 2009, fundraising by Belgian private equity firms nearly halved at €355 million compared to 2008. Nearly 65% of new funds raised were committed by Belgian investors. Investments in Belgium companies (€1.1 billion) accounted for 49% of investments in the Benelux region. Of the private equity firms headquartered in Belgium, 27 were venture specialists, 12 focused on buyout, and one on growth deals.

The expected allocation of funds raised in 2009 indicates a relatively stable share of funds allocated to buyouts and growth capital with nearly 79.4% of the total and €282 million (compared to 90.4% and €640 million in 2008).

Investment and transactions

Investments in Belgian companies in 2009 included:

  • Start-up investments. These amounted to €88.5 million (compared to €52.8 million in 2008).
  • Later stage venture investments. These amounted to €108.5 million (compared to €79.4 million in 2008).
  • Buyouts. These increased by nearly 50% to €537.5 million (compared to €354.3 billion in 2008).
  • Replacement capital. This increased by more than 400% (€118.7 million compared to €25.8 million in 2008).
  • Growth capital. This increased substantially to €239 million (from €173 million in 2008).

The investment distribution by sector was:

  • Life sciences. 18.3% (compared to 15% in 2008).
  • Computer and consumer electronics. 14.4% (compared to 15.8 % in 2008).
  • Business and industrial products. 12.7% (compared to 6.1% in 2008).
  • Transportation. This sector saw a significant decrease to 2.8% (compared to 10.5% in 2008).

In 2009, private equity firms based in Belgium invested a total of €1.059 million in 248 companies. Investments increased by more than 50 % compared to the levels reached in 2008 (€667.6 million in 2008).

Domestic investment by Belgian private equity firms represents the majority of transactions in 2009 (79.2%) and reached nearly twice the 2008 level (41.5%). The share of investment in other European countries decreased to 18.8% with €110.9 million in 2009 (compared to 58.3% with €573 million in 2008. The remaining 2.0% represented investments in non-European countries (0.2% in 2008).


Total divestments in 2009 by private equity firms based in Belgium were €306 million from 82 transactions (compared to €313.9 million from 55 transactions in 2008). Popular forms of exit in 2009 included (by percentage of the total amount at cost):

  • Trade sales: 59.8 % (compared to 42.7% in 2008).
  • Sales to other private equity houses: 13.5 % (compared to 19.1% in 2008).
  • Sales of quoted equity 12.2 % (compared to 0.0% in 2008).
  • There were no public offerings in 2009 (compared to 24.2% in 2007).

Fund formation

Various legal forms are allowed for the incorporation of a company (Company Code May 7 1999 (Wetboek van Vennootschappen or Code des Sociétés)). The structure most commonly used for domestic private equity funds is a Belgian company limited by shares (naamloze vennootschap (NV) or société anonyme (SA)).

An NV or SA must have at least two shareholders. The shareholders can be corporate entities or individuals, and both Belgian or foreign. The minimum share capital is €61,500. Shares can be either registered or bearer and can be with or without a nominal value. However, from January 1 2008, bearer share issues are no longer allowed. In general, shares are freely transferable. However, company law permits transfers to be restricted by means of either a shareholders' agreement or a statutory clause (Article 510 Company Code).

Two specific types of undertakings for collective investment (instelling voor collectieve belegging or organisme de placement collectif) have been created:

The public privak (publieke privak or pricaf publique):

  • by contract (prifonds). Prifonds take the form of an investment fund (beleggingsfonds or fonds de placement). That is, they are a set of jointly owned assets, managed by a management company (beheersvennootschap or société de gestion) which has no legal personality;
  • as an investment company (beleggingsvennootschap or société d' investissement). These privaks have their own legal personality and can be incorporated either as an NV or SA, or a limited partnership by shares (commanditaire vennootschap op aandelen or société en commandite par actions). They are subject to company law, with a few specific exceptions.

The private privak (pricaf privée) can only be constituted as an investment company. It can be incorporated as any of the following:

  • a company limited by shares (an NV or SA);
  • a limited partnership by shares (commanditaire vennootschap op aandelen or société en commandite par actions);
  • an ordinary limited partnership (gewone commanditaire vennootschap or société en commandite simple).

Most investment vehicles do not satisfy Belgian requirements for transparency. A foreign fund is subject to Belgian taxation on realised capital gains and dividends, and other income received in Belgium, where these are attributable to any Belgian establishment. If so, taxation is on the same basis as for Belgian resident companies. A Belgian establishment is a fixed place through which the professional activities of a foreign company are entirely or partly conducted in Belgium. This is similar to the definition of a permanent establishment under the tax treaties. An investment vehicle cannot claim the benefits of double tax treaties on the basis that it is subject to a more favourable tax regime in its home jurisdiction. If treaty protection is not available, the investment vehicle is liable to tax in Belgium.

Tax incentive schemes

Apart from the special tax regime applicable to privaks, investors in any Belgian limited liability company enjoy favourable tax treatment.

Capital contributions to a Belgian company are not subject to any registration tax at company formation or at a later date (except, sometimes, for contributions of real estate into the capital of a company). On top of that, the NID allows companies to claim a tax deduction for the cost of capital by deducting a notional interest rate calculated on the company's equity (including reserves) (Law on Notional Interest Deduction). It aims to encourage equity funding in small and medium-sized companies. Where there is no tax base, the notional interest deduction can be carried forward for up to seven years.

Capital gains realised by a Belgian company on the sale of shares in a subsidiary are exempt from corporate income tax, irrespective of the size or duration of the shareholding. However, capital losses on shares are not tax-deductible, except following the liquidation of a company. In this case the capital loss can be deducted from taxable income up to the amount of the investor's paid-in capital.

In general, interest payments are subject to withholding tax of 15% and dividend payments are subject to withholding tax of 25%. However, many exemptions exist.

Dividends allocated by a subsidiary to its parent company are exempted from withholding tax inasmuch as the parent company is located in another member state of the European Union than Belgium or in a state with which Belgium has concluded a double taxation convention. At the time income is attributed, the parent company shall have maintained, during an uninterrupted period of at least one year, a minimum share of 10% in the capital of its subsidiary.

The extension of the exemption from withholding tax on participation dividends to dividend payments to a contracting state (non-member of the European Union), applies to dividends allocated or made payable as from January 1 2007 (Directive 90/435/EEC on the taxation of parent companies and subsidiaries (Parent-Subsidiary Directive)).

A participation exemption applies in relation to dividends attributable to a Belgian permanent establishment. Dividends are initially included in the taxable income and then 95% of the dividends are subsequently deducted from that taxable income. The participation exemption is not granted to income allocated or assigned by companies which are not liable to corporate income tax or to a similar foreign tax, or which are established in countries offering a legally established tax system that is markedly more advantageous than the Belgian system. A tax regime is considered 'markedly more advantageous' when the normal corporate income tax rate or the effective tax burden is lower than 15%. The common right fiscal provisions applicable to companies located in the European Union are deemed not to be markedly more advantageous.

To benefit from the scheme, the following conditions must be satisfied:

  • A holding requirement of at least 10% of the share capital or not less than €1.2 million.
  • The shares must be held in full ownership for at least one year.
  • The shares must be held as financial fixed assets (portfolio investments are not eligible).

In case of lack or insufficiency of taxable profit, the remaining participation exemption now can be carried over the next taxable periods, as a consequence of the recent Cobelfret judgment of the European Court of Justice (CJEC February 12 2009, nr. C-138/07).

A 10% withholding tax is charged on the amounts attributed following the liquidation of the issuing company, following the total or partial distribution of the company's assets or following the repurchase by the company of its own shares. The amount liable to withholding tax is the amount chargeable as a dividend under CIT provisions. However, shareholders are exempt under the Parent-Subsidiary Directive. Interest payable on loans taken out by Belgian companies to acquire Belgian or foreign shareholdings is generally fully deductible.

There are no general thin capitalisation rules and so it is not necessary to observe any debt-to-equity ratio within a Belgian company. Specific thin capitalisation rules can be imposed in special circumstances but only for corporate income tax purposes. Where these rules apply they impose a debt-to-equity ratio of:

  • 1:1 where the lender is a director or an individual shareholder.
  • 7:1 if the actual beneficiary of the interest paid by the Belgian company is not subject to taxation on income, or is subject on its interest income under a tax regime that is more favourable than the Belgian tax regime.

There is no time limit when carrying forward tax losses.

Lastly, a holding company that acquires a stake in a business, without intervening directly or indirectly in its management, is not deemed to be paying VAT. VAT cannot therefore be deducted by that company.

Structuring investments

The most common investment objective is to achieve a maximum return on investment and, to do so, various techniques are applied. Most investments are structured as straight equity because of the exemptions on the proceeds (whether dividends or capital gains). For investors and funds, a maximum leverage effect can be created to reduce the taxable profits of a Belgian target. This can be achieved by structuring the investment through subordinated debt.

Generally, investors buy or subscribe to common shares.

Shares can be issued by the authorised corporate body (for example, in a general shareholders' meeting or by the board of directors) provided it is done in accordance with the company's articles of association and the Company Code. As a result, the company's share capital can be increased by either:

  • A shareholder vote amending the articles of association.
  • The board of directors (where authorised share capital is used).

In general, shares in an NV or AS are freely transferable. However, it is possible to restrict transfers through a shareholders' agreement or a statutory clause.

Convertible bonds and warrants, giving potential access to the share capital, are also used. Holders of common shares are entitled to the full benefits of a successful exit but have no priority over other shareholders in the event of an unsuccessful exit. The NID abolished capital contribution duty as from January 1 2006 and, in addition, introduced risk capital deduction (Notional Interest Deduction (NID)), which is an attractive system for new equity funded entities and activities in Belgium.

Convertible debt has no priority over other debts in the event that the company is liquidated. If bank finance is involved, the banks are likely to insist that the convertible debt is treated as subordinate to the bank debt.

The advantage of warrants is that there is no need to make any cash outlay before it becomes apparent that the warrants are in profit. The disadvantage is that the company does not receive any immediate injection of funds from the investment. Therefore, warrants are typically only used as an additional equity kicker to a debt or equity investor who simultaneously provides substantial cash investment to the company.


It is common for buyouts (including some major buyouts) to take place by auction but there is no specific legislation covering this. There is no absolute fiduciary obligation to sell to the highest bidder and therefore the board of directors can consider other factors when deciding which bid to accept.

Buyouts of listed companies do occur but are rare, partly because these types of transactions are complex. Public offers for shares of publicly traded companies are subject to extensive regulation and a public offering of securities requires the publishing of a prospectus approved by the BFCI. In addition, a buyer can be obliged to start a buyout offer followed by a squeeze-out procedure

Typical clauses included for the protection of contractual buyers are as follows:

  • Representations and warranties (non-management). The purchase agreement is comprised of representations and warranties made by the sellers. A buyer is not allowed to rely on a representation or warranty if:
  • he had actual knowledge that the representation or warranty was false;
  • he should reasonably have known that the representation was false, based on the information disclosed by the seller in the data room before the transaction was completed.

Institutional sellers are often extremely reluctant to provide any representations or warranties other than confirmation that they own the shares.

The sellers' indemnification obligations are usually limited by cap, threshold and duration and may be guaranteed by various instruments. Representations and warranties include those given in relation to tax, other financial matters, and social and environmental issues.

  • Representations and warranties (management). Management are often the only people who can make accurate representations and warranties. However, they are usually reluctant to incur personal liability by doing so. Possible solutions include:
  • limiting liability to a specified amount;
  • requiring management to make representations only on a best -knowledge basis.
  • Non-compete undertaking. A non-compete undertaking is usually requested from the management.
  • Other solutions (specific indemnities and escrow). Where specific problems are identified in the due diligence, sellers can be required to indemnify against any losses arising out of those problems, regardless of whether the buyer had actual knowledge of them. Where major problems are anticipated, or where the seller is not expected to be solvent after closing, it may be desirable to escrow a portion of the purchase price to cover indemnity claims.

It is usual for management participating in an MBO to enter into management or employment agreements. A wide range of terms are usually imposed, including:

  • Confidentiality provisions.
  • Non-compete undertakings.
  • Non-solicitation undertakings.

In addition, most managers are required to forfeit all or some of their equity (or stock options) in a Belgian company if they leave voluntarily or are dismissed for cause. If so, the purchase price for the manager's equity share may be less than market value (known as a bad leaver clause). In other circumstances (such as death, disability, or termination without cause), the manager is allowed to keep his equity in the company (known as a good leaver clause).

Minority investors

A minority investor is usually granted the right to nominate one or more members of the company's board of directors. This right can be included in the company's articles of association (a binding nomination), but is much more likely to be found in the shareholders' agreement.

Minority shareholders can also be granted veto rights over specific corporate actions, such as:

  • Use of authorised capital by the board of directors.
  • Appointment of managing directors and key managers.
  • Decisions in relation to certain investments, divestments, borrowing, lending and guaranteeing.
  • This is often achieved by issuing a separate class of shares to the minority investor and then granting veto rights to that class of shares (or to a director appointed by the investor).

Majority investors

A majority shareholder can remove the company's board of directors virtually at will and, therefore, does not require additional protection.


The most commonly used forms of exit are:

  • Secondary sales (where the private equity provider sells his interest in the company to a third party).
  • Trade sales of the company to a third party.
  • Auctions, which are particularly beneficial if they are organised between strategic third party buyers and investment underwriters contemplating an IPO for the company.
  • An IPO of the company on the relevant stock exchange.

Although the IPO remains the most prestigious and profitable exit, current slow-moving worldwide stock market conditions mean that the secondary sale and the trade sale remain the most popular forms of exit in Belgium.

The alternatives for an exit are generally limited for an unsuccessful company. Under certain circumstances, a separate sale of healthy business units can be considered. In extreme situations, a company can be liquidated (on a solvent or insolvent basis) or declared bankrupt.

The advantages and disadvantages of these alternatives can vary widely in each case.

Capita Selecta

(i) Security

Security, in the form of pledges of equity (share pledges) and other collateral (such as receivables), is available, subject to applicable financial assistance rules.

The Collateral Law (Wet Financiële Zekerheden) allows a taker of collateral to enforce a financial collateral arrangement when an enforcement event occurs, without the collateral provider being given an opportunity to remedy the situation, or without any judicial procedure, even where there are existing insolvency proceedings in place. This ensures that certain provisions of insolvency law that would hinder the effective realisation of the collateral do not arise, provided that the parties act in good faith. Belgian courts may exercise control afterwards over the realisation or valuation of the relevant financial obligations to verify that they were conducted in a commercially reasonable manner.

Debt providers can take first charges over the fixed assets of a company, and it is also possible to take a floating charge (pand op handelszaak) over the company's assets. In the event of either bankruptcy or judicial composition (gerechtelijk akkoord) (a form of insolvency proceedings generally entered into before bankruptcy), secured creditors are paid before the generally preferred creditors and unsecured creditors. Secured creditors are creditors secured by:

  • Mortgages.
  • Pledges.
  • Other special preferential rights on real or personal property.

The order of priority on insolvent liquidation is as follows:

  • Secured creditors. Secured creditors are paid before the generally preferred creditors. However, their claims only relate to the assets over which they have taken security, while generally preferred creditors can have their claims satisfied out of the general assets.
  • Generally preferred creditors. The following are generally preferred creditors:
  • the government (mainly relating to contributions to the Social Security Office regarding employees' remuneration);
  • tax authorities which also have certain special protective powers (for example, seizure of assets);
  • employees (in relation to their remuneration and indemnities).
  • Unsubordinated creditors.
  • Subordinated creditors.
  • Shareholders. Shareholders are paid last, once all debts have been satisfied.

A debt holder can achieve equity appreciation through rights, warrants and options.

(ii) Financial assistance

A company is entitled to provide financial assistance with a view to the acquisition of its shares by a third party provided the following stringent conditions are met (Article 629, Company Code):

The transaction must be authorised by the board of directors as being at fair market conditions, taking into account the usual market interest rate and the usual collaterals for similar types of financing as well as the credit standing of the third party.

The transaction is subject to prior approval by the general meeting of shareholders with the same quorum and majority requirements as for an amendment to the Articles of Association;

The board of directors must draft a special report explaining:

  • the reasons for the transaction;
  • the interest of the company in entering into the transaction;
  • the conditions of the transaction;
  • the liquidity and solvency risks for the company; and
  • the price at which the shares are sold.

In addition, if a director of the parent company or the parent company itself benefits from the transaction, the report of the board must explicitly justify such a decision taking into account the capacity of the beneficiary and the consequences for the assets of the company.;

The assistance must be paid out of, and cannot exceed, distributable profits (as defined in Article 617 of the Company Code). The company must set up a non-distributable reserve on the liabilities side of its balance sheet equal to the total amount of the financial assistance.

Except for the requirement for sufficient distributable profits, the above conditions do not apply where financial assistance is granted to company employees or to affiliate companies controlled by employees.

In addition, a special general meeting of shareholders can approve the distribution of dividends from profits that have been reserved and approved by the annual ordinary general meeting of shareholders. A distribution of dividends is usually made through the approval of an ordinary or special general meeting, although under certain circumstances the board of directors can also approve the distribution of an interim dividend. This kind of dividend distribution is commonly used in the context of private equity transactions.

(iii) Management incentives

A common management incentive is to give the managers a combination of shares and options.

Stock option plans are also often used because they can receive favourable tax treatment in Belgium. For example, it is possible to pay relatively low upfront tax at the time of the grant of the stock options and to realise a tax-free capital gain, provided that the options are not exercised earlier than three years from the date of the grant (Law of March 26 1999 relating to the 1998 Belgian Employment Action Plan). In addition, a well-designed stock option plan can provide for a period of vesting (which determines when the options become exercisable).

Shares can be issued at a 20% discount if the employer uses part of a new share issue (Article 609, Company Code). The 20% discount is exempt from both income tax and social security contributions, subject to certain conditions (for example, a 5 year lock-up period).

However, there are no other specific tax reliefs or incentives available to management investing in their companies.

About the author

Luc Wynant is founding partner of Van Olmen Wynant and head of the corporate law, private equity and M&A practice. Van Olmen Wynant is listed as recommended law firm in the PLC Handbooks, Chambers and Legal 500.
Mr Wynant has extensive experience in all aspects of corporate law, in particular regarding mergers & acquisitions and private equity in both transactional and financial work. He focuses especially on international and domestic share and assets acquisitions, venture capital and debt capital markets, (leverage) management buy outs, divestitures, funds formations, mergers and company reorganisations.
Mr Wynant regularly publishes on corporate and financial law.
My Wynant is fluent in Dutch, French and English. He was admitted to the Brussels bar in 1989. He graduated from the University of Leuven (KUL) in 1989 and obtained an MBA degree from the Vlerick Leuven Ghent Business School (1990).

Contact information

Luc Wynant
Van Olmen Wynant

Avenue Louise 221
B-1050 Brussels

T +32 2 644 05 11
F +32 2 646 38 47