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Your contact person for this topic:
Evelyne Ruland
Lawyer
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Contact
- +32 11 29 47 01
- e.ruland@euregio.law
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Further publications on this topic:
- The establishment of a Belgian subsidiary explained step by step
- Overview of the reform of Belgian company law
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More on this topic:
- Company formation
- Corporate law
If you want to expand your activities internationally, Belgium could be an interesting option. If you decide to expand your company’s activities to Belgium, the question naturally arises as to how best to proceed. Companies often open a branch or establish a subsidiary, but which option is best for your business depends on various factors.
This article compares the corporate law aspects of a subsidiary with those of a branch office.
1. Legal personality
The first and probably most important difference between a subsidiary and a branch is that a subsidiary is an independent company with its own capital that is legally distinct from the parent company. A branch office, on the other hand, is not a separate legal entity and forms a unit with the foreign company. The branch is therefore a kind of extended arm of the foreign company, which is liable for the liabilities of the branch.
The fact that a subsidiary is a separate legal entity means (with some exceptions) that the parent company only has limited liability for it. Consequently, the parent company only runs the risk of losing its contribution.
Since the branch does not have its own legal personality, the foreign company is fully liable for the obligations of the Belgian branch. The lack of a separate legal personality can sometimes also prove to be an obstacle to building trust with customers and clients.
2. Formation formalities
2.1 Subsidiary
The establishment of a subsidiary requires a notarised deed of incorporation, a financial plan (proof that there is sufficient capital to operate for two years) and a bank certificate (proof of contribution), as well as publication of the incorporation in the Belgian Official Gazette.
The most common Belgian company form is the private limited liability company (BV), which is characterised by the absence of a statutory share capital and unparalleled flexibility. For large companies with a large number of shareholders and for listed companies, the public limited liability company (NV) is the standard form.
2.2 Branch office
For the establishment of a branch office, no notary is required. Nevertheless, the formalities that precede the establishment of a branch in Belgium should not be underestimated. You have to submit a considerable number of documents, which takes a lot of time, as a number of documents (e.g. the articles of association of the foreign company) have to be translated, apostilles have to be obtained, etc. In practice, the formalities for opening a branch office are more complex than for setting up a subsidiary.
In addition, a branch must submit the financial statements of the foreign company and report certain financial information about it on an annual basis. This while the foreign company may prefer to keep this information confidential.
3. Capital contribution
If you wish to establish a subsidiary in the form of a private limited liability company (BV), it must have „sufficient initial capital“ to cover at least the financing requirements for the first two years of business activity. This initial capital must be demonstrated in the financial plan and is of great importance for any liability of the founder. The NV, on the other hand, must still have a statutory minimum capital of 61.500 EUR.
The advantage of a branch office is that it does not require its own capital as it remains part of the foreign company. As a result, a capital contribution is not necessary.
4. Taxes
As for tax purposes, there are actually no major differences between the subsidiary and the branch office.
The subsidiary is subject to Belgian corporation tax on its profits.
From a tax perspective, the branch is to be qualified as a permanent establishment and is therefore also subject to corporation tax in Belgium.
5. Management
The subsidiary is managed by one or more directors. It is not necessary to appoint a board of directors to manage a branch; it is sufficient for the foreign company to appoint a legal representative.
Consequently, the foreign company can control a branch office more directly than a (theoretically autonomously managed) subsidiary.
6. Liquidation
If you wish to cease your activities in Belgium, you must comply with the statutory liquidation procedure for a subsidiary. The liquidation of your branch office, on the other hand, can be done much more simply, namely by a simple resolution of the foreign company.
Conclusion
If you want to operate permanently in Belgium, it is best to set up a subsidiary. Setting up a subsidiary is worthwhile in many respects. At the top of the list of advantages is the possibility of separating liability between the subsidiary and the parent company and thus reducing the business risk. This is because the liability of the shareholders is generally limited to their contribution. In addition, having your own capital structure facilitates access to external resources and creates trust with customers and business partners. Furthermore, you can utilise a very flexible company form – the BV – which no longer requires minimum capital, but only an „appropriate initial capital“.
If, on the other hand, you only want to operate in Belgium temporarily, a branch office may be the solution. The foreign company does not need to raise separate capital for this branch and can exercise better control over the management. It is also very easy to terminate this activity at a later date.
Do you have a question or concern?
Do not hesitate to contact Evelyne Ruland if you have any questions about setting up a company or branch in Belgium. Evelyne Ruland is an expert in corporate law and will be happy to assist you.
