Branch or subsidiary: choose the right business entity
Interested in starting operations in Europe? Flanders is the perfect choice. There are two main types of business entities to choose from, each with its own characteristics. Get the detailed scoop below.
Your main options for setting up a business in Flanders
BRANCH
- No separate legal entity
- No minimum capital requirement
- A Belgian notary is not required
- Few corporate law requirements to comply with
- Stringent filing and legalization requirements
- The appointment of a legal representative is required
- Liability extends to headquarter
SUBSIDIARY
- Separate legal entity
- No minimum capital required (certain exceptions)
- A Belgian notary is required (certain exceptions)
- Subject to the provisions of the Belgian Companies Code according to the chosen company form
- Less stringent filing and legalization requirements
- Limited liability (certain exceptions)
The tax advantages of branches
Even though setting up a branch is often a more demanding process than incorporating a new company, branches do come with a set of interesting tax advantages:
- no dividend withholding tax on branch profits;
- losses made by the branch can be immediately offset against the profits of the head office;
- tax-free transfers of profits from the branch to the foreign head office.
The tax advantages of subsidiaries
From a marketing perspective, a subsidiary is considered a Belgian or European company and not a foreign entity. Subsidiaries benefit from several tax advantages:
- little or no dividend withholding tax during repatriation or the distribution of net profits;
- double tax treaties concluded by Belgium;
- less-stringent filing requirements.
The main types of subsidiaries
For larger enterprises:
Public limited liability companies (‘naamloze vennootschap’ or ‘nv’ in Dutch) are selected mainly for larger enterprises in Flanders. Some important characteristics include the following:
- The minimum capital must amount to EUR 61,500.
- The company can issue nominative or dematerialized shares.
- The shares are freely transferable, but the transferability can be limited in the articles of association or in the shareholders’ agreements.
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There are three possible management structures:
- one director;
- one-tier board, consisting of at least 3 directors (or 2 in case the company has under 3 shareholders);
- two-tier board, i.e. a supervisory board and an executive board.
For smaller businesses:
Private limited liability companies (‘besloten vennootschap’ or ‘bv’ in Dutch) are selected mainly for small and privately held businesses in Flanders. These are some of the main characteristics
- A minimum capital amount is not applicable, but the company should be able to prove that it has sufficient assets to conduct its planned activities.
- Shares are nominative or dematerialized. At least one share with one vote is required. There is flexibility when it comes to other types of securities and attached rights (e.g. shares without voting rights).
- The shares transfer mechanism is determined in the articles of association. If not, special majority rules apply.
- One or more directors, whether acting as a board or not, must be identified. The directors can be appointed in the articles of association or by the general assembly. The appointment can be permanent or limited in time.