LTD with subsidiary or branch?

Subsidiary or branch

For a foreign investor seeking to start business operations throughout Belgium, one of the first problems to be addressed is the type of business entity to establish.

Branch or subsidiary for LTD?

• No minimum capital is required for the creation of a Belgian branch
• Creating a branch does not require the intervention of a Belgian public notary
• With few exceptions, the Belgian company law does not impose such a board, division of profits or shareholders' meetings
• There are certain tax benefits related to the creation of a branch, for examples:
  
  
  • No withholding tax on dividends from subsidiaries
  • In most cases, the losses incurred by the branch may be immediately offset by the profits of main company.
  • The transfer of profits from the Belgian branch to its foreign head is made tax free.

Since the beginning of 2010, more and more belgian banks refused to open a bank account for branches of company LTD! Establishing a subsidiary offers the following advantages: 

• Because the subsidiary and the main company are separate legal entities, the main company is not exposed to any liabilities of the branch. The responsibility of the Belgian subsidiary is limited to its own assets. However, any foreign investor is responsible for its Belgian branch. Therefore, the implementation of commitments of the branch may be made compulsory, of the assets of the foreign investor, even if they are abroad.
• From a business perspective, a subsidiary will rather be considered as a Belgian company and not as a foreign company
• A subsidiary can benefit from several tax advantages:

• The ability to repatriate or distribute net profits with little or no tax on dividends
• Affiliates can enjoy the benefits arising from agreements on double taxation treaties concluded by Belgium
• In most cases, there is a classification of "main company" following the European directive on subsidiarity

• The obligations for annual reporting of information are less stringent for subsidiaries than for branches. The annual information return of a branch will contain financial information about the foreign entity that it may prefer to keep confidential. This could be a major concern for U.S. private companies.

Types of subsidiaries

What other types of subsidiaries can be created?

The most common type of companies are the Limited Liability Company Limited Liability (Naamloze Vennootschap, abbreviated NV), the Company Person Liability Limited (Besloten Vennootschap met beperkte Aansprakelijkheid, abbreviated BVBA) and limited liability cooperative (Cooperative Vennootschap met beperkte Aansprakelijkheid, abbreviated CVBA). In all three types of companies, the partners' liability is limited to their contribution to society.

Anonymous Company with Limited Liability

In Belgium, this type of society is mainly adopted for most larger companies.

Minimum Capital
The capital must represent at least 61,500 euros. Each share issued shall be paid up to 25% with a minimum of 61,500 euros. This share capital must be released by at least two of the founders, who may be individuals or companies, residents or nonresidents, Belgian nationals or foreigners.

Shares
A limited company may issue nominal shares or shares to bearer. From 1 January 2008, the bearer shares will be converted into dematerialized shares. A dematerialized is represented by a registration in the name of its owner by an accredited institution to manage the accounts. The dematerialized share can be transferred from one account to another.

Management
At least three directors (individuals or companies, residents or nonresidents, Belgian or foreign shareholders or not) must be appointed within the company. When there are only two founders or shareholders, two directors are sufficient.

Partnership Company with Private Limited

A partnership with limited liability is particularly interesting for small private companies. By adopting this type of company, investors must take into account that in some ways, the SPRL (BVBA) is less flexible than the SA (for example, it is impossible to issue convertible bonds or bonus shares, it is also impossible to pay interim dividends, etc..).

Minimum capital
The minimum capital to be subscribed is only 18,500 euros. Each share issued shall be released for at least 20% upon incorporation, with a minimum of 6,200 euros. If the company has only one founder, a minimum of 12,400 euros must be released. The share capital must be freed by one or more of the founders, who may be individuals or companies, residents or nonresidents, Belgian nationals or foreigners.

Shares
All shares are nominal shares and shall be entered in the register of shareholders. The transfer of shares takes the form of a declaration of transfer in the register of shareholders and is subject to certain transfer restrictions.

Management
A partnership company with limited liability is managed by one or more directors (individuals or companies, residents or nonresidents, Belgian nationals or foreigners) who are not necessarily shareholders.

Cooperative

Cooperative Society Limited is a company structure very flexible for companies with a limited number of shareholders and whose inputs are variable.

Minimum Capital
To create such a society, three partners are essential. The capital is divided into two parts:

• A fixed amount specified in the articles of association, which must represent at least 18,500 euros of subscribed capital, including 6,200 euros must be released
• A variable portion, which varies depending on the entry and exit of partners, capital increases or reductions in the number of shares
• A quarter of the total capital contribution must be released

Shares
The shares are still registered. The transfer of shares takes the form of a declaration of surrender in the register of shareholders.

Management
A cooperative limited liability company is managed by one or more directors who are not necessarily partners.