In Europe’s changing political and economic landscape, there are a number of opportunities for Belgium to get on the radar of international companies re-evaluating their corporate footprint. To attract new investment – and, equally important, to retain and grow existing businesses – Belgium needs to work on reducing labor costs, dropping corporate tax rates, improving mobility and lowering the overall administrative burdens imposed on investors.
Belgium remains one of the most expensive countries in which to employ staff. In AmCham Belgium’s 2016 Business Barometer survey, more than half of respondents (64%) stated that the high cost of labor is the first reason deterring future investments. Compared to neighboring countries, Belgian labor costs for highly skilled employees and managers is 25% higher.
Since 2014, the Federal Government has taken some excellent first steps with the ‘index jump’ and the ‘tax shift’ to reduce labor costs and boost competitiveness, but there remains room to make further strides. In our 2016 position paper, Increasing Belgium’s Competitiveness: Reducing and Restructuring Labor Cost, we recommended reintroducing a cap on social charges. Such a cap would make Belgium more competitive in attracting highly skilled jobs as well as removing an important and highly visible handicap when Belgium competes for the establishment or retention of international headquarters and decision-making centers and the senior management positions that come with them.
In addition, to make Belgium more attractive for highly qualified workers, fiscal incentives, such as the partial exemption from wage withholding tax for R&D personnel, play a vital role.
Immediately behind the cost of labor comes the concern about the high rate of corporate income tax in Belgium. As the anticipated corporate tax reform has yet to materialize, this topic is only growing in importance and urgency for the business community.
Looking at the general corporate income tax rate in other EU Member States, Belgium tops the charts, but at the wrong end of the scale. To become a competitive player and attract headquarters and decision centers, it is vital for Belgian’s corporate income tax rate to drop. In AmCham Belgium’s 2016 position paper, Tax Horizon 2020, we recommended reducing the corporate income tax rate from 33.99% today to 20% or less by 2020. With other countries already reducing their headline rates, this step has become ever more urgent.
Symbolic business-unfriendly tax measures, such as the Fairness Tax, the additional tax of 0.412% on capital gains from shares and the 3% crisis tax, should also be abolished. They do not contribute meaningful sums to the budget, but are a burden for taxpayers and do not help create a positive investment image for Belgium.
Fiscal stability and predictability is key. Existing tax incentives should be maintained, even if only to help build Belgium’s image as a reliable and stable investment destination. Indeed, retaining measures such as the Notional Interest Deduction (NID) is strongly recommended, as Belgium still counts a significant number of treasury centers in its ranks, and such centers are traditionally an integral part of any headquarter operations. Also, maintaining the – revamped – Innovation Box is seen as critically important to retain businesses that rely heavily on innovation and R&D. In addition, introducing a full (100%) exemption on dividends received (currently the exemption is limited to 95%) and a tax consolidation regime would make Belgium more competitive in retaining and attracting holding companies and the decision centers that may follow.
In our 2016 Business Barometer, 30% of respondents said mobility and congestion have a negative impact on Belgium as a location for investment. Congestion risks bottlenecking the entire economy, with companies incurring productivity losses when employees are stuck in traffic or when deliveries are delayed, all of which is yet further exacerbated by the negative impact of public transport strikes on top of an aging infrastructure in need of renewal.
Belgium has always been a strong logistics player. Its geographic location at the heart of Europe and well-developed network of rail and inland waterways, motorways, airports and ports have attracted international companies – and their distribution centers – but years of underinvestment have left a network that is close to the point of saturation and roads and tunnels are falling into a state of disrepair. To tackle these mobility issues, Belgium needs to urgently invest significantly in its infrastructure.
The future of mobility in Belgium lies in three big ideas: big data, flexibility and an integrated long-term vision. Understanding how traffic really works in practice and where the existent bottlenecks lie is the first step to solving the problem. Data analytics can lead to new and even unexpected solutions. In addition, offering greater flexibility and opportunities to companies and their employees and, most importantly, financial incentives to actually change people’s behavior, is necessary.
Finally, an integrated political and economic vision is essential to building a long-term mobility strategy. Responsibility for mobility is divided between the different levels of government –many delays in mobility projects are the result of planning and permitting issues and conflicts between the various government authorities in the country. Streamlining the decision-making processes amongst the different parties involved will therefore prove to be an integral part of the solution.
Finally, our member companies have expressed their growing concern about the administrative complexity and fragmentation of policymaking resulting from the inconsistent regionalization of the Belgian State. According to respondents to our 2016 Business Barometer survey, administrative burdens (47%) and country governance (27%) were two major reasons why Belgium would not make a good location for investments.
The sheer number and complexity of deductions available, the documentation requirements for claiming the withholding tax exemption on researchers’ salaries, the difficulty and time required to obtain permits, the increasing cost of compliance – these are only a few examples of where important progress can be made simply by reducing the number of options available and simplifying processes.
In the end, businesses much prefer clarity and abhor uncertainty when they need to make investment decisions. Long-term decisions are made on the assumption that conditions will remain stable over a reasonable amount of time. Thus, in order to put the country on the map for these international corporate groups looking to invest abroad, Belgium needs to address its unsustainably high labor costs and reform its corporate taxation system, simplify its complicated administrative and political structures and procedures, and create an environment of predictability to make it easier to do business in Belgium.