The survey said Flanders was attractive for foreign direct investment based on seven key areas: economic potential, business friendliness, quality of life, human resources, costs, infrastructure and foreign direct investment.
The magazine pointed to Flanders’ central location in Europe, its world-class seaports, its rapid connections to neighbouring countries and its multilingual and productive workforce.
It success in attracting investment has led to Flanders sometimes being referred to as SME country, a region where enterprises with fewer than 50 employees make up about 96 percent of the total number of companies. This doesn’t mean large enterprises are hard to find. In fact, the number is growing quickly. And in 2006, about two thirds of the largest enterprises in the region were controlled by foreign shareholders.
One of the reasons for the increase in FDI in Flanders is that it offers some of the most carefully structured tax incentives in Europe: the kind of incentives designed to bring inn companies in key growth areas such as services, logistics, nanotechnology, pharmaceuticals and communications.
Tax treatment
Swiss food giant Nestlé was one of the latest multinationals to make the most of the incentives offered by Flanders. Nestlé is transferring its pension funds to Flanders because of the region’s favorable tax treatment of pan-European funds. The company has said it intends to centralise all its pension funds from the different EU countries in Belgium because it is more economical and efficient.
In practical terms, what Nestlé is doing is establishing an Organisation for Financing Pensions, or OFP, a special purpose vehicle specifically designed for pension institutions. An OFP gives companies beneficial tax rates including the ability to credit interest and dividend withholding tax against corporate tax still to be paid.
The OFP is just one area of growth. Flanders’ fast-growing knowledge-based economy has resulted from far-sighted government policies that place emphasis on research and development in growing areas. One of the specific policies that has proved hugely successful is to form business clusters – geographic concentrations of companies that are active in the same value chain or that use the same technologies.
Spending on R&D in Belgium as a whole is growing as a percentage of GDP, reaching 2.33 percent last year. In specific areas such as the information and communications technology (ICT) cluster close to Leuven University about 30 kilometres east of Brussels, R&D spending is among the highest in Europe at US$7,011 per employee. Pharmaceutical companies are well-represented in Flanders, as are medical device and medical imaging companies.
Other clusters have been established. The Flanders Graphics Valley has a concentration of leaders in digital graphical communication and a wide application base in printing and editing. Flanders Multi Media Valley is a regional cluster that began with the strong R&D department of Philips. The cluster is steadily growing and now services more than 100 companies.
Major sectors such as the automotive industry also have strong research bases in the region. Much of the automotive industry’s R&D is in-house, but universities and specialist research institutes all play a role, ensuring a continuous stream of high-level research and a regular crop of skilled workers to carry it out. The Scientist magazine ranked Leuven and Ghent universities in the 10 best research centres in the world, while the independent research centre IMEC, also at Leuven, is Europe’s leading independent research centre in micro- and nanoelectronics, nanotechnology.
To stimulate economic growth, both the Belgian and Flemish Government have implemented other incentives for businesses with operations in Flanders. These range from investment incentives through tax-related schemes to employment, training and R&D advantages.
Participation
Cash grants are available to incoming companies that meet certain criteria, with the government limiting its participation to 25 percent. Companies applying for cash grants are evaluated on business-economic criteria, and also on their level of relevance to Flemish government policy priorities. The level of financial support is dependent on the size of the company and the location of the investment.
Tax incentives include notional interest deduction, which allows a company to reduce its taxable base when making investments from its own resources.
Flanders is also an attractive holding company location because it allows exemption from domestic dividend withholding tax. This means companies using Flanders as a holding location for investments in Europe can repatriate European profits without paying dividend withholding tax and without a limitation on benefits.
An incentive known as VAT grouping is another tax break that has made multinationals choose Flanders as a base, especially those that handle invoicing, accounting and credit management.
VAT grouping allows all taxpaying entities that are part of a larger corporation to be regarded by the Belgian VAT administration as a single fiscal entity. Consequently, different companies within the same group will not have to invoice one another VAT, resulting in cost savings (because companies belonging to the same group can save the 21 percent VAT when they invoice one another) and flexibility, because foreign companies can choose which parts of their group will fall under the system.
Technology transfer
The Flemish government institution, IWT-Flanders (Institute for the Promotion of Innovation by Science and Technology) is behind many of the incentives on offer to companies involved in industrial research and technology transfer. Any company with activities in Flanders can ask IWT-Flanders for financial support with technological projects. Three types of projects qualify for support:
· Basic industrial research such as scientific-technological research focused on the generation of new knowledge;
· Prototype or development activities;
· Mixed research – essential research that combines basic industrial research as well as prototype or development activities.
In addition to financial support, IWT-Flanders offers technological advice, provides partner search services and provides information concerning international programmes for technological innovation.
Flanders even offers tax allowances for R&D personnel, with a one-time tax exemption for companies hiring additional research or quality assurance personnel. In practice this works by Flanders granting a deduction from taxable income for scientific researchers, staff in charge of developing a company’s technological potential, and the heads of quality assurance departments and export departments. Higher exemptions are on offer for what the Flemish government defines as “highly qualified researchers employed in the company in Belgium for scientific research”.
But tax breaks and incentives amount to very little if the infrastructure isn’t there to back them up. Flanders’ infrastructure is second to none, with freight channelled through four major ports (Antwerp, Ghent, Ostend and Zeebrugge) and two airports: Brussels and Ostend. All these ports and airports are close to the region’s motorway system, which links Flanders directly with France, Germany, the Netherlands and, across the Channel through the Channel Tunnel, the UK. Geopolitically, Flanders is also in a prime location, at the centre of the wealthiest and most populated areas of Europe.
Language skills
The workforce is another of the region’s assets. It’s among the world’s most educated and productive, as well as having a high level of language skills. In GDP per hour worked, the region scores 113 with the US at a base rate of 100 and the G7 average at 92. Per capita GDP has consistently been more than 20% above the EU average. The workforce, says the Flemish government, is a byword for the economy as a whole: dynamic, flexible and internationally orientated.
Vincent Vanden Bossche, a consultant and specialist based in Belgium, believes that Flanders holds a whole range of trump cards when it comes to hosting multinational organisations.
“You have a level of multilingualism that you don’t find in many other regions in Europe,” he says. “And there’s a tradition of all these European institutions being based here that creates a pool of multilingual personnel. The people are also well educated and well trained, they’re productive, and they’re ready to work and work hard. On top of this, Belgium has a central location at the heart of Europe.”
