DOING BUSINESS INTERNATIONALLY many companies, doing business internationally ... 03 International business and tax 28 1.1. Fundamental principles 29 2.2. Working with a local partner

DOING BUSINESS INTERNATIONALLY

PRACTICAL GUIDELINES FORA SUSTAINABLE STRATEGY

OCTOBER 2014

IN COLLABORATION WITH

EDITOR-IN-CHIEF Stefan Maes, Ravensteinstraat 4, B-1000 Brussels PUBLICATION MANAGER Stefan Maes EDITORIAL TEAM Werner Lapage, Annemie Nolf, Dirk Vandendaele, Johan Van Praet WITH THANKS TO Serge Beke, Liesbeth Broeckx, Carole Dembour, Katleen Engelen, François Gilson, Filip Lapeirre, Frédéric Motte, Christopher Turner, Geert Vancronenburg, Françoise Van De Gaer, Olivier Vanden Borre, Pascale Wauters, Peter Wuyts LAYOUT AND PREPRESS Landmarks PRINTING Graphius Group

LEGAL DEPOSIT D/0140/2014/9Cette brochure est également disponible en françaisDeze brochure is ook beschikbaar in het Nederlands

It can also be viewed online at www.vbo.be (Publications > ‘Publications gratuites’)

The information contained in this brochure has been collated methodically by experts from BDO and ING Belgium. Neither BDO/ING Belgium nor FEB may be held in any way liable for any incorrect information contained herein or for any missing information. Under no circumstances may either FEB, BDO or ING Belgium be held liable for any direct, indirect, incidental, economic or consequential damage arising from the use of the information contained in this publication.

No part of this brochure may be reproduced or published in any form, electronic or otherwise, including via automated data systems, without the publisher’s prior written consent. However, short excerpts may be quoted for the purpose of reviews only.

DOING BUSINESSINTERNATIONALLY

PRACTICAL GUIDELINES FORA SUSTAINABLE STRATEGY

PUSHING THE BOUNDARIES

If the Belgian government is serious about stimulating economic activity – with all the positive effects that will bring for growth and employment in Belgium – then it must take steps to shore up competitiveness and to boost investment and enhance entrepreneurship. After all, Belgian companies need to be able to compete on foreign markets on the same terms as their competitors, that is the bottom line.

International trade has moved up a gear in recent decades. Trade in goods and services has become more intensive, and a company’s reference framework is no longer the domestic market but the world market. In this vein, businesses setting up international operations are creating a new dynamic which is enabling change to come about even faster still – in terms not only of the design, development & manufacture of goods and services, but also of the marketing of them. What is more, it is becoming more and more difficult to put together the entire value chain under one’s own steam. Increasingly, specific clusters are springing up around particular segments of activity in which both partners (suppliers) and competitors are operating. Companies which become a part of these networks will be able to tap into more talent, drive down wage costs and stimulate innovation, to name just a few benefits. In short, any business wanting to optimise its own development and growth needs to look beyond its national borders and view doing business from a global perspective.

In this context, business managers need to seize any and all opportunities that come their way. For many companies, doing business internationally is no longer an optional extra but an absolute prerequisite for future growth. If a business is to survive in today’s modern, fast-changing world it needs to be able to continually reinvent itself, and observe the following motto: “Don’t wait for a miracle, make one!”

2 DOING BUSINESS INTERNATIONALLYFEB

However, moving from the domestic market into the global one is never straightforward. The journey is fraught with problems: administrative formalities, risk management, HR management, access to financing and so forth, not to mention the cultural differences involved, which are difficult to objectify. Every business looking to expand abroad needs to ascertain what the most appropriate strategy is going to be: export only, direct investment in a foreign country, working with partners, or something else – all while keeping in mind the fundamental difference between international trading in products, and that in services. In this brochure, experts will help you on your way and will answer many of the questions a company thinking of expanding internationally is likely to have. In addition, seven entrepreneurs share their know-how of international trade and their practical experience of doing business internationally. We hope their stories will provide inspiration for your own foreign expansion plans.

Pieter TimmermansCEO of FEB

Rik VandenbergheCEO of ING Belgium

Hans WilmotsCEO of BDO Belgium

3DOING BUSINESS INTERNATIONALLY FEB

DOING BUSINESSINTERNATIONALLYCONTENT

INTRODUCTION: PUSHING THE BOUNDARIES 2

GLOBALISATION AS THE DRIVING FORCE OF INTERNATIONALISATION 6

ABOUT THIS BROCHURE 11

CASE CASE EVSEVS Broadcast EquipmentBroadcast EquipmentConstant interplay between market and innovation Constant interplay between market and innovation 12

0101 Good preparation is half the battle 14

CASE CASE Mithra PharmaceuticalsMithra PharmaceuticalsAdapting the Belgian model to the local marketAdapting the Belgian model to the local market 20

0202 Legal structures for doing business abroad 22

1.1. Working with a local partner 23

1.1.1.1. Local representation 23

1.2.1.2. Joint venture 24

2.2. A local presence 25

2.1.2.1. Employee 25

2.2.2.2. Branch office 25

2.3.2.3. Subsidiary 25

3.3. Impact in terms of accounting and auditing 26

0303 International business and tax 28

1.1. Fundamental principles 29

2.2. Working with a local partner 33

3.3. A local presence 34

3.1.3.1. Local employees 34

3.2.3.2. Branch or office 35

3.3.3.3. Subsidiary 35

CASE CASE JJan De Nul Groupan De Nul GroupKnowing the theory isn’t enough... Knowing the theory isn’t enough... 38

0404 Employees abroad 40

1.1. Social protection of employees and protection under labour law 41

2.2. Posting workers 41

3.3. Applicable local legislation 42

4.4. Overseas Social Security Office 43

5.5. Foreign workers’ tax status 43

CASE CASE La Lorraine Bakery GroupLa Lorraine Bakery GroupFirst become established, then grow First become established, then grow 44

0505 International payments and cash-management 47

1.1. Single Euro Payments Area (SEPA) 48

1.1.1.1. Identical payment instruments 48

1.2.1.2. New opportunities 48

1.3.1.3. Review your payment structure 48

1.4.1.4. SEPA direct debits 49

1.5.1.5. Recent SEPA developments 50

2.2. International cash-management 50

CASE CASE TPF TPFAdapting to the local business cultureAdapting to the local business culture 52

0606 Managing international risks 54

1.1. Trade risk 55

2.2. Political risk 56

3.3. Fabrication risk 57

4.4. Currency or exchange risk 58

5.5. Administrative risk 60

6.6. Economic risk 60

7.7. Transport risk 61

8.8. Legal risk 61

CASE CASE CCartamundiartamundiThe Apple of the playing-card industryThe Apple of the playing-card industry 62

0707 Financing forms and risks 64

CASE CASE T Ter Beke er BekeExpansion into Central & Eastern Europe Expansion into Central & Eastern Europemeans more than just ‘copy and paste’means more than just ‘copy and paste’ 68

THE INTERNET BOOSTS EXPORT OPPORTUNITIES 73

CONCLUSION 75

NEED INFORMATION OR SUPPORT? 76

GLOBALISATION AS THE DRIVING FORCE OF INTERNATIONALISATIONThe global economy and international trade have undergone major changes in the last few decades. One striking feature is the shift in wealth. Wealth used to be strongly concentrated in the industrialised world (80% of global GDP compared to just 20% for emerging and developing countries). Today, the emerging and developing countries are catching up, with a ratio of 60% and 40% respectively (source: International Monetary Fund, IMF). This trend is expected to continue in the years ahead. According to the IMF, in 2018 China’s share in global GDP will equal that of the Eurozone (around 15% each), whereas 20 years earlier the gap was still 20%!

There has been another remarkable development: Since 1980 global trade – an indicator of the globalisation of our economy – has grown twice as fast as the global GDP. Despite the year 2009, when the financial crisis hit hard, the global trade in goods in the last ten years has risen 184% and 171% for services, i.e. annual growth of 12.2% and 11.5% respectively, between 2002 and 2012 (source: UNCTAD, United Nations Conference on Trade and Development).

SHARE IN GLOBAL GDP (IN %; SOURCE: IMF)


In 2002 the United States, Germany and Japan were the world’s three largest exporters of goods. A decade later the centre of gravity had shifted: China is number one, the BRIC countries (Brazil, Russia, India and China) have nearly doubled their market share (from 8.4% in 2002 to 17% in 2012) and the OECD countries (Organisation for Economic Cooperation and Development) have generally lost market share on the export market for goods.

Foreign direct investment1 (FDI) experienced the same explosive growth as the export of goods and services. While some USD 2,000 billion was invested back in 1990, that figure had risen to more than USD 22,000 billion by 2012. More than 52% of FDI flows to developing economies (such as South Africa, Brazil, Chile, Argentina, Mexico and Thailand), 42% to the developed economies and 6% to economies in transition (such as Russia, Ukraine and Kazakhstan). In 2012 the leading destinations (accounting for 30% of the total) were the United States (USD 170 billion) and China (USD 120 billion, excluding Hong Kong), followed by Brazil (USD 65 billion) and the United Kingdom (USD 62 billion). These flows of foreign direct investment come mainly from the European Union countries, more specifically from the EU-15. Although theUS is still on top, over the last ten years we have seen a stronger presence by those economies with strong growth potential, such as Russia, Brazil, Mexico, China, Turkey and India.

A third notable trend in the globalisation of the economy is the fact that the value chain of goods and services is experiencing ongoing international integration. This is known as the ‘global value chain’: a product/service goes through many countries (and continents) before reaching the final stage and being brought to market. Each country contributes to a phase of the production process according to its strengths. In other words, each country adds value according to the areas in which it is competitive (production of intermediate goods, final assembly, etc.).

1 Foreign direct investment is international movements of capital for setting up, developing or maintaining a subsidiary and/or exercising control (or having a significant influence) over the management of a foreign company.


Internationalisation is becoming vitalAs a result of these developments, competition has become global and keener at the same time. Whether the company is active lower down or higher up in the value chain, to keep pace they must continually question, modify, develop and innovate.

In this context, the internationalisation of activities is becoming increasingly vital in order to remain competitive as a company. This is confirmed by a survey of Belgian business leaders2: more than 90% agree that doing business abroad is strategically important to their company; more than 95% think that it is even more important for a company to be internationally active today compared to ten years ago. In short, maintaining competitiveness is one of the main drivers for developing business activities abroad. Another important component is the quest for cost efficiency, for example in terms of labour and energy. However, competitiveness is not based exclusively on a healthy cost structure. Other aspects are at least just as important. Accordingly, companies must continue to innovate in order to consolidate a competitive edge. To that end, they must have qualified labour and advanced research centres, in addition to space and infrastructure, in order to grow.

For anyone wishing to remain competitive (or wishing to become more competitive), it is necessary to develop the company optimally in a global perspective. Accordingly, it can be more efficient to outsource certain company activities or functions to another part of the world. Typically, the initial idea is to outsource labour-intensive activities to countries where labour is still cheap. But it is not only the price that is critical. Some regions of the world are profiling themselves as more attractive for high-value-added activities, such as R&D in India. Specific clusters are emerging in certain areas for specific segments of activity where both partners (suppliers) and competitors are present. Integration within these networks can be useful for, say, tapping talent and stimulating innovation. And more specifically, in order to better understand the specific requirements of each region and to subsequently capitalise on them. After all, what consumers want or prefer in one region is not as popular in another region.

2 In May/June 2014 FEB organised a survey of Belgian business leaders. There were more than 400 respondents. 52% of the businesses/respondents have less than 50 employees, 27% between 50 and 250, and 21% more than 250. The breakdown for each sector of activity is as follows: 48% industry, 40% services and 12% building sector.


The survey shows that the geographical proximity of valuable partners is extra important for the services sector and for small businesses: for around 20% this is the biggest motivation for developing their activities abroad, compared to 11% of medium-sized companies and just 4% of large companies. On the other hand, the bigger the company, the more cost-efficiency is a motivator.

Choosing markets with potentialFor many Belgian businesses, internal demand for goods and services is not sufficient. The relatively small size of the Belgian market encourages businesses with growth ambitions to look across the border and move into new markets. The survey does not contradict this. The two strongest motives for internationali-sation are the need to explore new markets (52% of respondents) and the saturation of the Belgian market (16%).

But Belgian businesses are still looking too much towards the neighbouring countries. According to figures from the National Bank of Belgium, Belgian businesses export mainly to countries with a low level of growth, and more specifically the Eurozone, which is characterised by slack growth (see graph below). Germany, France and the Netherlands are the main export markets, accounting for more than 45% of our exports. Belgian businesses would bewell advised to expand their horizons, for instance to the BRIC countries, which have significantly higher growth figures.

Emerg

ing and deve

loping

countries in

AsiaIndia

China

Sub-Sa

haran Afric

aGlobal

Middle East

and North

Africa US

Brazil EU

Japan

Russia

Eurozo

ne

ECONOMIC GROWTH IN 2014 (IN %; SOURCE: IMF FORECASTS)


A path strewn with obstacles There are many obstacles on the path to foreign exports. According to 60% of the surveyed businesses, many obstacles still stand in the way of their foreign ambitions. The main obstacles are administrative formalities (26%), risk management (19%), human resources management (15%), access to financing (12%) and cultural differences (12%).

If we zoom in on the findings of the survey, then it can be seen that – indepen-dently of the size of the company’s activities – administrative formalities are the first obstacle to arise. Human resources management is an especially thorny issue for medium-sized companies. Financing is a major stumbling block for small companies. This should not be surprising: large companies generally have more resources and find it easier to gain access to external financing. Conversely, risk management becomes more important the larger the company. Here, perhaps, business volume and the number of active markets play a role (e.g. for exchange rate risks).

Naturally, many difficulties are connected with how a company penetrates the international markets, either via export or via foreign direct investment. If it opts to export its products, then there are fixed costs (such as costs incurred in finding a local partner), local regulations and the presence of non-tariff obstacles. In addition, there are variable costs, more specifically costs connected with transport and tariff obstacles. However, should the company nevertheless decide to set up a production unit or subsidiary abroad, then it will bear ‘only’ the fixed costs of the acquisition or construction – although these costs are generally higher than with an export strategy. That is, among other things, the reason why most businesses test a specific market by exporting before defining their strategy for entering that market.


11DOING BUSINESS INTERNATIONALLY FEB 11DOING BUSINESS INTERNATIONALLY FEB

In Chapter 1 we explore in more detail just how impor-tant it is to prepare and build up a thorough knowledge of your target market. Doing business abroad is not simply a case of ‘copying and past-ing’ the Belgian model to a foreign country. Fledgling in-ternational businesses will al-so need to know the answers to a number of crucial ques-tions ahead of time: we set out the key ones.

One factor which will deter-mine whether a business succeeds abroad is the legalstructure within which its for-eign activities are framed. In Chapter 2 we analyse the various possibilities, which range from working with a local foreign partner to invest-ing directly in a permanent presence abroad (local em-ployees, branch office, sub-sidiary). Each option has its own specific features and re-quires different administrative formalities.

The choice of an appropriate legal structure will significant-ly affect a company’s tax situa-tion, too. A lack of knowledge about international tax rules can cost companies dear and can curtail the benefits associ-ated with doing business inter-nationally. In Chapter 3 we look at the various points to bear in mind and risks involved, as well as the many opportunities to be seized.

Irrespective of how you choose to go about setting up your for-eign venture, without staff it is impossible to develop any business. Companies employ-ing staff abroad need to com-ply with a host of international rules governing tax matters and social protection. We look at these issues in Chapter 4. Pro-tecting staff and the social envi-ronment also play a key role.

Doing business abroad will inevitably entail making and receiving international payments. Chapter 5 focuses

largely on the Single Euro Payments Area (SEPA) intro-duced in Belgium in 2014, and explains the associated opportunities and benefits.

Companies taking their first steps on a new, foreign mar-ket will be on unfamiliar – or at least less familiar – ground and must therefore be able to assess the potential risks accurate-ly. In Chapter 6 we set out the risks involved and highlight the need to manage them, whilst al-so providing a number of prac-tical solutions. We also touch on some related areas such as reputation management, prod-uct liability, intellectual property and international contracts.

Whether a company restricts its international activities to exports alone or goes so far as to set up an actual business structure, one thing it will cer-tainly require is financing for working capital or other as-sets. Depending on the specific opportunities and risks involved, a number of different types of tailored financing and solutions are available. In Chapter 7 we hand over to four experts for their take on this aspect of doing business abroad.

Finally, with e-commercefeaturing increasingly promi-nently as a business model now-adays, both domestically and internationally, we also cover this aspect of foreign business in this brochure. What impact has e-commerce had on the Belgian economy? Are Belgian companies aware of the effect it will have on their business, and do they have the right Web tools for operating in an inter-national environment in an age of communication applications (smartphones, tablets, etc.)?

ABOUT THISBROCHUREBelgian companies are becoming aware of the increasing strategic importance of doing business not only withforeign countries, but also in them. International business comprises many different facets in a wide range of areas. Over the course of seven chapters, this brochure gives a rundown of the various considerations to bear in mind and will give you a grasp of what is a challenging and complex topic. The theoretical principles explained are illustrated via a range of practical examples, while testimonials from business managers highlight the strategic impact ‘going global’ has had on their activities.

CASECASE EVS BROADCAST EQUIPMENT

CONSTANT INTER-PLAY BETWEENMARKET ANDINNOVATIONWhen EVS launched its revolutionaryWhen EVS launched its revolutionary digital broadcast platform for thedigital broadcast platform for thetelevision industry back in 1994, it wastelevision industry back in 1994, it was no surprise that the goal was the worldno surprise that the goal was the worldmarket.market. “After all, our broadcasting“After all, our broadcasting technology inherently incorporates antechnology inherently incorporates an international dimension”international dimension”, explains CEO, explains CEOJoop Janssen.Joop Janssen.

The major breakthrough came during the Olympic Games in Atlanta in 1996. “We broadcast live images and instant replays for Panasonic’s state-of-the art cameras.” It signalled the dawning of a new television age and of the Belgian player’s international rise: a year later, its first subsidiary was established in the USA.

MISSING LINKS

Knowledge, knowhow and top quality as a constant: these are the driving forces behind the EVS business model. The company’s experts need to be present locally to cater to a television

station’s every need. The platform is a particularly

complex one and there is a lot to learn. “Interaction between the market and our innovation is crucial. Every network and every market has its own specific technological and operational standards. It is up to our experts on the ground to fill in the missing links and meet our innovation centre’s needs.” And vice versa: a healthy balance between the specific wishes of the customer and the innovations EVS itself wants to introduce to the market are a recipe for continued growth. “That’s why it’s important that we now look to establish a local innovation centre to gain an even deeper understanding of the market and to overcome the shortage of skills in specific fields in our home region of Liège.”

Wherever they are in the world, EVS customers all receive the same EVS experience and service. To be able to maintain this reputation, it is important that expats and the local culture ‘click’. “Choosing the right people is crucial because it can take up to two years for you to see that a match isn’t working out. And all that time your company isn’t making any real headway.”

INNOVATION

The EVS platform is both solid and innovative. “To maintain our leading position, 50% of our HR investment is channelled into R&D via our own innovation centres or through small-scale

Joop Janssen, CEO of EVS Broadcast Equipment

© E

VS


acquisitions.” EVS structures sales and service around market characteristics or via its own subsidiaries, partnerships or other structures. “Critical mass, cost burden, local policy and so forth are all important decision-making factors. For tax reasons, for example, some customers opt to introduce the hardware themselves while support is organised locally.”

To achieve success in the long term it is crucial “in an ever-changing international environment to be bold enough to take calculated risks via new investments, partnerships and innovative business models.”

And one final tip: “Never underestimate the importance of communication. However strong your product is, if you don’t communicate efficiently you will – undeservedly – lose customers to the competition. Don’t be guided by positive feedback from the closed domestic market but listen to that from foreign decision-makers and customers.”

EVS Broadcast Equipment

Business: broadcastingMarkets: sport, entertainment, news and media Headquarters: LiègeEmployees (2013): 486Overseas markets: over 95%of turnoverTurnover (2013): 129.1 million euro21 subsidiaries (including six innovation centres) in 14 countries worldwidewww.evs.com

“International success“ International successisn’t an entitlement.isn’t an entitlement.TTo maintain our leadingo maintain our leadingposition, 50% of our HRposition, 50% of our HRinvestment is channelledinvestment is channelledinto R&D”into R&D”


Good preparationis half the battle

Globalisation has increased substantially thanks to techno-logical advances (such as the Internet) and the easing of trade barriers (e.g. the expansion of the EU to 28 Member States). The axis of economic power has also shifted. The convention-al definition of ‘abroad’ now covers a much wider area than simply neighbouring countries or, by extension, the EU (a region in which, according to FEB figures, Belgian companies primarily operate). Ten years ago, the BRIC countries (later re-

At first glance, expanding internationally would appear to be an attractive option and reasonably straightforward. However, it is one of the most complex business strategies and one which will impact on all aspects of a company’s operations. Success abroad also depends on more than knowing the local rules and customs, so think carefully before venturing into a foreign market.

named the BRICS countries to include South Africa) grew into economic eldo-rados. In the interim, it has been primarily the MINT countries (Mexico, Indo-nesia, Nigeria and Turkey) that have been attracting the attention of policymak-ers worldwide, not least because of their strategic geographic locations. In short, ‘abroad’ has quite literally become a much broader concept, among other reasons due to the distribution of the BRICS and MINT countries, and essentially encompasses ‘the rest of the world’. In addition, the conventional mindset of ‘Western econo-mies’ on the one hand and ‘low-wage countries’ on the other no longer applies. Technological developments in India and China, for exam-ple, are evolving at lightning speed and are now keeping pace with Western progress.

This new world as a platform for doing business offers huge opportunities. FEB figures show that virtually all managers interviewed are convinced of the increasing strategic importance of doing business abroad. At first glance, expanding internationally would appear to be an attractive option and reasonably straightforward, but it is


one of the most complex business strategies. Doing business abroad is very different from doing business in Belgium. The Internet abounds with tips and advice from entrepreneurs who have expanded abroad. However, this information frequently deals only with cultural and commercial differences between the Belgian and foreign markets; success abroad depends on more than knowing the local rules and customs.

BELGIUM ≠ ABROAD

It is a popular misconception that business techniques which have worked well in Belgium will be just as successful abroad. In reality, businesses are faced with complicated local rules and regulations, strong local competitors, complex distribution channels, cultural and language-related differences and so forth.

The challenges – or barriers, if you will – become greater as foreign trade (exports) develops into doing business in a foreign country (foreign direct investment). For example, a Belgian company can limit its international activities to goods trans-actions (e.g. supplies to France, exports to Canada) organised through its Belgian


head office. In such situations, the relevant formalities (VAT, customs, duties, etc.) and risks (see chapter entitled Managing international risks) can be managed efficiently from Belgium. However, if the same company sees that its products are sell-ing increasingly well on the French and Canadian markets, it may decide to establish a local presence there. Naturally, this is quite a different thing and will have a much greater impact on the company’s operations.

When doing business abroad, the strategy must be geared towards international development which will enable the company or group to grow in the long term and will provide protection against the increased risk profile. In this regard, a thorough knowledge of the local market is crucial.

The convenient BDO International Business Compass tool (www.bdo-ibc.com) enables you to assess the investment opportunities afforded by and barriers posed for each of 174 countries, based on economic, politico-legal and socio-cultural parameters. You can also compare two countries. Alternatively, take a look at the study at www.ingcb.com/insights/articles/the-view-a-fresh-perspective-on-connected-europe which gives new insights into this fast-changing and complex world.

DO YOUR HOMEWORK

Opting to set up a local presence abroad requires thorough research ahead of time. Below are just some of the questions you should be asking yourself.

What are the key reasons why I am investing abroad (benefits compared with export/import only)?What experience do I have of expanding internationally? Is there a local partner in my target market?What has guided my choice of country and what benefits does this particular country (or region) offer for my business?Have I sought the correct advice, not only from online sources but also from experts in the subject and the country in question (permits, legal system, financial, tax system, insurance, personnel, government authorities, tax incentives, subsidies, intellectual property, etc.)?Do I have the people (with sufficient experience, know-how and time) and the financial and technical resources to manage and support my expansion plans?How will my foreign presence be structured? Will I opt for a local


FAMILY BUSINESSES AND EXPANDING ABROAD

Family businesses are generally more conservative, more risk-averse and more control-oriented than their non-family counterparts. Studies (and FEB statistics) have shown that the strategy adopted by family businesses wanting to expand internationally often focuses on different considerations:

1.1. International expansion is undertaken cautiously (it is more risk-averse and based on a long-term vision) and closer to home (in neighbouring countries due to the shorter physical distance from the home market and familiarity with language and customs).

2.2. Family businesses retain their independence and put up fewer resources (partly due to their being less willing to share property, cede control or attract risky capital).

3.3. Family businesses expand abroad relatively slowly and at a later stage (more local market approach and management with less international experience, relatively speaking).

employee or partner, a branch office, a subsidiary, a joint venture or something else?What formalities and costs are associated with set-up, management and a potential exit from the structure (set-up costs, capital or other financing requirements, accounting, taxes, personnel, advisers, liquidation, etc.)?How will I finance the structure (mix of capital/loan) and how (in which currency) will I organise cashflows?What role will the foreign investment play (manufacture, purchase/sales, distributor, disclosed agent, undisclosed agent, liaison office, support, etc.)?Have I analysed the transfer-pricing (and taxation) aspects of shifting functions, risks and resources abroad?Am I familiar with the additional risks entailed in doing business abroad (trade and economic, political, currency or exchange-rate, transport, etc.)?

How will I repatriate funds and profits and can that be done without any local withholding or formalities?

In this brochure we investigate most of these topics in more detail to give you some guidelines as to how to bring your international ambitions to fruition. There is no unequivocal, all-encompassing answer to every last question, but thorough research coupled with a solid business plan and accurate follow-up are crucial if your plans are to succeed.

So, observe the motto ‘always be prepared’ – or, in other words, ‘Simple faux pas can sink you’. Doing business in China, for example, is a completely different kettle of fish compared with Turkey or the Netherlands.


CASECASE MITHRA PHARMACEUTICALS

European companies looking to break into the Brazilian market. “Companies which don’t understand this will never make it abroad”.

Some 15 years after it was first established and following a turbulent period during which its R&D arm (Uteron Pharma) was taken over by the US company Watson/Actavis, and a flotation attempt was shelved due to the unfavourable economic climate, this company which was the new kid on the block is now a market leader in contraceptives in both Belgium and Luxembourg, with a market share of over 43%. “However, these are small markets in the pharmaceutical sector. If we wanted to keep the business going, sooner or later we were going to have to grow internationally – it was the only option”, says Fornieri of his reasons for his company’s global expansion. But growth and expansion require a solid base and local roots. “It’s crucial for us to be able to develop, manufacture and market our niche products in an innovative way, rather than relying on outside manufacturers who may alter their prices based on their own strategies and in so doing put us in difficulty. If we want the business to continue into the future, we need to gradually take control of all our costs.” With this in mind, Mithra is setting up a brand new R&D and manufacturing site at Flémalle.”That’s the crux of the issue as far as I’m concerned. I’m not looking to expand just for the sake of it: ultimately I want to create a fully integrated structure which will be able to cope with the fresh challenges posed by new markets.”

ADAPTING THE BELGIAN MODELTO THE LOCALMARKET“The top-down model of pharmaceutical “The top-down model of pharmaceutical giants imposing their own businessgiants imposing their own business model onto a foreign market has had model onto a foreign market has had its day,” its day,” sayssays FFrançoisrançois FFornieriornieri, CEO, CEOof the Liège-based company Mithraof the Liège-based company MithraPharmaceuticals, which specialises inPharmaceuticals, which specialises inwomen’s health. Besides a company’swomen’s health. Besides a company’s products and service, its market strategyproducts and service, its market strategy also needs to be innovatively mouldedalso needs to be innovatively mouldedto local practices and culture.to local practices and culture.

© M

ithra

Pha

rmac

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François Fornieri, CEO of Mithra Pharmaceuticals

Take a simple example: in the field of hormone-replacement therapy (HRT) for women post-menopause, the general trend in Europe is to prescribe treatments based on naturally occurring hormones.

These products contain hormones derived from

progesterone and œstradiol, which have no androgenic effect. In Brazil, however, mildly androgenic HRT is the norm. It’s a subtle – but

extremely important – difference

which needs to be borne in mind by


INTEGRATING A TRIED-AND-TESTED MODEL

LOCALLY

Fornieri chooses foreign markets for their social, economic and political stability. In his view, to break into a foreign market it is cru-cial to understand it. “The important thing is to understand the local mindset and this always involves a degree of prospecting. We visit the country, usually on an economic mission. We meet with opinion leaders, go to universities, and visit pharmacies, min-istries, hospitals and doctors’ surgeries to get a feel for local customs and practices.”The underlying philosophy throughout is the Mithra Model: forging collaborative synergies and public-private partnerships. “Our core focus is structured around work-ing with universities, raising awareness of women’s health among disadvantaged local populations, product accessibility and involvement in local culture and sport.”

In short, Fornieri takes the time to reproduce abroad – intelligently and by adapting to the local market – the proven Mithra Model which has been so successful in Belgium thanks to a solid economic, aca-demic and cultural basis. “What works in

Brazil would never be successful in India or China.”

What’s more, Fornieri does not feel comfortable with a model he doesn’t fully understand. “I want to be sure of my busi-ness, and be able to trust that our modus operandi is feasible and practical.” He therefore chooses his investors and share-holders extremely carefully. “Nothing will be more counterproductive in the long term than industrial partners who want to grow too quickly and are therefore blind to the really valuable opportunities. That’s why I prefer to surround myself with people who believe in a project’s added value and who are brave enough to look beyond the analysts’ figures.”

Mithra Pharmaceuticals

Business: pharmaceuticals. Leading supplier of oral contraceptives in Belgium Headquarters: LiègeEmployees (2014): approximately 60Turnover (consolidated 2013):20 million euroDistribution agreements in over 30 countriesSubsidiaries in the Netherlands, Brazil, Germany, France and LuxembourgFuture plans: Southeast Asia (Singapore) and South America (Chile)www.mithra.be


Legal structures for doing business

abroad

Specialist advice is vital since the situation varies from one country to another. All man-ner of restrictions may apply depending on the nature of the business (some activities are even prohibited altogether), the region in which you want to operate, the legal form chosen (in some cases your foreign company must be a subsidiary), the need for local partners to hold a stake in the new company’s capital (sometimes joint ventures are required) and so forth. It is also important to seize all opportunities available (many of which will be determined by the region in which the business will be operating) in terms of subsidies, free-trade areas and so on.

In this chapter, we will take a closer look at the main legal structures used for operating a business abroad.

1 WORKING WITH A LOCALPARTNERKnowledge of the local market is crucial when starting up any operation abroad. Local laws

can be extremely complex (Brazil is a good ex-ample) and the language barrier (do you speak Russian, for instance?) can make the situation even more problematic. If you don’t have suf-ficient experience in the market in which you plan to operate, working with a local partner can simplify the process, and s/he will have much easier access to local customers. Since rules and regulations vary widely from one country to the next, it is extremely important that you research in advance which type of local cooperation (type of arrangements made and level of cooperation) is going to be best.

1.1. Local representation

To break into the local market, companies may go down the route of an external rep-resentative such as a distributor, an undis-closed agent or a disclosed agent. There is also a wide range of other forms of com-mercial cooperation (franchises, concessions, licences, etc.), although we will not cover these in this brochure.

A distributor deals with customers indepen-dently. As such, the work of the Belgian com-pany locally in terms of marketing, supply of goods, contact with customers and invoicing is minimal.

By contrast, a disclosed agent represents their principal. They are effectively an intermediary between the company and local customers to help conclude sales agreements. The customer knows who the principal is, hence the description ‘disclosed’ agent. In exchange for their facilitator role, the disclosed agent receives a commission. The business functions and risks lie first and foremost with the principal. Keep in mind, though, that in many countries commercial agents enjoy a special legal status with spe-cific rights and responsibilities.

Companies wanting to break into a foreign market need to adopt the appropriate legal structure for their requirements. A company’s choice of structure is often motivated by the scope of its business, whether it has employees abroad and market conditions themselves, as well as the company’s experience of those condi-tions. Important factors to bear in mind include the costs, time and for-malities involved in the start-up and how to manage the foreign structure.


The final type of representative, an undis-closed agent, is a cross between a distributor and a disclosed agent. However, in some countries there is no such concept (Russia, Turkey and Greece for example). In contrast to a disclosed agent, an undisclosed agent operates independently (in the same way as a distributor) but on behalf of their principal (like a disclosed agent). So the end customer only has contact with the agent, not the prin-cipal, hence the description ‘undisclosed’. The role of an undisclosed agent is more extensive than that of a disclosed agent, with the former dealing with customer billing. Like a disclosed agent, though, an undisclosed agent receives a commission.

A distributor will naturally earn more than either a disclosed or an undisclosed agent since as well as being the legal owner, it also performs more tasks and bears broader responsibility (e.g. in terms of marketing) and greater risks such as stock risks, non-payment risks and exchange-rate risks (see the chapter Managing international risks).

The advantage of working with an externalrepresentative is that apart from drawingup an agreement with the local partner, inprinciple the Belgian company is not requiredto fulfil any local registration formalities.However, selling via an external partner doesmean some loss of control. Some issues,though, such as goals and terms of delivery,can be covered in the agreement providedthat the arrangements made do not contra-vene local laws.

1.2. Joint venture

Another option for a Belgian company is toset up an independent company with a localpartner, or to acquire a stake in an existing com-pany. Such an arrangement is known as a jointventure. This kind of cooperation is ideal wherethe Belgian company has little experience inthe foreign country concerned, since the localpartner is able to open doors to potentialcustomers locally.

In some cases, a joint venture is the only optionfor a Belgian company to acquire an interestin a foreign one, since in some countries (Indiaand China, for example) foreign companiesare either prohibited from buying stakes inlocal ones, or else such acquisitions are subjectto restrictions. This kind of limitation is oftenconnected with the sector in which the localcompany operates. As such, joint ventures areoften the vehicle of choice for a specific one-offproject abroad.

Belgian companies setting up an investmentstructure with a local partner must be fullyversed in the legal characteristics of the struc-ture chosen, since an element of control willultimately be lost. Accordingly, it is importantthat the Belgian company is able to retain exclu-sive control over the technology and know-howcontributed and over distribution of profits.


2 A LOCAL PRESENCE

Another option for a Belgian company is to hire an employee locally, set up a local branch or even establish a company locally.

2.1. Employee

Hiring a local employee is an ideal way for a Belgian company to get to know the foreign market in the early stages. An employee will also act as a sales channel and will be able to conclude contracts with foreign customers. For example, you may wish to hire a local sales representative, whose role is similar to that of a disclosed agent (see above) in that s/he vis-its customers and negotiates potential sales. The key difference, however, is that a sales representative is an employee of the Belgian company. The only formality required of the latter in such a scenario is to register as an em-ployer in the foreign country concerned.

2.2. Branch office

Another option is for the Belgian company to open a local branch office. A branch office constitutes an extension of the Belgian com-pany and is not a separate legal entity. From a commercial standpoint, the Belgian company is operating on the foreign market.

A branch office may operate commercial activities such as sales, assembly and so forth (although restrictions apply in some coun-tries). However, it may also choose to focus solely on gathering market data or lobbying and promotional activities. Where the latter are concerned, a branch office is referred to as a liaison office. A liaison office does not perform any commercial activities and as such does not conclude contracts with customers;

it therefore does not receive any remuneration for commercial services.

The legal formalities to be completed locally will depend on the extent to which the Belgian company wishes to formalise its presence. In comparison to a local subsidiary, a formal branch office is subject to fewer formalities (no instrument of incorporation or articles of as-sociation are needed, and less paid-up capital is required, for example). The registration procedure for a branch office primarily entails collating and translating official documents per-taining to the Belgian company, which must be submitted in the country in which the branch of-fice is to be established. In addition, the branch office’s Belgian company will frequently be required to comply with local accounting rules and regulations – all of which will cost money and involve administrative formalities.

Some companies see the unlimited liability of the Belgian company for the activities performed by its branch office as a problem. The Belgian company will indeed be liable, for example if the branch office has insufficient assets to service its debts.

2.3. Subsidiary

Where a Belgian company’s foreign op-erations entail significant risks, it may be advisable to set up a separate limited-liability company from the outset. This set-up will mean that the subsidiary’s operations will not affect the Belgian company’s results. In some countries, from a commercial standpoint it is extremely important that local customers deal with a local company rather than a foreign one. Finally, maintaining exclusive control over technology, know-how and commercial secrets can be a major motivation for opting to set up a subsidiary.


In exchange for the extensive freedom it enjoys, a subsidiary must fulfil a number of formalities. After all, a subsidiary is governed wholly by local legislation and must therefore be established in accordance with local legal requirements (e.g. legal form, minimum capital requirement, applicable specific requirements as regards nationality and the number of shareholders and directors). Since these conditions vary from one country to another, it is important to seek advice from a local specialist.

Some companies choose to set up a local entity (in spite of the extra administrative burden involved) because by doing so they gain direct access to local customers, can keep their customer-service and customer-management operations flexible and therefore do not require an intermediary such as a local representative.

3 IMPACT IN TERMS OF ACCOUNTING AND AUDITINGA Belgian company with a formal branch of-fice or subsidiary abroad must keep separate accounts for the foreign entity in accordance with the regulations applicable in the country in which it is established, and in that country’s currency.

However, the presence of the foreign entity must also be factored into the Belgian com-pany’s accounts. Accordingly, a subsidiary will be included as a shareholding on the assets side of the Belgian company’s balance sheet. By contrast, where a branch office has been established all its income, costs, assets and liabilities must be incorporated in full into the Belgian company’s accounts.

DIFFERENCES BRANCH OFFICE SUBSIDIARY

Separate legal entity No Yes

Set-up and operating formalities and costs

In general, fewer formalities and costs (but there are translation costs)

In general, more formalities and costs

Liability Belgian company liable In principle, limited to injection of capital

Sales For most stakeholders still a ‘foreign’ party

Better access to and visibility on the local market

Management Legal representative appointed by the Board of the Belgian company

Local Board or manager

Capital No capital requirement. Current account with Belgian company

Minimum capital requirement

Shareholders Same shareholders as the Belgian company

Belgian company may or may not be required to combine with local shareholder(s)

Permits, subsidies No to limited access Free access

Exit/restructuring Free exit/restructuring into subsidiary possible

Procedure more complex


A branch office is frequently considered a separate entity in accounting terms (i.e. a cost accounting system) so that all elements can be easily identified. In such a scenario, resources to support the branch office are posted to a current account. If you keep separate accounts abroad in compliance with local rules, there is a substantial chance that the accounting system will need to be reviewed because there will be differences in valuation rules, naming of accounts, currency unit and so forth. It is also advisable to record the balances held in the branch office’s accounts in the Belgian company’s main accounts at least every six months. Where necessary, the conversion must be in euro. Internal transactions or mutual debts and receivables must be excluded.

In certain circumstances, the Belgian parent company is required to compile and submit consolidated annual accounts in addition to its statutory financial statements. These consolidated accounts must also include the results of its foreign subsidiary or subsidiaries.

However, this requirement does not apply where the Belgian company is itself a subsidi-ary of a company which has compiled and published audited consolidated annual ac-counts, or where the consolidated results do not exceed more than one of the following criteria:

Annual turnover (excl. VAT): €29,200,000Balance sheet total: €14,600,000Average annual workforce: 250

Companies sometimes opt for a local branch office to gain direct access to local customers

It is generally not necessary to appoint an auditor abroad to audit the annual accounts of a branch office. Where a subsidiary is concerned, though, this may be required. Where the branch office’s operations are extensive compared with those of the main company in Belgium, the Belgian auditor will, in most cases, ask for the branch office’s figures to be audited, even if no such audit is required by law. The same applies to an auditor of a Belgian company required to submit consolidated annual accounts; in such a scenario, the auditor will generally also request an audit of the foreign subsidiary.


Internationalbusiness and tax

1 FUNDAMENTALPRINCIPLES

Before delving into the tax implications of doing business abroad, there are a few fundamental principles to keep in mind.

1. INTERNATIONAL TAX MATTERS ARE GOVER-

NED BY DOUBLE-TAXATION AGREEMENTS.

These agreements set out which country is responsible for taxing a company’s income and are designed first and foremost to prevent double taxation (although they do not always succeed in doing so). Belgium has concluded double-taxation agreements with some 90 countries (including all the EU countries, with the exception of a handful of tax havens such as Jersey, Guernsey and Monaco). Also included in this list are the likes of Hong Kong and the United Arab Emirates, where taxation rates are either extremely low or are non-existent. The majority of the double-taxation agreements Belgium has concluded are based on the OECD (Organisation for Economic

Cooperation and Development) Model Tax Convention. However, all the agreements vary, because each contains provisions specific to the country in question. For example, the tax rules governing a Belgian company operating in Germany will differ from those applica-ble to its operations in the Netherlands. In practice, therefore, the provisions stipulated in the agreement concluded with the country in which the company is operating must be observed. Belgian companies trading with a country with which Belgium has no double-taxation agreement in place, such as Panama or Qatar, run the risk of being taxed twice.

2. FROM A TAX STANDPOINT, THE CONCEPT OF

A ‘PERMANENT ESTABLISHMENT’ ENSHRINED

IN THE DOUBLE-TAXATION AGREEMENTS

BELGIUM HAS CONCLUDED IS CRUCIAL.

Determination of where a company’s per-manent establishment is located will govern whether it is taxable abroad on its operations.

Traditionally, a permanent establishment may be ‘material’ (i.e. entail a physical branch of-fice) or ‘personal’ (i.e. involve a representative or agent). Which type of activities or presence give rise to a permanent establishment (and which do not, for there are exceptions) vary from one country to the next and will depend on the particular circumstances involved and interpretation of the relevant double-taxation agreement. We discuss this issue in more detail in section 3.1 below, in which we also cover a third type of permanent establishment (service-related).

Companies in general – even those with no foreign set-up – are often unaware that a pres-ence in a foreign country could still be viewed as a taxable permanent establishment. In such situations, profits are taxed abroad and there is no exemption in Belgium either.

How a business structures its foreign operations will have a significant impact on its tax situation, not only abroad but also in Belgium. Once trading WITH a foreign country (i.e. selling to it from Belgium) turns into doing business IN that country (i.e. the business has a local presence and operates locally), more complex rules will apply. A lack of knowledge about international tax rules can cost companies dear and can curtail the benefits associated with doing business internationally. Advice and support from a local advisor is crucial.


Finally, it should be kept in mind that the VAT authorities also recognise the concept of a permanent establishment. However, they may implement it differently from the way in which it is applied in the context of direct taxation. For VAT purposes, a permanent establishment is an office run by a representative and used to operate commercial activities.

3. WHERE, UNDER THE TERMS OF A DOUBLE-

TAXATION AGREEMENT, A COMPANY

IS DEEMED TO HAVE A PERMANENT

ESTABLISHMENT ABROAD, THE LATTER’S

INCOME MUST BE EXEMPT FROM TAX IN

BELGIUM, even if the tax rate in the foreign country is much lower than in Belgium (as, for example, in Ireland and Cyprus, where the tax rate is 12.5%). A double-taxation agreement always takes precedence over Belgian law.

Where, under the terms of an agreement, a company is deemed to have no permanent establishment abroad, the latter’s foreign income will be liable for tax in Belgium.If a permanent establishment abroad makes a loss, these may be offset against profits in Belgium. However, if the same foreign permanent establishment subsequently makes a profit, recapture rules will apply. In such a situation, losses incurred by the foreign permanent establishment which have previously been offset in Belgium must be added to the company’s Belgian taxable base to the extent that the accrued tax losses are deducted by the establishment itself in determining its taxable base. This rule is designed to avoid the same losses being deducted twice.

EXAMPLE

INCOME OF BELGIAN MAIN COMPANY

Year 1 Year 2 Year 3 Year 4

200 200 200 200

INCOME OF PERMANENT ESTABLISHMENT IN COUNTRY WITH DOUBLE-TAXATION AGREEMENT (IRELAND)


10 -40 50 30

TAXABLE INCOME OF MAIN COMPANY AND PERMANENT ESTABLISHMENT


Belgian income 200 200 200 200

Income of permanent establishment 10 -40 50 30

Total income 210 160 250 230

Exempt profit of permanent establishment -10 loss -10 -30

Taxable base in Belgium 200 160 240 200

Taxable base in Ireland 10 0 10 30

Tax burden in Belgium (33.99%) 68 54 82 68

Tax burden in Ireland (12.5%) 1 0 1 4

Total tax burden 69 54 83 72


4. FOREIGN TAX RULES, PROCEDURES, DEAD-

LINES AND FORMALITIES ARE OFTEN VERY

DIFFERENT FROM THOSE IN BELGIUM, EVEN

WITHIN THE EU.

As such, it is possible that the software and reporting system a company uses will need to be adapted.

A standardised European system has yet to be achieved

The EU strives for uniformity, but a stand-ardised system has yet to be achieved. Take corporation tax, for example, where there are only a number of directives in place enabling EU group companies to transfer dividends, interest or royalties between them virtu-ally tax-free, or to facilitate intra-European restructuring for tax purposes (e.g. via an exit or withdrawal).

By contrast, greater progress has been made within the European Union as regards harmo-nisation of VAT rules. Since VAT pertains to the supply of goods and services, companies doing business both with and in foreign coun-tries will need to comply with local VAT rules early on. Having a local permanent establish-ment or subsidiary will mean a company is required to register for VAT; however, these are not the only two scenarios in which regis-tration is required. Registration may also be required where goods are stored temporarily in a foreign country. Special care is required where the flow of goods does not tally with that of invoices, for example. The VAT situa-tion becomes more complex still where new technological developments are involved (e.g. e-commerce). Finally, the type of VAT registration will affect the VAT treatment of outgoing and incoming transactions and the VAT formalities to be observed locally.

From a customs standpoint, EU countries can trade freely without having to pay customs duties. Where the import and export of goods between EU and non-EU countries is con-cerned, controls are much more stringent and import duty and similar charges are levied.

Over 140 countries worldwide operate a system of indirect taxation similar to VAT. However, outside the European Union sometimes other non-uniform rules apply. Accordingly, a wide range of indirect taxes (sales tax, use tax, business tax, goods and services tax, etc.) applies to goods and services transactions Belgian companies wish to effect outside the EU. Some countries, such as the United States, apply such taxes not only at federal level but at state level, too. This can give rise to additional and often time-consuming obligations.

5. MANY COUNTRIES OFFER TAX INCENTIVES

TO ATTRACT FOREIGN BUSINESSES.

Some examples are given below:Ireland’s tax rate (12.5%) is attractive to hold-ing and intellectual property (IP) companiesCyprus (tax rate of 12.5%) is frequently used as a link for investments in Russia or Eastern EuropeLuxembourg is a particularly favourable loca-tion for finance, treasury and R&D activitiesMalta is home to many service companiesSwitzerland is an attractive option for distribution operations (e.g. in the food and pharmaceutical sector) as well as for holding and IP companies Hong Kong (tax rates of 0% or 16.5%) is of-ten used as a gateway to the Chinese marketThe Netherlands appeals to holding, finance, R&D and IP companies (as does Belgium).


Given the stiff competition (even within the EU), countries consistently bolster their tax re-gimes. Eastern European countries tradition-ally have lower tax rates, for example Poland and Hungary (19%), Romania (16%) and Bul-garia (10%). The actual foreign tax burden will not only be determined by the national rate of corporation tax. For example, in Malta while the nominal tax rate is 35%, the actual tax burden is only 5%. Conversely, the advertised rate in Germany is 15%, but when local taxes are factored in, that rate rises to over 30%.

Many countries (including the BRIC countries and a number of Eastern European countries) have established Special Economic Zones. These zones offer full or partial exemption from tax (so-called ‘tax holidays’) for speci-fied periods (sometimes of up to ten years), subsidies or other benefits. The conditions for accessing such benefits are often linked to the region concerned and the type of investment or activity involved.

6. DOING BUSINESS ABROAD SHOULD ALWAYS

BE ABOUT ECONOMIC/BUSINESS INTERESTS

RATHER THAN TAX CONSIDERATIONS.

Shifting profits for tax purposes without any economic foundation is to be avoided. After all, transactions channelled though tax havens are frowned upon by all tax authorities, not only those in Belgium.

When doing business internationally, account must also be taken of rules on transfer pricing (the prices of goods, services and rights sup-plied by affiliated companies to each other). Affiliated companies must trade with each other as if they were independent entities.

Both the Belgian and international tax authori-ties will clamp down on companies which set up structures whereby profits are shifted to a country with a favourable tax system, while the operations performed, risks incurred and assets utilised in that particular country are minimal. Tax authorities worldwide have all manner of tax rules in place to penalise profit-shifting.


All intra-group transactions – e.g. a loan, sale of goods or services, shared services – must be ‘arm’s length’ transactions. The remu-neration and profit of, for example, a foreign distributor (permanent establishment or subsidiary) within a Belgian group will logically increase the more functions (logistics, market-ing, prospecting) it performs, the more risks (product, exchange-rate, credit) it assumes or the more assets (own client portfolio, own buildings and machinery) it utilises in perform-ing its activities.

Due to the increased focus on the part of the Belgian and international tax authorities on transfer pricing, it is important that the price quoted can be justified by the functions performed, the risks assumed and the assets utilised. In this context, benchmark analyses via specialised databases (Amadeus, Orbis, etc.) are highly recommended.

In recent years, the Belgian Transfer Pricing Unit has expanded significantly and is now able to carry out far more checks (during the past two years approximately 250 Belgian companies have been investigated and asked for more detailed information). While Belgium remains an exception for the time being, in many countries companies must comply with extended documentation requirements to justify intra-group transactions and to prove that the quoted price is an arm’s length one. Companies which fail to fulfil these obligations are often penalised with fines. A great deal of time, money and discussion can be saved by being proactive and keeping detailed documentation on your transfer pricing ar-rangements.

In the next section, we will look at some prac-tical tax aspects based on the legal concepts described in Chapter 2.

2 WORKING WITH A LOCAL PARTNERA Belgian company which does not want or is unable to set up a direct local presence (for example due to the scope of its operations being too small, or due to a lack of resources and manpower) can instead work in partner-ship with a local independent representative, such as a distributor, undisclosed agent or disclosed agent. This kind of cooperation requires clear arrangements between the parties to prevent unforeseen tax obligations from arising for the Belgian company, since there is always the risk that the local external partner will be viewed as a ‘personal’ perma-nent establishment of the Belgian company. This applies primarily to disclosed agents (and to a lesser extent undisclosed agents) where they are legally and economically dependent on the Belgian company and also have the authority to negotiate and, for example, sign contracts on its behalf.

The external partner will not be considered a permanent establishment if s/he is operating independently in both economic and legal terms (is trading in his/her own name, at his/her own risk and without any intervention from the Belgian company) and is conducting his/her normal business (as an independent intermediary).


3 A LOCAL PRESENCE

A Belgian company wanting to operate directly in a foreign market may, depending on the desired structure, employ a local employee, open a (formal) branch or office, or set up a subsidiary.

3.1. Local employees

Social legislation and personal tax aspects will be covered in Chapter 4.

When employing a local employee, in addition to these factors the same issues arise as when cooperating with an external partner. The em-ployee hired constitutes a ‘personal’ perma-nent establishment where s/he is authorised to negotiate and sign contracts abroad on behalf of a Belgian company. It is crucial to be aware of the authority you are granting your employee within the framework of his/her day-to-day activities.

As a Belgian company, you can ‘control’ whether such a permanent establishment is deemed to be present and the associated tax liability by setting out (or not) an employee’s powers in his/her employment contract. How-ever, this in itself is not enough: the authority granted must also correspond with the practi-cal situation (signature on contracts, commit-ments undertaken etc.).

Some of the double-taxation agreements Belgium has concluded (e.g. with Argentina, China, Singapore, the Czech Republic and Rwanda) feature ‘service-related’ permanent establishments. Where such permanent establishments are involved, income can still be channelled to an establishment even if it is not a place of business. In such a scenario,

a Belgian company may have a permanent establishment abroad where staff provide a service (or advice), for example to the cus-tomer directly in China for a specified period (in the double-taxation agreement with China said period is 183 days).

A Belgian company may employ a local employee, open a branch or office, or set up a subsidiary

NB: Although not new, another specific feature applies in the case of building and construction companies working on projects abroad. The duration of the project will de-termine whether a foreign site is considered a permanent establishment for tax purposes. In principle, a site is considered a permanent establishment where a project lasts more than one year, however in some cases the period may be shorter (in France and Luxembourg it is six months). A Belgian construction compa-ny which operates for less than six months on sites in France, Germany and the Netherlands will only be taxed in Belgium on the income from the three projects. Where it operates for eight months in the respective countries, the site in France becomes a permanent establish-ment and only the income from the German and Dutch sites will be taxed in Belgium (since for Germany and the Netherlands the project term is one year).


3.2. Branch or office

Where a Belgian company opens a place of business or branch office abroad, this physical site is considered a material permanent estab-lishment where it is permanently available to the Belgian company and is used by it for its commercial activities. From a tax standpoint, it is immaterial whether or not this place of business is a formal branch office.

However, some branch offices (established in a country with which Belgium has signed a double-taxation agreement) are not con-sidered a permanent establishment for tax purposes where the activities performed there are limited to making preparations for or sup-porting the activities of the parent company. So, for example, a Swiss office of a Belgian company does not constitute a permanent es-tablishment where the office is only used, for instance, for storing goods, as a showroom, or for scientific research. Another typical exam-ple is a liaison office: this type of representa-tion office will not be taxable as a permanent establishment where its activities are limited to giving advice about the company’s prod-ucts/services and where it has no involvement whatsoever in selling to foreign customers.

Then there are e-commerce companies. An informational website is not classed as a permanent establishment (after all, it provides support services only and cannot operate independently without, for example, staff and servers).

By contrast, in some countries a server may be considered a permanent establishment if:

it is permanently available (not merely for providing Web-hosting services);

it is a smart server, i.e. it offers products/ser-vices, concludes agreements, takes payment for and supplies a product or service. Simply advertising a product or service does not classify a server as a permanent establish-ment, except where such advertising is the company’s core business.

Where e-commerce companies are con-cerned, a determination will need to be made on a case-by-case basis as to whether their activities are to be deemed ‘support’ or ‘core’.

3.3. Subsidiary

When setting up a local subsidiary, the tax situation is different from that involving a branch office or a local employee. A subsidiary has a separate legal personality, prepares its own accounts and is subject to local corpora-tion tax and any other applicable tax rules.

The company must also have substance and must not have been established solely for tax purposes. After all, it is tempting to opt for a country which is attractive from a tax point of view to avoid paying Belgium’s high tax rates.

The Belgian tax authorities (where appropri-ate based on information from their foreign counterparts) will check whether the foreign company is actually being run from Belgium and whether its activities are being performed in the foreign country or in Belgium. It is therefore important to hire local directors and organise AGMs and Board meetings locally. In the worst-case scenario, the company’s income will be taxed in Belgium.


The subsidiary’s activities may be financed via an injection of capital or via a loan from the parent company or third parties.

Many countries operate ‘thin-capitalisation’1

rules in respect of loans between group com-panies. This means that where the subsidiary has insufficient equity, there is the risk that the interest paid on intra-group loans will be ei-ther partially or wholly non-deductible from a tax standpoint. Rules vary from one country to the next and can be extremely complex. For example Belgium requires a 5:1 equity-to-loan ratio. Some countries do not allow deduction of interest paid on a loan taken out to obtain shares, for example; the interest received by a Belgian company is taxable as normal.

The subsidiary’s profits may be channelled back to the Belgian parent company via a dividend payment. Under the deduction of definitively taxed income (DTI) system, 95% of the dividend received can be excluded when determining the Belgian parent company’s taxable base. This means that a dividend of €100 received from a (foreign) subsidiary would be taxed in Belgium at 1.7% (33.99% x (100-95% exempted = 5). Applying this system is subject to specific conditions: the Belgian parent company must have held a stake of at least 10% in the subsidiary or must have had an acquisition value of at least €2,500,000 for a period of at least one year. In addition, the subsidiary must be taxed in the normal manner (i.e. at a rate of at least 15%). The threshold of 15% does not apply to com-panies within the EU. Accordingly, dividends from Irish or Cypriot subsidiaries (12.5%) are eligible for DTI deduction in Belgium.

TAX COMPARISON BRANCH OFFICE SUBSIDIARY

Foreign tax rate No difference No difference

Deduction of foreign losses in Belgium

Automatic/No withholding at source

Not possible

Repatriation of profits Automatic/ No withholding at source

Dividend/withholding at source

Taxation in Belgium of foreign income

Permanent-establishment profits exempt (where double-taxation agreement has been concluded)

DTI deduction of dividend received

Access to tax incentives Less More

Profit determination More difficult (debate) Clearer (less debate)

Deduction of interest, royalties, management fees

In principle, no In principle, yes

Exit taxes Capital gains tax Optimisation possible

Transfer pricing Arm’s length (important) Arm’s length (important)

1 Thin capitalisation means that deduction of interest is limited where the company’s equity (capital and reserves) is too small in comparison with some of its loans.


Where the foreign subsidiary pays interest or a dividend to the Belgian parent company, this income is often subject to a local withholding tax. The same applies to royalties from licences.

Finally, many countries (in Eastern Europe, Africa and most of the BRIC countries) apply a withholding to the payment of fees for services, such as technical or service fees. This must be factored in in advance when negotiating contracts and setting prices (e.g. for engineering projects). The levying of an unexpected withholding (sometimes up to 30%) can completely wipe out the profitability of a deal (especially where the withholding is not deductible).

The withholding tax payable, the rate appli-cable and whether or not any exemptions or reductions may be applied are all governed by the applicable legislation in the source State.

In the case of payments within Europe, the Parent-Subsidiary Directive and the Interest and Royalties Directive also make provision, under certain circumstances, for exemption from withholding at source of payments of dividends, interest or royalties between affili-ated companies. Where these EU directives cannot be applied, the advice is always to ascertain whether a double-taxation agree-ment (including with non-EU countries) can be cited which makes provision for a reduction in or exemption from withholding at source.

A withholding at source levied abroad on interest and royalties may be deducted from the Belgian corporation tax payable on this income under the Fixed Foreign Tax Credit (FFTC) system for royalties and the Actual Foreign Tax (AFT) system for interest. In prac-tice, however, this tax credit will generally be insufficient to offset double taxation.


CASECASE JAN DE NUL GROUP

“We have to negotiate every new project afresh with the local authorities and unions,” says engineer Yves Bosteels. And he speaks from experience: as Area Director, he manages the Greater Oceania region, within which the main players are

India and Australia. So does he consult a hefty manual for each country?

“No, that would be impossible. Our projects are generally short- to medium-term ones. If we return to a country for another project after five

years, for instance, most of the rules and regulations will have changed.” If the

group secures enough recurring contracts,

it can open a local office which will also serve as a basis for business development.

A JOURNEY OF DISCOVERY

Every project is a journey of discovery, from a legal and labour-law standpoint – even for an entrepreneur with years of experience to fall back on. “In Australia, for example, it’s impossible to start up a business without first having negotiated a collective agreement with the unions at both company and project level. Failing to give a project sufficient thought or failing to prepare fully is business suicide because there are no free rides.” One golden rule, according to Yves Bosteels, is to find out everything you can from experienced fellow entrepreneurs with experience of the local market. “It’s not just the rules written down in black and white which matter; unwritten cultural rules just as important, if not more so. Hence the importance of a building up a solid network of experienced expert brains. Knowing the theory isn’t enough.”

What’s more, the government closely monitors the applicable rules in terms of work permits, financial flows and transfers, and so forth (sometimes to a protectionist degree). “Since the financial crisis, all governments have been hunting high and low for extra resources. Accordingly, for example, legislation on transfer pricing has become a higher priority. For instance, the definition of a fair transfer differs from one country to the next. You need to know and understand the various nuances.”

KNOWING THE THEORY ISN’T ENOUGH...On any given day, the dredging comOn any given day, the dredging com--pany Jan De Nul Group will be operatpany Jan De Nul Group will be operat--ing on some 40 sites worldwide. Thating on some 40 sites worldwide. That means almost 6,000 employees of whommeans almost 6,000 employees of whomapproximately half are employed atapproximately half are employed at sea on the Group’s 250 vessels. Thesesea on the Group’s 250 vessels. Theseemployees come from all over the worldemployees come from all over the worldand must comply with different labourand must comply with different labour legislation in every country in which theylegislation in every country in which they are deployed.are deployed.

Yves Bosteels, Engineer and Area Director for the Jan De Nul Group

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EMOTIONAL INTELLIGENCE

Finally, never underestimate the emotional-intelligence – or EQ – component. You may know the business, the contract, the technical details of a project and so forth inside out, but everything can go up in smoke if you don’t have the right – i.e. culturally correct – EQ. “Body language can vary considerably from one culture to another. Learn to interpret these differences correctly to avoid missing signals which may vital to a project’s success. The same principle applies where a site manager needs to be able to adapt to the local context in order for the project – and therefore the financial outcome – to be achieved.”

Jan De Nul Group

Business: dredging, specialist marine services for the offshore oil, gas and renewable-energy industries, civil engineering, environmental services and brownfield developmentHeadquarters: Capellen, LuxembourgEmployees (2013 annual report): 5,725Abroad: 80% of turnover (32% in Europe)Turnover (2013): 2.1 billion euroOperates in 25 countries worldwide www.jandenul.com

“ Build up a solid network“ Build up a solid network of experienced expertof experienced expertbrains. Knowing thebrains. Knowing thetheory isn’t enough”theory isn’t enough”


Employeesabroad

1 SOCIAL PROTECTION OF EMPLOYEES AND PROTECTION UNDER LABOUR LAWThe social environment and consultation struc-tures in place can vary widely from one country to another. There is no room in this brochure to detail each and every one, but it is important to have a thorough understanding of the dif-ferences involved, since they will significantly affect the personnel policy to be adopted.

An earlier article in this brochure stated that doing business in the EU is governed by different rules from those in place in non-EU countries. These differences will also affect personnel policy, particularly where social protection of employees and protection under labour law are concerned.

Each different field of work is governed by a set of international legal instruments detailing provi-sions on where social contributions and taxation are to be paid, and on which labour laws apply to employment. These instruments will therefore determine a company’s corporate strategy and policy. Once an employee’s legal position has been clarified, the company can decide on his/her salary package, any non-statutory benefits, supplementary expat insurance and so forth.

Immigration formalities, such as mandatory work and/or residence permits, are another important consideration when employing staff internationally. The employee’s nationality, the place of employment and the period of his/her contract will all determine which formali-ties need to be observed.

2 POSTING WORKERS

When starting up a business abroad, it is often more straightforward initially to post the company’s existing workers to the new location for a temporary period to get to grips with the new market. Posting workers can be a good solution at more advanced stages of development, too, for example in the context of new projects, retaining a close relationship between companies, training employees and so forth.

While posted, an employee remains on his/her Belgian company’s payroll, which means that there are very few – if any – formalities to be completed abroad. By posting existing employees, you avoid having to register either your Belgian business or the new business you are setting up abroad as an employer.

Social securityIn terms of social security legislation, post-ing offers the considerable advantage that employees can continue to be covered under the Belgian social security system, and as a result can continue to enjoy associated benefits such as pension contributions, sick pay, family allowances and so forth.

The precise posting rules applicable will de-pend on the country to which an employee is being posted.

Irrespective of the legal structure adopted for your foreign venture, without staff it is impossible to develop any business. Recruitment is a crucial factor and as a business, there is much more to consider than cost alone; protecting staff and the social environment abroad are also key considerations.


will no longer be considered to have been ‘posted’ and social security contributions will become due in the country in question; the Belgian business will also then need to register as an employer in that country.

Employees must always enjoy the most effective protection available

Labour lawAscertaining which body of labour law is applicable to employees abroad is rather less straightforward. The parties involved are free to choose whichever they wish, pro-vided that the specific minimum standards applicable in the country in which employ-ees are temporarily employed are observed.

Where posting is concerned, in most cases the parties opt to apply Belgian labour law. This poses no problems as long as you comply with the relevant international instruments. Accordingly, within the EU you must always observe ‘public policy provi-sions’ as well as ‘mandatory provisions’. In simple terms, employees must always enjoy the most effective protection available, and specific minimum labour standards must always be observed.

3 APPLICABLE LOCAL LEGISLATIONIf you decide to hire local workers, it goes with-out saying that you must comply with the legisla-tion applicable in the country in question. This naturally applies to social security contributions, but will also affect the applicable labour law. When employing local workers, in most cases

Within the European Economic Area (EEA) and

Switzerland coordination rules will determine which social security system is applicable. These rules are designed to protect employ-ees and to ensure that their social security contributions are only paid in one country. For the same reason, Belgium has also con-cluded bilateral social-security agreementswith a number of non-EU countries (Algeria, Australia, Bosnia-Herzegovina, Canada (including a separate agreement with the province of Quebec), Chile, the Philippines, India, Israel, Japan, Kosovo, FYR Macedonia, Morocco, San Marino, Montenegro, Serbia, Tunisia, Turkey, Uruguay, the United States, South Korea and Switzerland).

While EU coordination rules cover all aspects of social security, the same does not always apply where bilateral agreements are con-cerned. These agreements generally specify which social security system is applicable, and set out details of contributions towards and payment of pensions and disability ben-efit. The maximum posting period permit-ted also varies from one agreement to the next. You are therefore strongly advised to research the situation in the country to which you will be posting employees carefully.

Where an employee is posted to a country with which no bilateral agreement has been concluded, you must always study the legislation of the country in question to de-termine whether social security contributions are payable. It may be useful to register with the Overseas Social Security Office (OSSO) (see point 4 below).

When posting any employee, it is crucial that s/he remains under the authority of his/her original Belgian company. If transferred to the authority of a local company or if a local reporting line is established, the employee


the labour law of the country in which they are employed will apply. Deviations from this general rule are only permitted in exceptional cases.

Likewise, where a Belgian employee is trans-ferred to another country (whether temporarily or permanently), the legislation of that country must be observed. As an employer you may opt to apply Belgian labour law, but you must still comply with the specified minimum labour standards applicable in the country of employ-ment at all times.

4 OVERSEAS SOCIAL SECURITY OFFICE1

The Overseas Social Security Office (OSSO) can be accessed by workers who are employed outside the EEA and Switzerland and who are EEA nationals2 or who work for a company which has its registered office in Belgium.

Where a worker is employed outside the EEA or Switzerland, registering with the OSSO can be a solution where there is a shortfall in social protection. It also enables the worker in question to keep in contact with the Belgian social security system, which can make his/her reintegration when returning to Belgium more straightforward.

Under the OSSO system, employees enjoy ba-sic insurance cover (pension, sickness and dis-ability); they can also opt for supplementary cover for medical care, occupational accidents and/or private accidents.

1 From 1 January 2015, the OSSO will become the Special Social Security Schemes Office (SSSSO). From this date on, the SSSSO will assume responsibility for all matters connected with social security abroad.

2 The EEA countries are the 28 Member States of the European Union, plus Iceland, Liechtenstein and Norway.

5 FOREIGN WORKERS’ TAX STATUSFrom a tax standpoint, too, a distinction is drawn between workers who are hired direct locally (i.e. in a foreign country) and Belgian em-ployees who work both in Belgium and abroad.

Employees hired directly in a foreign country are always taxable in that country in accordance with the latter’s legislation. In such situations, a Belgian company must register in the foreign country as an employer in order to be able to fulfil its obligations there.

In principle, individuals who are resident in Belgium are taxable in Belgium on their foreign income. However, if they work abroad, they may also be taxed there, thereby raising the issue of double taxation. To avoid being taxed twice, individuals may cite one of the double-taxation agreements Belgium has concluded with a number of foreign countries and which specify which country is responsible for deducting tax from an individual’s pay. Based on the so-called 183-day rule, a worker will remain taxable in his/her country of residence provided s/he has worked for fewer than 183 days in any one year in his/her country of employment, and his/her remuneration is not paid by a foreign employer or by an institution permanently established abroad. All three of these conditions must be met.

> following p. 46


CASECASE LA LORRAINE BAKERY GROUP

“When something proves successful, we immediately need to establish and consoli-date it so that we don’t lose the advantage we’ve gained,” says Guido Vanherpe of the group’s strategy. “Only when something

is firmly established do we move on to the next phase. The

same principle applies to our international expansion.” As a pioneer in the market for part-baked frozen bread, the group has managed to literally shift its boundaries.

20 years ago, the countries of Central and Eastern Europe were virgin territory, close

enough to the western European domestic mar-ket and genuine markets

for bread. Initially, exports were increased significantly and then in the late 1990s the group opened its first local production plant in the Czech Republic. “Thanks to this strategic site we were able to refocus our export activities on neighbouring countries such as Poland, Hungary and Slo-vakia. We subsequently adopted the same local-site strategy in Poland and have also had a site in Romania since 2011, which has enabled us to expand our export zone exponentially, as far as Turkey and Russia”

VERTICAL INTEGRATION

LLBG has little to fear from foreign competitors in its new homelands, but pressure from local players is increasing. “To make sure we don’t lose the ground we’ve made so far, we are currently investing apace in ultra-high-performance production units and in fully automated logistics platforms. Looking ahead, we also want to introduce vertical integration with the expansion of our Store Concepts division, within which Panos is the most recognised brand. We will certainly have a lot on our plate over the next three to five years.”

As a rule, LLBG works with local people. “This is also the biggest challenge”, says Guido Vanherpe. “Nothing requires more time and patience than organising peo-ple, getting to grips with the local culture and getting local management to fall in with a single group vision. That requires

FIRST BECOME ESTABLISHED, THEN GROWInternational expansion will only haveInternational expansion will only havebeen successfully achieved when abeen successfully achieved when aforeign market or markets ultimatelyforeign market or markets ultimately come(s) to form a new domestic market.come(s) to form a new domestic market.This is the view of Guido Vanherpe, CEOThis is the view of Guido Vanherpe, CEOof the La Lorraine Bakery Group (LLBG).of the La Lorraine Bakery Group (LLBG).A family business and Belgium’s largestA family business and Belgium’s largest industrial bakery, the group is well onindustrial bakery, the group is well onthe way to establishing itself as a marketthe way to establishing itself as a market leader in Central and Eastern Europe.leader in Central and Eastern Europe.

Guido Vanherpe, CEO of La Lorraine Bakery Group

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management and coaching on both a business and a personal level.”

It is also important to accurately weigh up the risks (exchange rate, political stability, availability of talent, etc.), and, certainly where LLBG’s international business model is concerned, to invest in a uniform and transparent shared services system (IT, finance, HR, etc.).

Some time ago, LLBG attempted to break into such markets as Asia and the United States among others, but ultimately changed course. “Those mar-kets were too far away, and at the time we didn’t have a strong enough handle on our processes and HR. These barriers are less imposing in Europe.”

La Lorraine Bakery Group

Business: food – industrial bakeryMarkets: fresh, frozen, Store Concepts and millingHeadquarters: NinoveEmployees (2013): 2,600Overseas business: 1/3 of bakery turnoverTurnover (target for 2013):566 million euroSells products in 25 countries(including 10 via its own sales subsidiaries/joint ventures)10 production plants including three in Central and Eastern Europe: Czech Republic, Poland and a joint venture in Romaniawww.llbg.com

“ Nothing requires more“ Nothing requires moretime and patience thantime and patience thanorganising people”organising people”


SOCIAL SECURITY LABOUR LAW TAX

POSTING Country of residence Free choice(in practice: country of residence and special attention paid to local minimum standards)

Country of employment, un-less the 183-day rule applies

LOCAL Local Local Local

SALARY

SPLIT Depends on place of residence, time split and legal employer(s)

Free choice(in practice: country of residence and special attention paid to local minimum standards)

Principle of international employment. Taxation in Belgium (country of residence) and abroad

SUMMARY TABLE

SOURCES

- CBN-CNC recommendation no. 172-1: Integrating the accounts of a foreign branch office (Opneming van de rekeningen van een buitenlands bijkantoor)

- NBB (Microeconomic Information Department): Drawing up and submitting consolidated annual accounts and the consolidated annual report (Opmaken en neerleggen van de geconsolideerde jaarrekening en het geconsolideerde jaarverslag)

- IAB syllabus: Taxation for non residents (presentation, Saturday 9 November 2013)

- Kluwer – Guidance 2012/3: The sales representative in 2012 (De handelsvertegenwoordiger anno 2012), p.66 onwards

- Biblo taxation dossier 24, Uitgeverij Biblo, Kalmthout (Biblo seminar, 9 November 1994): Cross-border taxation (Fiscaliteit over de grens)

The 183-day rule comes into play where a Belgian worker is posted abroad. In practice, most workers are on a foreign company’s payroll, or else their wage costs are passed on or borne by the Belgian company’s permanent establishment abroad. In such situations, the worker’s employment income is taxable in the country of employment (regardless of how long s/he will remain there).

Where international employment is concerned and, more specifically, where a worker is employed concurrently in Belgium and one or more other countries, his/her employer may apply a salary-split mechanism. A salary split involves the employer splitting the individual’s taxable employment income between the various countries in which s/he works so that each portion is taxed separately at rates which are generally considerably lower than those that would have applied if the individual’s entire employment income had been taxed fully in Belgium. The salary-split mechanism enables the employer to prevent the employee falling into a higher tax band. In some cases, advantageous tax systems are also in place specifically for foreign executives.

Treaty-exempt foreign employment income in Belgium is taken into account when determining which Belgian tax rate is to be applied to an individual’s other taxable income (known as exemption subject to progressive taxation). Where no double-taxation agreement exists, and where an employee who is a Belgian resident has been taxed on his/her employment income in the country of employment, s/he is granted a reduction (up to 50%) on the Belgian tax payable on foreign employment income.


Internationalpayments and

cash-management

1 SINGLE EURO PAYMENTS AREA (SEPA)

Banks introduced SEPA at the request of the European Commission. Within it, payment models have been standardised (e.g. a standardised account format is now used). The wide-scale project began in January 2005 and was due to be completed by 1 February 2014 in those countries in which the euro is the national currency. Provision was made for a six-month transition period up until 1 August 2014, but Belgium, acting as a role model, limited this period to three months, up until 1 April 2014. Since then, all payments via Belgian accounts have complied with the new SEPA rules.

1.1. Identical payment instruments

Consumers, authorities, merchants and businesses all now use the same payment instruments, which means they can make payments and issue direct debits in euro within the SEPA area simply and in a standardised manner. Accordingly, all

payments and receipts in all countries are effected in the same way. Going forward, only SEPA-compliant payments will be permitted within the SEPA area, and national borders will no longer pose any barrier to payments there: cross-border payments in euro will be just as quick and secure as domestic payments, and will be subject to the same conditions.Transfers and direct debits which do not comply with SEPA standards have not been possible in Belgium since 1 April 2014.

1.2. New opportunities

In addition to a transparent and standardised format, SEPA offers a number of other benefits. Customers can rationalise and simplify their payment chain because SEPA utilises a unique format for all types of payment. They can also limit the number of accounts, centralise payment activities in a single country and improve and simplify their internal procedures.

SEPA also means that you can compare the prices of payment products more easily, which offers a number of opportunities in itself (see below).

1.3. Review your payment structure

SEPA offers a number of opportunities for businesses. For instance, within the SEPA area you can effect direct debits and credit transfers in all 33 SEPA countries from a single account within the SEPA area. What’s more, such transactions are considered and carried out as domestic payments. As such, SEPA is a great opportunity to revise your business’s payment structure. Previously, companies would open a number of accounts in several different countries to enable customers to pay invoices into a local account. The advent of SEPA means an end to ‘expensive’ cross-

Until recently, international payments involved a complex tangle of procedures and arrangements between countries and banks. Belgium was one of the first countries in Europe to move over fully to the Single Euro Payments Area (SEPA) – a crucial step forward in terms of harmonising and simplifying European payments. Business owners, too, now have a lot more options open to them in terms of optimising their international cash-management.


border transactions, and that it may be more cost-efficient to close such foreign accounts and instead operate via one central one. Such an arrangement also keeps the administrative workload to a minimum and the business itself requires fewer electronic banking systems.

One specific benefit as far as Belgium is concerned is that SEPA payments from Belgium are free. As a result, we are seeing more and more international companies utilising the system and centralising their incoming and outgoing cashflows in Belgium. In addition to the considerable cost savings, funds are available more quickly. Combined with better management of outgoing payments, this means more accurate cash forecasting, which for many companies means that they are less dependent on banks

1.4. SEPA direct debits

In addition to transfers, SEPA also covers direct debits. Cross-border direct debits can be effected within SEPA, enabling creditors to use them as a payment method in the context of foreign trade.

There are two possible arrangements: the so-called core scheme (standard) and the B2B scheme. The main advantage of SEPA direct debits is that creditors are in control of collecting amounts owed, since they can specify when the customer’s account is to be debited and thus when an invoice is to be paid. This is a distinct benefit in terms of a business’s working capital. Moreover, less time is wasted following up invoices and the business will know much sooner if there is a problem with a debtor’s liquidity. Creditors will receive a notice advising them that a payment has not been made due to there being insufficient funds in a customer’s account within five working days of the direct-

debit date. However, businesses must keep in mind that a direct debit may be reversed (for a period of up to eight weeks from the due date, whereas previously this period in Belgium was just four days). Where there is no signed, valid direct-debit mandate in place, this reversal period may extend to 13 months. However, where B2B transactions are concerned, the business is protected and there is no reversal period.

Aside from changes to the direct-debit reversal period, the introduction of SEPA has also brought about changes in the way direct-debit mandates are managed.

SEPA in a nutshell

Simplified payment infrastructure

Harmonisation of payments in 33 countries (SEPA Credit Transfers, SEPA Direct Debits)

Account number becomes your IBAN

BIC (Bank Identifier Code) required

Standardised payment format: ISO20022 XML

Full details: www.ingsepa.com


Now it is the creditor or business, rather than the bank, which is responsible for managing direct debits

1.5. Recent SEPA developments

In the wake of SEPA and all the benefits it has brought with it, banks are also taking initiatives to make the harmonised payment area even more beneficial.

1. Shorter cut-off times (the latest time at which a payment instruction may be issued).

2. Using ‘payments/collections on behalf of’ (POBO and COBO) enables businesses to further centralise their cash management and thus to reduce the number of bank accounts held. Naturally, a high-quality ERP or accounting package is required for cash management to be centralised successfully.

3. More widespread use of category purposes (e.g. INTC intercompany, SALA (salaries), etc.) enables more efficient accounting reconciliation and higher quality reporting.

2. INTERNATIONAL CASH-MANAGEMENTAs we have seen, SEPA already offers companies with international branches a number of options for managing their payments and liquidity centrally, within the Eurozone at least. However, SEPA is not the answer to everything. International companies also want to be able to centralise the debit and credit transactions of their various subsidiaries, both within and outside the Eurozone, via their head office, since by doing so, they can use surplus cash in one country to plug shortfalls in another. We take a look at a solution to this: cross-border cash balancing.

SEPA is not the answer to everything

With cross-border cash balancing, payments by the bank, on behalf of a customer, can be initiated and managed across borders and between various local accounts automatically. Such transactions are effected between what is known as a ‘master’ – or central – account and a number of local participating accounts. The customer decides for himself whether a specific amount needs to remain available in the participating accounts once payments have been taken, or not. This is known as ‘cross-border target cash balancing’. In most cases, though, the target amount is zero. This means that the participating accounts are emptied completely, or balanced to zero via the master account.


The result is that the cash available in the par-ticipating accounts is transferred to the master account. By centralising cash amounts in this way, the business can optimise interest (either pay less or earn more) and has a better over-view of and more control over its day-to-day cash position. It is also better placed to take advantage of short-term deposit or short-term loan opportunities.

Centralising of funds between accounts generally takes place at the end of the bank’s working day and is known as ‘end-of-day cash balancing’. However, a company may also opt to centralise its funds earlier in the day. This is known as ‘intraday cash balancing’. By balanc-ing cash amounts in the master account earlier in the day, the customer can utilise the result-ing funds in the master account the same day.

Businesses must be aware, though, that cash-balancing refers to cash being moved between different companies belonging to the same group. Such transfers are called intra-group loans. As such, it is crucial that the company has a good accounting application to manage everything efficiently. In general, cash-balancing products are essential for companies with a high turnover and a fully centralised treasury.

This kind of centralisation solution is also pos-sible between different banks, and is known as ‘multi-bank funding and sweeping’. Under this arrangement, a company can transfer funds from accounts held with other banks into its central account with its main bank.


CASECASE TPF

ADAPTING TO THE LOCAL BUSINESS CULTUREMutual respect and a local managementMutual respect and a local management team: these are the two crucial factors inteam: these are the two crucial factors inthe success of TPF’s worldwide acquisithe success of TPF’s worldwide acquisi--tion strategy. Barely 15 years after itstion strategy. Barely 15 years after its first international steps, the Belgianfirst international steps, the Belgianenergy specialist and consultancy nowenergy specialist and consultancy now has subsidiaries in 35 countries on fourhas subsidiaries in 35 countries on four continents.continents.

TPF set up its first subsidiary in Portugal in 2000. “The Belgian market was saturated. To continue to grow, diversifying internationally was the only option”,

says founder and CEO Thomas Spitaels of TPF’s decision

to expand. “If you don’t move with the times, you become marginalised. We operate in a market which is becoming more consolidated and in which competition is

becoming increasingly fierce. By expanding

internationally we can also develop our knowhow and

in so doing set ourselves apart from our rivals. And thanks to complementary business activities, we are able to build up knowledge which we can then utilise in our core business. These are two very important competitive advantages.”

LOCAL ACQUISITIONS

Since it was established in 1991, the group has doubled its turnover every three years. TPF is now the third largest consultancy in Belgium. Thomas Spitaels isn’t after growth for growth’s sake, though. He makes sure that no acquisition disrupts the financial balance of the group. “That’s why we have taken a conscious decision not to publish the company’s results since by not doing so we avoid excessive dividends and can thus build up our equity. This way we can react swiftly and take the appropriate action if a market suddenly crumbles.”

Strategically, TPF prefers local acquisitions, seldom opting for greenfield businesses. Experience has shown that integrating local businesses offers the best chance of quickly being able to play a meaningful role on the local market. “But you need to approach the owners of a local business with respect and as equals. We like to keep them on board for as long as we possibly can. After all, they know the local market and its various pitfalls and sensitivities better than anyone. The bottom line: we don’t present ourselves as Belgian know-it-alls steaming in to tell everyone how things should be done;

Thomas Spitaels, founder and CEO of TPF

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we focus on common values and standards and adapt to the local culture, becoming, as it were, Spaniards in Spain, Brazilians in Brazil and so forth.”

A STRONG SENSE OF AUTONOMY

Being rooted in a local market gives local management teams a strong sense of autonomy. “If our Portuguese subsidiary identifies an opportunity in Angola, why should the Belgian head office object? That’s not to say that subsidiaries enjoy carte blanche in such matters but we do trust their judgment in several strategic areas.

A cooperation-based model consolidates relations and, in the long term, the business too. The figures would certainly seem to support this.”

TPF

Business: engineering and consul-ting (construction, infrastructure/transport, water/energy)Headquarters: VorstEmployees (2014): 3,750Turnover (forecast for 2014):250 million euroActive in 51 countries, subsidiaries in 35 countrieswww.tpf.eu

“ By expanding“ By expandinginternationally we can alsointernationally we can alsodevelop our knowhow”develop our knowhow”


Managing international risks

You want to explore new markets and you already have an eye on a few promising countries in growth markets, such as Turkey, India or Brazil. Initial contacts have been positive, but what’s the next step? After all, the political situation in the target country is probably much more unstable than in most developed countries.

Anyone taking their first steps in a new foreign market must be well aware of the risks involved. The next step is to manage those risks. Be aware that there are appropriate solutions to most risks.

1 TRADE RISK

What should an entrepreneur do to go after debtors who do not pay because they are insolvent or because they reject or dispute the goods? This is a trade risk and the damage can be significant. Another example: The rising cost of raw materials forces certain buyers to unilaterally terminate their contract and to place orders where prices are lower.

How can you protect yourself?Require a down payment.As an exporter, require a payment guarantee, i.e. a standby letter of credit. This is issued by the buyer’s bank. The bank undertakes to unconditionally pay the exporter when the exporter so requests.Require the opening of a documentary credit. By opening a documentary credit, the importer’s bank undertakes irrevocably to pay, provided the documents comply with the provisions of the documentary or standby credit. In so doing, it becomes the main debtor.Take out credit insurance. Both public and private insurance companies cover the trade risk on public and private debtors in line with their own terms and conditions. The percentage of cover varies depending on the debtor and account must be taken of one’s own risk term.Include a ‘retention of title’ clause in the trade contract. With this clause, the seller remains the owner of the goods until payment is made. In the event of non-payment, the seller can take back the goods. However, the protection provided by the clause depends on the legislation in the buyer’s country. Most countries accept the principle of basic retention of title that entitles sellers to take back their goods if the buyer does not pay. In some countries, however, retention of title cannot be invoked in the event of bankruptcy. It is advisable to inform yourself ahead of time about the applicable legislation in the buyer’s country.Contact the commercial finance department of your financial institution. It will provide you support with managing your customer invoices and outstanding customer payments and with handling insurance to protect against the solvency risk.

Foreign trade can stimulate the growth of your business, but it is not without its risks. The current geopolitical situation and the recent financial and banking crises can hinder expansion. In this chapter, we will go deeper into the most common risks and how you can protect yourself from them.


2 POLITICAL RISK

There are many types of political risks. These include force majeure due to political events, such as war, revolution, strike and deteriorating political stability, as well as natural disasters, such as flooding, earthquakes, cyclones, etc. They also include ‘acts of god’, i.e. arbitrary decisions by the government (usually the result of diplomatic tensions) that hinder the rapid completion of trade transactions (e.g. embargos, withdrawal of import and/or export permits, etc.). Political risks also include transfer risk. It is possible that your trade partner is solvent and will pay in local currency, but that the central bank in his country decides not to make any foreign currently available to him because it is in short supply.

How can you protect yourself? Have a documentary credit opened that is confirmed by your bank. In that case, your bank undertakes irrevocably – together with the issuing bank – to pay the amount of the credit upon presentation of the required documents. It covers the trade risk of the bank that opens the credit, and the political risk of the country and bank default.Request the opening of a standby letter of credit confirmed by your bank (see above).Ask your bank for a payment guarantee (which is subject to the Uniform Rules for Demand Guarantees) for which your buyer’s bank has a guarantee.Take out credit insurance.

REPUTATION MANAGEMENTA company’s value is determined by three key factors: its book value, its brand value/sharehold-er value and... its reputation. The strength of its reputation depends on the extent to which what it says is matched by what it does. Companies which do not say what they do or do what they say are risking their reputation and, ultimately, their entire business.

How is your company perceived in the country in which you operate? This is ultimately what will determine your business’s reputation. The more positive the public perception of your company, the more likely you are to be trusted, and the more business you are likely to do. After all, companies operating abroad must comply with local rules, customs, standards and values. Fortunately there is a wealth of international agreements and regulations in place to help companies draw up a corporate social responsibility (CSR) code. Think about issues such as child labour, environmental protection, working conditions, social protection, corruption and quality of products and/or services: many European companies serve as role models in these areas.

All of these issues pose a risk to your reputation if local standards and values clash with those applicable in your home country. Opting for the ‘most stringent’ standard in a given field (e.g. applying the strict environmental standards applicable in your home country in a country in which such legislation is all but non-existent) could jeopardise your competitive position on the local market in question. The opposite applies, too: if, when operating abroad, you fail to comply strictly enough with the standards and values applicable in your home country, then your reputation is in danger of suffering at home. Business involves continually trying to strike a balance between the upper and lower limits of rules and regulations. Finally, something else to bear in mind is that the risk of damage to a business’s reputation has increased considerably due to the exponential growth in communication methods and technology. As such, if you are to manage your reputation successfully, you need to be fully aware of all the risks involved.


3 FABRICATION RISK

Your customer might unilaterally terminate your contract. This can happen, for example, for policy-related or commercial reasons arising between the time the order is placed and delivery or at the time of first payment when you have already invested in the purchase of raw materials, production or the processing of goods.

The risk is even bigger when the product in question is hard to resell or for construction and installation contracts abroad.

How can you protect yourself?Require a down payment that at least covers your purchase of raw materials.Require a payment guarantee (which is subject to the Uniform Rules for Demand Guarantees) or a standby letter of credit.Open a documentary credit. Although a documentary credit is primarily a payment instrument, the opening of a credit can also pertain to the entire production period. It is advisable to open the documentary credit in good time and definitely prior to the start of production.Take out an insurance policy for ‘fabrication risk’.

PRODUCT LIABILITYEvery company is responsible for its products, even abroad. Manufacturers and suppliers of cars, medicines, food and toys are particularly susceptible to product recalls and the associated negative media attention. However, product liability is an issue for all companies in all sectors.

Product-liability risks (and instances of associated claims) are greatest in the United States and Canada, but the issue is playing an increasingly important role in Europe, too. Within the EU, product liability is governed by Directive 85/374/EEC, which has been transposed by all the Member States into their respective bodies of national law. Where consumer products are concerned, any company in the supply chain may be held liable, but in the case of industrial products the manufacturer bears sole responsibility. Ultimate liability always rests with the manufacturer, and companies importing goods into the EU are also considered manufacturers.

‘Product liability’ is the term used to describe the concept of objective liability for any damage sustained due to a fault in a product.

The injured party must be able to prove that:

he/she/it has suffered damage; the product is faulty;there is a causal link between the damage and the fault.

However, the injured party is not required to prove that the manufacturer is culpable or has been negligent. Even where a product bears the CE mark, in the event of material damage it may still be deemed faulty. The CE mark indicates that a product complies with specific European requirements in terms of safety, health and the environment but is not a quality label.

As a manufacturer (or other party in the product chain), you can reduce product-liability risks significantly by:bringing out a product which is as safe and effective as possible;ensuring that the product is supplied with the necessary instructions and warnings (preferably in the language of the market on which it is to be sold);monitoring the product chain closely;involving the local subsidiary since it is the legal entity best placed to identify risks in the relevant country.


4 CURRENCY OR EXCHANGE RISK

What about disadvantageous current fluctuations?The main risks related to transactions with customers in, for instance, growth markets are related to holding claims in a foreign currency while your production activities take place in your base currency.

Raw materials and political riskIn addition to the financial risks, other, less predictable, factors can also have a strong

influence on exchange rates. If a country is highly dependent on the price of a given raw material, abrupt changes in the price can have an impact on that country’s currency. For instance, the Russian economy is highly dependent on oil and gas prices. If prices plummet for any reason, then that can cause problems for the rouble. Or take the Chilean peso: its exchange rate is closely linked to the price of copper. If the price of copper falls, then so does the peso. And in terms of political risk, nobody expected the situation in Ukraine to escalate to such an extent. That has an impact on business in both Ukraine and Russia.

INTELLECTUAL PROPERTYTo avoid competitors copying their intangible and intellectual assets (innovative, creative products or services such as a design, a piece of software, a discovery, a trademark, a logo, etc.) businesses need to protect themselves more effectively. Those that do not run the risk not only of suffering damage to their image and to the reputation of their product/service, but also of others gaining an economic advantage from their investment in their intellectual property.

The degree of protection required will depend on the level of innovation or originality of a product or service. Intellectual property rights guarantee a temporary, exclusive monopoly and give the business a chance to earn its investment back and generate income from what it has created. The company may also license its rights or sell them on to third parties. Intellectual property rights also give the business a solid legal position in the event of counterfeiting of its goods or other unfair practices.

It is therefore always a good idea for a business to investigate whether it is worth protecting itself, from an economic, strategic, industrial, competition or cultural standpoint. Three forms of protection are available.

1. Copyright: copyright is inherent to the product/service created; no prior registration is required.

2. Trademark protection: you can protect a trademark (the emblem or symbol the trademark holder displays on its products or in connection with its services) within a defined geographical area (within Belgium, within the Benelux region, within Europe, within specific countries).

3. A patent: a patent prevents a third party from manufacturing, selling, importing, stocking or using your discovery or innovation. Depending on the geographical area or countries within which you wish to protect your creation, there are a number of different types of patent: national, international, European, and, in the foreseeable future, the unitary patent.

If you wish, you can have your rights enforced and managed by specialist organisations. However, protection costs money, so weigh up the usefulness and value of this kind of protection against the potential benefits carefully.

More information: www.economie.fgov.be/fr/entreprises/propriete_intellectuelle


How can you protect yourself from currency fluctuations? You have two options:

Either use forward exchange contracts (also called currency forward contracts). With this solution, you can have a fixed exchange rate, making your business 100% predictable. On the other hand, you will not benefit if the exchange rate goes up.Or you can use option structures to counter the risks. One of the options is to keep the currency in a ‘tunnel’ in which the currency enjoys a manageable risk level. This solution also makes it possible to benefit from an increase in the value of the currency.

Will you opt for costs or profit?The choice between currency forward contracts and option structures depends on how the business views ‘treasury centres’. Either it views them simply as cost centres (in which case the company’s exposure must be fully covered), or it views them as profit centres. In the latter case, the centres are expected to keep a close eye on the markets and to maximise profit at an acceptable risk level. Naturally, customised solutions are needed for this.

CONTRACT MANAGEMENTDoing business internationally is often much more complicated than concluding a contract with a party in Belgium. What happens, for example, if there is a dispute over the quality of some machinery purchased from Poland, or if a Chinese buyer feels that the equipment supplied does not meet his expectations? As a Belgian company, you will naturally want to do business according to Belgian law, but is this the best option when operating internationally?

The answer is simple: in most cases, no, since many (international) transactions are governed by the United Nations Convention on Contracts for the International Sale of Goods (the Vienna Convention – or CISG – of 11 April 1980). Many businesses overlook this. However, the CISG standardises the legal principles applicable to all cross-border purchase/sale agreements and applies to the international purchase/sale of goods between businesses in countries which have signed up to it. Accordingly, it does not cover the purchase/sale of real estate, transactions with consumers or the provision of services.

A total of 78 countries have ratified the CISG, including Belgium and virtually all Western and European countries, the United States, China, the Russian Federation and Japan. The only major trading countries not to have signed it are the United Kingdom, India, South Africa, Hong Kong and Taiwan.

The CISG sets out a fully fledged legal framework containing provisions on the responsibilities of the respective parties, how to deal with defects in contracts, liability, compensation and so forth. Since these provisions may differ substantially from those of the Belgian legal system, applying the CISG can often result in a different outcome (sometimes better, sometimes worse) than would have been the case under Belgian law. You are free to stipulate in a contract that the CISG does not apply to it (either in whole or in part), but you should be aware that stating that the contract is to be governed by the law of a particular country does not automatically mean that the terms of the CISG will not apply. What’s more, stating, for example, that a contract is to be governed by Belgian law will actually result in the CISG being applied to it, since Belgium is a CISG signatory. Accordingly, to avoid any risks, a trade agreement must contain a special clause expressly stipulating that it is not governed by the terms of the CISG.


5 ADMINISTRATIVE RISK

The administrative risk is hard to cover because it flows from the administrative requirements pertaining to import and export permits, customs regulations, etc.

Take Turkey for instance: What administrative requirements must you comply with in order to export your goods to Turkey? Does your company have to get a permit? And is that enough?

How can you cover and protect yourself?

Chambers of commerce, embassies and other official institutions can help you to list and comply with requirements.The European Commission’s Market Access Database provides companies that export goods from the European Union with information on importing to most global markets.

6 ECONOMIC RISK

The price of your goods can rise between the date on which the contract was signed and the delivery of the goods, thus shrinking or even, in the worst case, eliminating your profit margin. The most important factors impacting the price of goods are wages (especially in countries with very high inflation) and the prices of raw materials on the world markets. The price of a barrel of oil is a textbook example of this. The economic risk is even bigger when the performance of the contract covers a long period.

Every means of transport has its risks

How can you protect yourself?Open a documentary credit: the quantities, unit prices and total price of the goods are set out in a documentary credit. The price of the goods is therefore fixed upon the opening of the documentary credit.Include a price review clause in the trade contract. With such a clause, the sales price can be changed when there is a price fluctuation. This means that the exporter shifts the risk in full or in part to the buyer. Naturally, both parties have to negotiate the inclusion of this kind of clause in the contract.


7 TRANSPORT RISK

Any goods transaction with a foreign country assumes the transport of goods. And every means of transport has its risks. Goods can be damaged or lost, not only during transport, but also during storage, loading and unload-ing. Take road transport, for instance: trucks are involved in serious accidents nearly every day. Many exporters wrongly think that their goods are automatically insured by the trans-porter. In Europe the CMR (Contract for the International Carriage of Goods by Road) is used extensively. However, a CMR is not trans-port insurance, but civil liability insurance.

How can you protect yourself?Take out transport insurance with a specialised insurance company.Consult the Incoterms© rules. They explain an entire series of trade terms. Each Incoterm consists of three letters which reflect the practices used by the companies. The Incoterms rules focus on the duties, costs and risks involved in the delivery of goods by sellers to buyers. In other words, who pays for the freight, who insures the goods, from/to which geographical location, and when in the export phase the seller’s risk is shifted to the buyer.

8 LEGAL RISK

Legal risk arises from contracts that are subject to the legislation/case law of a foreign power. In the event of a dispute you’ll be facing a long and difficult legal battle, with an uncertain outcome. This risk materialises mainly – but not exclusively – outside the European Union.

The International Chamber of Commerce in Paris plays a leading role in developing the rules governing international trade and disseminating good practices


CASECASE CARTAMUNDI

“This is a critical factor in our business, a business which is heavily shaped by on-demand campaigns and marketing drives by customers. It’s our greatest asset in being able to compete with China, the world leader in playing cards. China can’t meet demand outside Asia quickly and in a cost-efficient manner. But we can, thanks to our local presence on four continents.”

A UNIQUE BELGIAN FEATURE

Many years ago, Cartamundi opened a greenfield production site in the USA. At the time, the launch was seriously underestimated. “As a result, we are now looking for local partners, people who speak the same language, in the broadest sense, and who share our values and skills: an entrepreneurial spirit, cooperation and commitment. Finding the right match takes time – for example, it was seven years before we entered the Japanese market.” Cultural and historical sensitivities can undermine a partnership, though. For example, Portuguese- and Spanish-speakers in South America don’t mix easily. “We’re finding this out at the moment in the context of a takeover in Mexico by our Brazilian colleagues.” They also explain why Cartamundi has yet to break into China. “Even after all these years, I still don’t have a solid enough grasp of the country’s fundamental yin & yang culture to set up a business there. I could tell some wild stories about how the Chinese attitude to doing business clashes with our Western certainties.”

THE APPLE OFTHE PLAYING-CARD INDUSTRYDuring the interview, the CartamundiDuring the interview, the Cartamundigroup announces the takeover of Francegroup announces the takeover of FranceCartes, with the latter becoming its fifthCartes, with the latter becoming its fifthlargest production site in Europe. Thelargest production site in Europe. Theacquisition of the local player is the fruitacquisition of the local player is the fruit of many years of exploratory work andof many years of exploratory work andrelationship-building, and is emblematicrelationship-building, and is emblematic of the international expansion strategyof the international expansion strategy of the world’s most renowned card-of the world’s most renowned card-game manufacturer.game manufacturer.

© C

arta

mun

di

Chris Van Doorslaer, CEO of Cartamundi Group

Standing out from the crowd is one way of driving forward growth. Another is excel-ling in a niche market and in so doing establishing a solid position as a market leader. The name ‘Cartamundi’ describes the group perfectly. “After 25 years of structuring expansion around exports, during the past quarter of a century we

have focused on establish-ing a local presence,”

says Chris Van Doorslaer, CEO of Cartamundi for the past 17 years. In this

way, the group has been able to

keep delivery times short and reliable.


But, says Van Doorslaer, Belgians have a unique ability to come across as humble and respectful. “We are inherently multicultural – after all, we speak three languages in Belgium, none of them ‘Belgian’ – and have an inbuilt sense of neutrality. And that stands us in good stead abroad, for example in contrast to the more threatening attitude of American companies.”

STRONG EURO A BARRIER

There are a number of barriers to international growth. “High tax rates in Belgium are one, since they mean that fewer resources are available.”The fragmentation is reflected at EU level. “A true legislative and fiscal union should make doing business in the EU much

simpler, but the strong euro is a major factor. In contrast to all other national central banks, the European Central Bank cannot support the European economy (it can only combat inflation). But such a strong euro is limiting the competitiveness of Belgian companies worldwide.”

Cartamundi

Business: playing-card industryHeadquarters: TurnhoutEmployees (2013): 1,350Abroad: % of turnover, including over 50% outside EuropeTurnover (2013): 152 million euro24 subsidiaries (including 10 production sites) in Asia, Europe and America www.cartamundi.com

“ Belgians’ humble“ Belgians’ humblenature is a key asset”nature is a key asset”


Financing formsand risks

There are many ways of doing business abroad, and accordingly there are many ways of financing: export financing, provision of working capital, investment credits, etc.

Kristof Luycx (KL): “As soon as a manufacturer starts producing goods, it costs him money. But it might be some time before the income from exporting those products starts rolling in. Export financing can be used to break this impasse. Export financing is medium-term financing for exports of capital goods and services. Examples include machines and parts, construction work, dredging and heavy rolling stock. Concretely, the bank extends a long-term credit facility to the foreign buyer so that it can immediately pay the Belgian exporter in full upon delivery of the goods or services. One important benefit is that you, as a Belgian exporter, no longer have any uncertainty about receiving payment for your exports. Your trusty bank assumes the payment risk and allows the foreign buyer deferred payment to offset its risk. In addition, as an exporter you can also reach a financing arrangement linked to your offer to the foreign buyer, in addition to your professional knowledge and expertise – a not insignificant competitive edge. Lastly, the impact on working capital is limited because export financing has no impact on the exporter’s existing credit lines. The credit facility is a bilateral arrangement between the bank and the importer. For importers in less mature markets, this provides added value: in addition to staggered repayments, they can go to Belgian banks for financing at better interest rates than they could get if they took out loans locally. Real-world examples include the financing of dredging operations in an African harbour, the export of heavy rolling stock or the delivery of turbines for a hydropower plant.”

Whether a company limits its foreign activities solely to exporting, or actually develops its own subsidiaries abroad, it will need to finance its working capital or other assets. Various forms of financing are available depending on the specific opportunities or risks involved. Or customised approaches can be devised. Below is a round table discussion with four experts providing information and explanations.

Kristof LuycxSenior Project & Export Finance Manager (ING Structured Finance)

Eric BastinCorporate Finance Manager (BDO)

Jan WolfcariusHead Event Finance Belux (ING Commercial Banking)

Sebastien D’HondtHead of Corporate Clients Belux (ING Commercial Banking)


A lot of exports are made to less stable countries outside the OECD. How does a bank deal with risks in the event of a coup or a sudden freeze on currency?

KL: “For each transaction both the bank and the exporter conclude a contract with, for instance, the Belgian Export Credit Agency, which covers 95 to 98% of the open risk. Because the Belgian Export Credit Agency can properly assess and assume the exporter’s political and commercial risks, the company can still do business with countries where it would otherwise be difficult.”

Eric Bastin (EB): “Since we, as a small, open economy, are highly dependent on exports, international expansion is well supported by both the regional and federal governments. Quite a few financing instruments from, say, the Belgian Export Credit Agency, Finexpo, Sofinex, etc., are less well known among companies, but they do offer solutions for directly extending credit to subsidiaries in countries where the banks do not have a strong presence, or indeed no presence at all.”

Jan Wolfcarius (JW): “Export financing is the odd man out when it comes to financing mechanisms. Belgian companies use this as financing (covered by the Belgian Export Credit Agency) for foreign customers in support of Belgian exports. But it is not used for developing foreign sites of Belgian companies abroad. That said, a Belgian entrepreneur can also use the export financing technique to engage in import financing. For instance, the company Sarens has its cranes produced by a German manufacturer. In that case, the bank set up an export credit facility (covered by the German credit insurer Euler Hermes) based on the export contract from the German supplier to the Belgian firm Sarens. As a result, Sarens gains

access to important additional and long-term investment credits. In other words, customisation is definitely possible via creative solutions.”

So, export financing is clearly on the up?

KL: “With the traditional European markets growing more slowly these days, Belgian exporters are looking for opportunities in the less mature growth markets where numerous investment projects are lined up and bigger margins are possible. With export financing they can be more competitive when bidding for contracts.”

JW: “After all, foreign competitors are doing the same thing. A Chinese competitor is simply covered by the Chinese state-owned banks. So we need to offer Belgian companies the same weapons.”

Export financing reconciles the opposing interests of exporters and importers Kristof Luycx

EB: “That’s why it is so important for a company with international ambitions to choose a financial adviser and bank with specific experience and a powerfully supported international network of specialists. It would be a shame for you to miss business opportunities because your home bank is not able – despite its best intentions – to knowledgably promote your interests abroad. That’s why it’s important to go abroad very early in the decision-making process in order to involve the bank or adviser in the project. The sooner they are brought up to speed, the more advice they can give about the best


structure, the contract and the small print – and the better that advice will be. Once the contract is signed, it’s often too late.”

Another financing option for companies is financing working capital.

Sebastien D’Hondt (SD): “In bank terms, this is called factoring or ‘commercial finance’. With factoring, a company sells its invoices or trade receivables to the financial institution. In exchange for a discount on the invoice amounts, the company immediately receives cash (an advance on amounts receivable) that can be deployed as working capital. This allows a business to finance its growth without a bank loan and without accumulating debt. Derivatives include the more complex international factoring (invoice portfolios in various countries via a single contract) and the more recent reverse factoring (‘supply chain finance’). Here, the bank pre-finances the company’s outgoing invoices. Factoring offers companies four major benefits: 1) diversifi-cation of financing; 2) less dependence on cash flow and more on the invoice portfolio;

3) more financing as revenue grows; and 4) the invoices can be kept off the balance sheet.”

EB: “On the understanding that the volume of trade receivables must be big enough (at least a couple million euro, but also a significant volume of invoices) so that factoring offers sufficient benefits for both parties. Deploying factoring also means the company will have to change its internal procedures and re-organise its administrative services.”

Exchange rate risks play less of a role in local financing Sebastien D’Hondt

JW: “It is not just the financial cost (the margin for the factoring company) that plays a role, but also the underlying administrative cost, such as the costs of monthly reporting and follow-up. Estimate the Total Cost of Ownership before you opt for factoring.”

> following p. 70

Left to right: Kristof Luycx, Sebastien D’Hondt, Eric Bastin and Jan Wolfcarius.


CASECASE TER BEKE

of products,” explains Ter Beke CFO René Stevens. “Today we see more favourable trends and believe the market is about to take off.”

LOCAL ASSISTANCE

Ter Beke began talking to its venture partners, which already sold some products in the region, and hatched the idea to combine forces in order to share the risk and prevent overcapacity in a new market. The company examined the different markets across C&EE and found them to be at various stages of growth and readiness for their products. They shortlisted Poland, Czech, Hungary and Slovakia, which already presented the required trends and consumption patterns. In addition, they offered the best local availability of technical skills and materials, access to talent, and industrial knowledge.

They eventually settled on an economic zone under development in southern Poland that offered excellent utilities services that are vital to the plant’s operation. Equally important was the proactive advice they received from local authorities who went out of their way to show them what they had to do and helped them understand local regulations.

“The assistance we got locally was very important,” Stevens recalls. “Even after you’ve done the research and compared the various places, you need that local knowledge and the ongoing support. The C&EE region is not a replica of

EXPANSION INTO CENTRAL & EASTERN EUROPE MEANS MORE THAN JUST ‘COPY AND PASTE’

© T

er B

eke

Ter Beke NV, the Belgian fresh foodTer Beke NV, the Belgian fresh foodgroup with operations across westerngroup with operations across westernEurope, will open September 2014 aEurope, will open September 2014 agreenfield production site in southerngreenfield production site in southernPoland as part of its new joint venturePoland as part of its new joint venturecompany that will market its productscompany that will market its products in Central & Eastern Europe (C&EE).in Central & Eastern Europe (C&EE).The plant will serve the various CEEThe plant will serve the various CEEcountries. This will enable the Euronext-countries. This will enable the Euronext-listed company to develop its vision tolisted company to develop its vision tobe a truly continental player.be a truly continental player.

A C&EE presence is a logical move for Ter

Beke as it searches for growth opportunities outside its traditional markets in Western Europe. “The C&EE region has been fast

growing for some time, but the consumers

weren’t ready. They were focusing on other types

René Stevens, CFO of Ter Beke


Western Europe and you cannot just copy and paste your business model into it. You will encounter differences and a steep learning curve, even if the market is showing the rights trends.”

“When starting up“When starting upwe use trusted supplierswe use trusted supplierswe have worked withwe have worked within the past”in the past”

KNOW AND TRUSTED SOURCES

The new plant will initially be supplied by existing West European contractors. “Once we are up and running we will look at local sourcing, but we don’t want to go out there and assume that we’ll find things in the same way as here,” says Stevens. “We’ve set out to use the supply sources that we already know and trust. Over time, of course, we will look for opportunities to source locally, providing it does not compromise our quality.”

Financing the creation of the Pasta Food Company as a greenfield site presented additional challenges for the company. “Financing what is in effect a new company without any sales presents a number of risks,” confirms Stevens.“Our bank proposed to split the financing part in two parts. The first is a long-term credit facility to cover the start-up phase, which was offered out of the Belgian office of the bank. The second is a short-term loan coming from the Polish office, used mainly for working capital purposes.”

Ter Beke

Business: a Belgian fresh food group with two core activities : processed meat and chilled ready mealsHeadquarter: Waarschoot Turnover (2013): 407 millionEmployees (2013): approximately 1.700Worldwide presence: seven plants in Belgium & the Netherlands ; new JV Pasta Food Company located in Polandwww.terbeke.be


We haven’t yet talked about the most standard form of financing: the investment credit.

JW: Investment credits serve as medium- to long-term financing for a fixed asset, without exceeding the investment’s depreciation term. There are few differences between an investment credit to the parent company or to a subsidiary abroad.”

The question remains as to whether your company opts for central financing via headquarters and then internally by taking a loan via an ‘intercompany’ loan to the subsidiary, or whether you opt for a loan from a local bank abroad?

EB: “The choice depends on the maturity of the financial institution’s foreign network and on the (financial) health and strength of the company’s foreign subsidiary. The cost of credit itself also plays a decisive role. Financing in Belgium is among the cheapest in Europe; interest rates in non-European countries can be three to five times higher. Lastly, the option must fit in with the group’s financial strategy.”

JW: “Intermediate forms are also possible, of course. If the home bank finds the creditworthiness of the local subsidiary insufficient, the financing can still take place via the local bank, which hedges the credit with a guarantee from the parent company.”

SD: “Our statistics show that the vast majority of larger companies opt for central financing due to the above-mentioned strategic and cost benefits. But don’t forget exchange rate risk and the impact of possible market instability. After all, emerging countries are not always that stable. And that definitely has an impact on the risks and costs involved in long-term financing.”

Estimate the Total Cost of Ownership before you opt for factoring as a financing toolJan Wolfcarius

EB: “Precisely because of such risks, banks generally prefer central (local) financing over lending money to distant subsidiaries located in markets which they, as a bank, are less well able to assess and manage.”

JW: “Another reason why many large international groups opt for central financing – with the exception of financing for working capital – is that they want to avoid overly large external financing pressure among operational companies. Moreover, an overly large credit extended to subsidiaries can negatively impact the parent company’s risk assessment. A loan to a parent company that itself barely generates cash flow (cash flow is the source for repaying credits) could end up being subordinated to the loan to the local subsidiaries. With central financing the external financing risk lies with the parent company, the subsidiaries have no other creditor bank and the creditor has a better risk position in respect of the parent company. With this, a company can maximise the desire for credit under optimal conditions.”


Let’s take a closer look at exchange rate risk.

SD: “Exchange rate risks play less of a role in local financing. With central financing, however, the hard euro is a risk factor. If a company finances in euro and earns income in Turkish lira, then it will face an enormous additional cost for its credit. The growing divergence between the euro and most other currencies in the world generates a major opportunity cost for companies’ P&L (Profit & Loss). How can you resolve this dilemma? Local financing generally means a (substantially) higher basis rate and a bigger spread or margin on top of that basis rate (owing to the possible instability of the market), but less risk of exchange rate fluctuations. With central financing, it’s just the opposite. But a company can hedge against that risk via a number of mechanisms, such as a currency swap.”

Where is the tipping point?

SD: “There is no general rule. The company must work with its financial partners to analyse and consider options on a case-by-case, currency-by-currency and market-by-market basis.”

Shouldn’t a company with international ambitions first and foremost invest its own resources before seeking financing?

EB: “Absolutely! Just because your company is going abroad doesn’t mean the banks are going to open up the credit tap. After a company has proven itself on its home market, it can start operating abroad initially with its own reserves, in some cases supplemented with private equity.

The bank is only brought in ultimately as a supplementary financer. This kind of strategy goes a long way in boosting bank confidence.”

Just because your company is going abroad doesn’t mean the banks are going to open up the credit tap Eric Bastin

KL: “That’s why it is so important to involve the financial partners in the project as early as possible. That way, the company can ensure its credit application is put together properly with relevant details. It shouldn’t present the bank with a – less attractive – fait accompli by, say, taking steps abroad from which there is no turning back. And there is every chance that you are not the first company seeking credit that is operating in that country. Its knowledge of the local market can be invaluable.”

What makes for a good financing application?

JW: “There are four key areas. First, business risk. How risky is the activity pursued by the company and what is its position with respect to rivals and customers? Next is financial risk, of course. For example, how big is the company’s own contribution and how does the credit fit in with the company’s existing debt? Third, there is management risk. How experienced is the team and to what extent is it able to correctly assess and monitor all risks? Finally, there is structure risk. At which level is the credit application made and what risks or subordinations does it entail? And what guarantees can you use to hedge against these risks?”


EB: “If a customer wants to set up a subsidiary, my first question is always: ‘Who is in charge of follow-up for the project?’ Recruiting a new CEO is possible, but how well known and trusted is that person? The CEO of the parent company can take on the job, but he often underestimates the enormous amount of work involved. On top of that, he will have to spend less time focusing on his current core tasks. Many companies forget about getting organised efficiently on the home front in order to successfully manage the scope of a foreign project. My advice: bring in a temporary manager to handle domestic duties so that the CEO or CFO can focus fully and for a limited time on the project abroad.”

The clincher: An FEB survey of several hundred companies shows that 12% view financing as one of the main obstacles to their international expansion. Could we call that a credit crunch?

SD: “A company that diligently and credibly prepares and substantiates its credit application and involves the financial experts right from the start of the project will face few obstacles. I’d bet on it. These days there are almost as many loan applications as before the crisis. In other words, banks are still keen to extend credit to businesses.”

EB: “So, what has fundamentally changed since 2007–2008? Some banks have totally changed their structures and fully withdrawn to their nearby domestic markets. In certain cases, these banks may be more reticent with respect to large, complex international credit applications. On the other hand, the companies are shifting their limits to riskier emerging markets, further away from the well-known European markets. Today, an application for Poland will not encounter any more or less resistance than before. An application in, say, Brazil or China – the new promised land for Belgian companies – is a totally different kettle of fish.”

Our thanks to Filip Masschelein, Head Structured Finance (ING Belgium), for his contribution.


THE INTERNET BOOSTS EXPORT OPPORTUNITIESTHE INTERNET BOOSTS EXPORT OPPORTUNITIES

The Internet’s contribution to the Belgian econ-omy in 2015 is forecast to be some €8.6 billion, which is equivalent to 4.6% of Belgian GDP1. This increase is due largely to the emergence of e-commerce in Belgium, which in 2013 generated a turnover of almost €2 billion – an increase of 26% compared with 20122. According to another recent survey3, Belgian online traders anticipate that in the future a larger proportion of their sales will come from other European countries. The same study anticipates that by 2020, the e-commerce market as a whole (in the shape of the current six largest e-commerce markets4) will have grown fivefold from €25 billion in 2013 to €130 billion in 2020.

Despite this positive trend, the majority of Belgian companies do not always seem to be able to harness the increasing potential of e-commerce. Take the retail sector, for example: 77% of clicks via fee-charging Google AdWords links aimed at Belgian households lead to a

foreign e-commerce website5. To give an idea of the opportunity missed: the volume of clicks to Dutch sites via AdWords campaigns aimed purely at Belgium is greater than the volume of clicks generated by all ‘Belgian’ AdWords campaigns worldwide.

Aside from lack of time and an appropriate logistics infrastructure, there are three key reasons why e-commerce in Belgium lags behind that of its neighbouring countries:1. Over 50% of Belgian companies do not have a websiteThis is an alarming figure in terms of the competitive potential of Belgian companies, seeing as almost 80% of Dutch SMEs, for example, had a website in 2014. Companies without a website nowadays are essentially invisible to an increasing number of customers who turn to the Internet to look for the products and services they require.2. Belgian business owners underestimate the importance of a multilingual website Of the websites of the 50% or so of Belgian com-panies which do have them, two-thirds are still monolingual. Given the speed at which globali-sation is progressing, it is crucial for companies wanting to promote their goods and services abroad to offer customers a multilingual website. The table below shows the foreign-language content available on the top 50 websites in the retail sector in four neighbouring countries.

The Internet, and more specifically e-commerce, offers companies unique opportunities to secure new customers. In terms of creating export opportunities, the World Wide Web offers possibilities which until fairly recently would have been unthinkable.

WEBSITE LANGUAGES THE NETHERLANDS GERMANY FRANCE UNITED KINGDOM

#1 35% German 48% English 38% English 36% German

#2 31% French 46% French 34% Italian 34% French

#3 27% English 46% Dutch 34% Spanish 24% Spanish

#4 10% Italian 40% Polish 32% German 14% Italian

#5 8% Spanish 34% Italian 24% Dutch 12% Chinese

Source: Top 50 e-retailers by country, website checks September 2013, OC&C analysis

1 BCG Report “Economy.be at the crossroads”, April 2011.2 BeCommerce, “E-commerce in de lift in België” (E-commerce on the rise in Belgium), 22 March 2014.3 The internalisation of e-commerce, 2014 edition, OC&C Strategy Consultant.4 US, United Kingdom, Germany, France, Scandinavia and the Netherlands.5 Internal data Google Belgium, 2013.


3. Barely a quarter of Belgian websites are geared up for mobile devicesBy midway through 2014, Belgians were visiting almost 20% of websites via their smartphone or tablet6. The figures were similar where Google was concerned, with 26% of searches on Google.be during 2014 being made via mobile devices (that figure was over 35% in the hotel & catering sector). It also appears that despite the significant rise in the use of smartphones and other tablets in Belgium, and the fact that a wider range of the population now have access to them, barely 20% of Belgian websites can be accessed easily using a mobile device7.

In a world in which everything and everyone is constantly connected, consumers expect to be able to find the information they want quickly and easily, wherever they are and on any screen. A recent study by Google revealed that 61% of users would visit a competitor’s website if they were unable to visit their initial-choice website easily using their mobile device. In practice, 67% of consumers are more inclined to buy online if the site in question is mobile-friendly8.

A promising futureThe Belgian market has been slow to capitalise on the benefits offered by the digital age, but

it is important to keep in mind that Belgian society is still in the early stages of this new revolution. As such, Belgian companies still have ample opportunity to enhance their competi-tive position via digital channels as a whole and via e-commerce in particular – provided that they keep in mind best practices. The Market practices and consumer protection section of the new Economic Law Code which entered into force on 31 May 2014 contains new rules with which every Belgian online trader must comply. For more information visit www.economie.fgov.be/nl/consument/Handelspraktijken/. Finally, as a business, you should be under no illusions that Belgian consumers will wait to enjoy all the advantages afforded by advances in digital technology. After all, do you use the In-ternet to plan holidays, map travel routes or find the closest shop? Well, so do your customers and prospective customers around the world, and Internet use is increasing all the time. For example, the European country which saw the biggest rise in the amount of time spent online in 2013 was... Belgium (up to 22.4 hours per month9, which is two hours more than in 2012)! With Britons spending almost 40 hours a month surfing online, Belgian businesses should be rub-bing their hands with glee at the huge untapped potential afforded by the digital world.

SECTORS % DESKTOP % SMARTPHONE % TABLETClothing 70% 14% 16%Art and leisure 74% 14% 12%Beauty products and body care

68% 18% 15%

Restaurants and bars 67% 17% 16%Finance 84% 7% 9%Food 70% 14% 16%Healthcare 73% 15% 12%

Gardening 73% 11% 16%Internet and telecoms 73% 15% 12%Special occasion goods and gifts

73% 14% 13%

Real estate 76% 10% 14%Sport and fitness 69% 12% 14%Travel and tourism 72% 14% 14%Cars 74% 13% 13%Total 74% 13% 13%Source: internal Google data, June 2014

% OF SEARCHES ON GOOGLE.BE TIPTIPGoogle’s Export Business Map (avail-able to download at www.google.be/ads/global/ ) contains useful statistics on population, search behaviour, and use of mobile phones & social media in the context of 12 key export markets for Belgium.

6 comScore Device Essentials, June 2014, Belgium – Share of browser-based page views.

7 Internal data Google Belgium, 2013.8 http://think.withgoogle.com/

mobileplanet. 9 comScore MMX, all sectors,

December 2013, Europe 15+.


CONCLUSION Doing business internationally is coming to be regarded by an increasing number of busi-nesses as an attainable goal, not least thanks to technological advances such as e-commerce, for instance. Furthermore, the definition of ‘abroad’ has changed considerably and no longer applies solely to neighbouring countries or, by extension, the EU. The emergence – and economic attractiveness – of the BRICS coun-tries and, more recently, the MINT countries, means that ‘abroad’ is now synonymous with ‘the rest of the world’ and this new, global plat-form is creating sizable business opportunities.

FEB statistics show, too, that most CEOs now consider international business to be of strate-gic importance to the growth – and indeed sur-vival – of their company. One caveat, though: family businesses tend to be more conservative and more risk-averse, which means that for them, international expansion is generally a much slower process and is centred largely on neighbouring countries.

A customised approach will boost your business’s chances of successAt first glance, expanding internationally would appear to be an attractive option and reasonably straightforward. However, it is one of the most complex business strate-gies. There is no one-size-fits-all method for expanding abroad. Accordingly, the concept of ‘doing business abroad’ in the sense of ‘export only’ is less comprehensive than where a direct investment locally is involved. Which-ever strategy you choose, different businesses and sectors will have specific rules, which will frequently be determined by the scope of activities, availability of skilled personnel and resources (both financial and non-financial) and actual market conditions. However, while there may be a considerable number of rules

and regulations, there is also a wide range of solutions which can be tailored to your individual goals.

Naturally, the success of your foreign plans will hinge on a thorough knowledge of the local legislation, customs and formalities. Practices applied in Belgium cannot simply be ‘copied-and-pasted’ to a foreign market, not even within the EU. Support and intervention from advisers and organisations familiar with local legislation will often be a critical factor in the success of your plans. Don’t lose sight either of the possible repercussions of your foreign expansion on your domestic activities.

In this brochure, we focus in a structured manner on the key aspects to be considered in the context of any foreign-expansion strat-egy, including tax considerations, the legal structure chosen for your foreign operations, the social law framework, financing, and risk analysis & risk assessment. We also provide a checklist of practical questions to help you with your preparations and bring the feasibil-ity of your plans and goals into focus – and to better equip you to deal with the potential risks your business will face. The theory is also brought to life through testimonials to inspire both business managers taking their first steps in an international environment and seasoned entrepreneurs. Whatever the context, doing business internationally is always a journey of discovery, and tips & advice and sharing of experiences is valuable at all levels.

We hope this brochure will serve as a practical manual to help all businesses push their en-trepreneurial boundaries – quite literally – and sharpen up their international business skills and know-how. We wish you every success in your endeavours!


BRUSSELS INVEST & EXPORT FOREIGN TRADE

AND FOREIGN INVESTMENTS SERVICE OF THE

BRUSSELS REGIONAL PUBLIC SERVICE

Promotes and supports Brussels-based export companies.Avenue Louise 500, box 4B-1050 Brussels+ 32 (0)2 800 40 00www.invest-export.irisnet.be

THE BRUSSELS-CAPITAL REGION

ECONOMICS AND EMPLOYMENT

Offers five support measures to Brussels-based self-employed entrepreneurs, micro-businesses and SMEs looking to grow their business on foreign markets.Boulevard du Jardin Botanique 20B-1035 Brussels+ 32 (0)2 800 34 [email protected] (go to Premiums and subsidies/SME or self-employed/Exporting)

FLANDERS INVESTMENT & TRADE (FIT)

Promotes growth of international businesses focusing on sustainability.Avenue Albert II 37B-1030 Brussels+ 32 (0)2 504 87 [email protected] dedicated information office is available for each Flemish province.

WALLOON EXPORT AND FOREIGN

INVESTMENT AGENCY (AWEX)

Promotes foreign trade, and provides practical and financial support for entrepreneurs wanting to expand abroadPlace Sainctelette 2B-1080 Brussels+ 32 (0)2 421 82 11 [email protected]

BELGIAN FOREIGN TRADE AGENCY (ABH-ACE)

Supports the three Regions and the Belgian federal government in promoting foreign trade, for example by organising economic missions.Rue Montoyer 3 B-1000 Brussels+ 32 (0)2 206 35 11 [email protected]

ICC BELGIUM

Represents the interests of companies in international trade, drafts voluntary trade rules recognised worldwide and tackles various issues such as counterfeiting and protection of intellectual property.Rue des Sols 8B-1000 Brussels+ 32 (0)2 515 08 [email protected]

NEED INFORMATION OR SUPPORT? Below is a non-exhaustive list of institutions and organisations you can contact for information on and support in giving your international business plans an extra boost.


INTERNATIONAL BUSINESS INSTITUTE

Organises targeted training in international

business and is working to become the leading

competence centre for international trade.

c/o ICC Belgium

Rue des Sols 8

B-1000 Brussels

+ 32 (0)2 515 08 44

[email protected]

www.iccbelgium.be/ibi

ENTERPRISE EUROPE NETWORK (BELGIUM)

One of the network’s key goals is to help

businesses in general but specifically SMEs to

gain access to new markets abroad.

Square Frère-Orban 10

B-1049 Brussels

+32 (0)2 295 00 11

[email protected]

www.enterprise-europe-network.ec.europa.eu

EUGO

Are you looking to start up a business or provide

temporary cross-border services in the EU or

EEA (the 28 EU Member States plus Iceland,

Liechtenstein and Norway)? If so, you can count

on support from EUGO, a central point of

contact where members of the EUGO network

are always on hand to provide online support

with administrative procedures.

http://ec.europa.eu/internal_market/eu-go/

index_en.htm

AGORIA BUSINESS DEVELOPMENT CLUBS

Agoria International Business helps Belgian

technology companies to promote their business

internationally and to prospect abroad. Seven

business development clubs for specific markets

identify relevant projects worldwide and put their

members in contact with the decision-makers

involved. Via tailor-made business intelligence,

high-level networking and both inward and

outward trade missions, Agoria helps its members

to build up high-quality commercial leads.

www.agoria.be (go to Business Development

> International Business)

FEVIA FOOD.BE

Through its campaign “Food.be. Small country.

Great Food”, Fevia, the umbrella trade

association for the Belgian food industry, is

working to enhance appreciation of Belgian food

and boost exports. Belgian food boasts some

undeniable highlights, but many are still unaware

of them. Belgium has an established reputation

when it comes to beer and chocolate, but the

food sector as a whole can benefit from a stronger

image, particular in emerging markets.

www.food.be


DOING BUSINESS INTERNATIONALLY

Doing business internationally is coming to be regarded by an increasing number of businesses as an attainable goal, not least thanks to technological advances such as e-commerce, for instance. Furthermore, the definition of ‘abroad’ has changed considerably and no longer applies solely to neighbouring countries or, by extension, the EU. This new, global platform is creating sizable business opportunities.

At first glance, expanding internationally would appear to be an attractive option and reasonably straightforward. However, it is one of the most complex business strategies. Whichever strategy you choose, different businesses and sectors will have specific rules, which will frequently be determined by the scope of activities, availability of skilled personnel and resources (both financial and non-financial) and actual market conditions. However, while there may be a considerable number of rules and regulations, there are also a wide range of solutions which can be tailored to your individual goals.

In this brochure, compiled by experts from BDO and ING, we focus in a structured manner on the key aspects to be considered in the context of any foreign-expansion strategy, including tax considerations, the legal structure chosen for your foreign operations, the social law framework, financing, and risk management. The ‘theory’ is also brought to life by testimonials from business managers.

We hope this brochure will serve as a practical manual to help all businesses push their entrepreneurial boundaries and sharpen up their international business skills and know-how!

The Federation of Enterprises in Belgium is the voice of more than 50 sectoral federations, which in turn represent more than 50,000 companies, including 41,000 SMEs. FEB, which is the largest Belgian employers’ association, represents more than 80% of employment in the private sector. www.feb.be

Documents

DOING BUSINESS INTERNATIONALLY many companies, doing business internationally ... 03 International business and tax 28 1.1. Fundamental principles 29 2.2. Working with a local partner