hen Google announced plans to invest up to €300 million in a new European data center, competition between various European regions was fierce. The project would create up to 300 construction jobs, and 120 new jobs in programming, security and maintenance. In addition, attracting one of the world’s leading IT companies offered significant marketing power.
Google chose to build the center in St. Ghislain, in the Walloon Region of Belgium, because of the region’s excellent fiber optic network, the quality of the local work force, and the proximity to a canal which will be used to cool off the company’s computer systems. The Walloon Region committed €5 million to the cost of the project, which will also enjoy EU investment support.
Google’s decision made some headlines but illustrates merely a reality, often unnoticed, that Belgium has been remarkably successful over the years in attracting foreign and U.S. investment. The Financial Times recently ranked Flanders and Wallonia among the top five of Europe’s most attractive European regions for foreign investors. Belgium attracted $72 billion in foreign investment capital in 2006, according to the UN’s most recent World Investment Report. This made the country – the size of Maryland – the fourth destination for foreign investment worldwide, one place ahead of China.
U.S. companies were responsible for most of the foreign investment projects in Belgium in 2006. Historically, hundreds of U.S. companies have invested over $50 billion in the Belgian economy. Most of the investment has been in the finance and insurance sector, and in chemical manufacturing. Yet U.S. investment in professional, scientific, and technical services has more than tripled since 2000, including law firms, accounting firms, advertising agencies, and computer and management services.
Belgium’s major appeal for foreign companies is of course its central location in Europe. Within a radius of 300 miles from its borders, 140 million European consumers can be reached in Europe’s major economies, making Belgium an ideal test market for new products in Europe. With a population of 10 million, Belgium is the 10th exporter of goods in the world. Eighty percent of the country’s GDP is exported, mostly to neighboring Germany, France, the Netherlands and the U.K. In addition, as host of the EU, Belgium is a popular spot for companies with a special interest in access to European decision-making.
Yet as important as location is, other factors contribute to Belgium’s success as a destination for FDI. Belgium’s status as the top car exporter per capita in the world, for example, is also the result of its excellent business infrastructure and its second most productive workforce per hour worldwide. Low real estate costs contribute to Belgium’s appeal for distribution and logistical activities. Belgium attracts more than 10 percent of all logistical foreign investments in Europe, according to Ernst & Young’s latest Barometer of Belgian Attractiveness.
Thanks to excellent local R&D capabilities, Belgium has become a major player in the life sciences. In 2006, the OECD named Belgium the best performing country in terms of innovation and biotech industry development, based on biopharmaceutical patent applications, drugs under development, venture capital invested and number of biotech companies per capita.
Over 140 biotech companies in Belgium employ over 10,000 people, predominantly focused on healthcare applications. Belgium is the second exporter of pharmaceutical products per capita in Europe. The country hosts one of Pfizer’s largest non-U.S. production sites, and GlaxoSmithKline has located almost its entire production of vaccines in Belgium.
Belgium can ill afford to rest on its laurels. In a globalized economy, Europe attracts a smaller part of foreign investment each year, and Belgium is locked in a fierce competition for new investment with Western and Eastern European competitors – for expansion projects as well as “greenfield” investment. Over the last five years, the Belgian government has taken an increasingly pro-active approach in creating a business friendly environment. In an effort to reduce red tape, it is now possible to set up a company in Belgium via a single office in three days.
The government has especially focused on reducing the tax burden for companies. Two years after a reduction of corporate tax rates in 2003, the government launched the Notional Interest Deduction, which allows Belgian tax-resident companies and Belgian branches of non-resident companies to deduct in their corporate income tax return a deemed interest cost for the equity invested in the Belgian company of branch. Estimates are that the NID has reduced the effective corporate tax rate in many cases to less than 25 percent.
Belgium has also implemented a series of tax incentives for locating R&D activities in Belgium, including R&D tax credits or R&D investment deductions for companies, payroll withholding tax relief for researchers, and a one-off tax deduction for the recruitment of new researchers. Since last year, Belgian companies and branches engaged in patent development – in a research center in Belgium or abroad – will benefit from a special reduction of 80 percent in taxation of royalties. Belgium is also targeting the niche market of pension funds with a new tax regime for locating cross border pension funds in Belgium in a tax-neutral manner. Finally, Belgium has significantly expanded its tax treaty network. A new double tax treaty with Hong Kong (2004) offers tax-efficient opportunities through a Hong Kong-Belgian corporate structure. And late last year the U.S. Senate ratified a new treaty with Belgium that eliminates withholding taxes for most dividend, interest and royalty payments.
The U.S. business community in Belgium has been a driving force behind many of the reforms and has very much welcomed them. “We are proud that Belgium has become more attractive for U.S. investment,” said Denise Rutherford, president of AMCHAM Belgium, during the release of the organization’s U.S. Direct Investment in Belgium 2007 Report.
To promote these achievements and to signal that Belgium is open for business, the government recently launched its third international investment promotion campaign in five years, “Only in Belgium.” At the heart of the campaign is a new Web site, www.invest.belgium.be, which explains Belgium’s assets, offers links to relevant information, and outlines the procedures to join the ever-expanding group of foreign companies in Belgium.