Belgium and Hong Kong: gateways to Europe and Asia

1. Belgium and Hong Kong: gateways to Europe and Asia Speech by minister of finance Didier Reynders Brussels, Solvay Library April 24, 2007

2. Belgium’s position: The best platform for companies to arrange their investments in Europe or in Asia Because of: • Belgium-Hong Kong double taxation avoidance treaty • Notional interest deduction • Other incentives

3. BHKDTAT: special characteristics • Only treaty between an OECD member state and Hong Kong • The first to extend benefits of the EU parent/subsidiary directive • Allows tax free profits repatriation from Belgium for HK resident companies • Connects with Belgium’s huge network of double taxation avoidance treaties (92 in operation)

4. Tax advantages of BHKDTAT in Belgium • If treaty’s preconditions are met: • - no withholding tax on dividends • - no withholding tax on interests • - maximum 5% withholding tax on royalties • - compensated by tax credit for royalties

5. Tax advantages of BHKDTAT in Belgium • Interests and dividends from EU subsidiaries paid to Belgian parent: 0 % withholding tax (EU parent/subsidiary directive) • Interests and dividends from non-EU subsidiaries paid to Belgian parent: 0 % withholding tax if DTAT with that country in place

6. Tax advantages of BHKDTAT in Belgium • No CFC rules • No passive income test • capital gains tax exemption when upstreaming to Hong Kong as dividend • Under DTI, 95% of received dividends are exempt of taxation in Belgium • Interest charges can be offset against remaining taxable dividend income

7. Tax advantages of BHKDTAT in Belgium • Hong Kong is not a tax haven • Its territorial based tax system is not deemed “notably more advantageous” by the Belgian tax administration • Therefore dividends and capital gains from HK activities benefit in Belgium from company participation exemption (includes from P.E. in HK)

8. Belgium’s position: notional interest deduction - Unique in the world - Purpose: eliminate discrimination between debt-financing and equity - An automatic annual deduction against taxable revenue based upon the Belgian firm’s equity base - Applies to all Belgian firms AND branches of foreign firms

9. Belgium’s position: notional interest deduction Definition of equity: Total equity under Belgian GAAP (includes retained earnings) in the opening balance sheet of taxable period Adjusted to avoid double use and abuse

10. Belgium’s position: notional interest deduction Current values: = annual average monthly published rates long term Belgian government bonds (10 yr OLO) Value tax year 2007 = 3.442 % Value tax year 2008 = 3.781 % SME’s obtain 0.5 % extra tax deduction

11. Belgium’s position: notional interest deduction Advantages: • EU compliant (no discrimination) • No ruling nor agreement required • No withholding tax on deemed interest deduction • Dividends qualify for EU parent/subsidiary directive and DTAT’s

12. Belgium’s position: notional interest deduction Advantages: • carryforward of max 7 years • No thin capitalisation provisions on equity • No conditions regarding intangible assets

13. Belgium’s position: notional interest deduction Applicable (dixit minister Reynders): • Valuable tool for firms with good solvency ratios • Makes allocating intragroup financing, central procurement, factoring to Belgium interesting • Targeted at capital intensive groups and HQ and treasury centres funded with equity

14. Belgium’s position: other advantages • expat status for foreign executives • Tax cuts for R&D and for researchers • VAT fiscal unity • Bonded warehouses available • No more capital tax • Attractive legal unit for pan-European pension funds • Large network of tax treaties

15. Belgium’s position: other advantages • No withholding tax on upstreaming passive incomes to countries with whom Belgium has a DTAT • Very low participation threshold: 15% for at least 12 months • Applies automatically • Absence of limitation on benefits provision