KPMG Legal and Tax September 2013

Guest Lecture:Company start-up from a legal and tax perspective

September 2013

© 2013 KPMG Tax and Legal Advisers, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Agenda

Tax

■ Accountancy

■ Determination of taxable base

■ R&D incentives

■ Financing

■ Foreign expansion

Company law

■ Introduction

■ Definition

■ Legal Forms

■ Setting-up a company

■ Commonly used forms

■ Corporate Bodies / Governance

■ Case Study

Q&A

Legal


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Introduction: Why start with a company?

Four reasons to start with a company

- A company as a form of cooperation

- Cooperation between labor and capital

- Limitation of liability

- Tax reasons


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Introduction: A company as a form of cooperation

No subordination - common goal


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Introduction: Cooperation labor and capital

Interaction creativity - labor and capital


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Introduction: Limitation of liability

Share capital VS personal liability


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Introduction: Tax reasons

Individual taxation - Corporate taxation


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Definition: What is the definition of a company ?

Article 1 Companies’ Code:

“A company shall be incorporated by an agreement pursuant to which two or more persons agree to contribute something with as purpose to carry out one or more accurately described

activities and to give the shareholders a direct or indirect financial benefit.”


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Definition: Constitutive elements

- An agreement

- Exceptions:

- E-BVBA

- NV after incorporation

- Purpose is to make profit

- Civil purpose / Commercial purpose

- Exception: social purpose

- In cash

- In kind

- Labor?

- Direct or indirect

- Important: Lion clause

Plurality Contribution

Profit Making Purpose Loss/Profit Participation

Article 1 Companies’

Code


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Legal Forms

NO LEGAL PERSONALITY

Civil law partnership Maatschap La société de droit commun

Temporary partnership Tijdelijke handelsvennootschap La société momentanée

Silent partnership Stille handelsvennootschap La société interne


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Legal Forms

LEGAL PERSONALITY

General partnership

Liability of partners for debts of the company

Vennootschap onder firma (VOF)

Société en nom collectif (SNC)

Ordinary limited partnership

Liability of the general partner for debts of the company

Commanditaire vennootschap (Comm. V.)

Société en commandite simple (SCS)


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Legal Forms

LEGAL PERSONALITY

Private limited liability company Besloten vennootschap met beperkte aansprakelijkheid (BVBA)

Société privée à responsabilité limitée (SPRL)

Cooperative company withoutlimited liability

Cooperative company with limited liability

Coöperatieve vennootschap met onbeperkte aansprakelijkheid (CVOA)

Coöperatieve vennootschap met beperkte aansprakelijkheid (CVBA)

Société coopérative à responsabilité illimitée (SCRI)

Société coopérative à responsabilité limitée (SCRL)

Public limited liability company Naamloze vennootschap (NV) Société anonyme (SA)

Limited partnership with a share capital

Commanditaire vennootschap op aandelen (Comm. VA)

Société en commandite par action (SCA)


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Legal Forms

LEGAL PERSONALITY

European company Europese vennootschap (SE) Société européenne (SE)

European cooperative company Europese coöperatieve vennootschap (SCE)

Société coopérative européenne (SCE)

Agricultural partnership Landbouwvennootschap (L.V.) Société agricole (S. Agr.)

(European) Economic interest grouping

(Europees) Economisch samenwerkingsverband ((E)ESV)

Groupement d‘intérêt economique (Européen) (GIE (E))


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Setting-up a company


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Think smart… act smarter!


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Requirements:

- Financial plan (liability!)

- Deed of incorporation

- Share capital / bank account

- Registration of the company in the crossroad bank for enterprises

- Application VAT-number

- Registration company with a social security fund

- Registration directors with a social security fund


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Commonly used forms: characteristics

Private limited liability company (BVBA)

- One or more founders (E-BVBA)

- Minimum capital:

- € 18.550,00

- paid up with one SH: € 12.400,00

- paid up with two SH: € 6.200,00

- in any case pay up 1/5th per share

- Notary deed of incorporation

- Conditional transition of shares

- S-BVBA?

Public limited liability company (NV)

- Two or more founders

- Minimum capital:

- € 61.500,00

- paid up € 61.500,00 at least

- in any case pay up 1/4th per share

- Notary deed of incorporation

- Free transition of shares ↔ shareholders agreement

- More flexible financing techniques:

- Warrants

- Convertible bonds

- Solicit funds from the public


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Commonly used forms: characteristics

Private limited liability company (BVBA)

- Manager(s) (Zaakvoerder(s) – Gérant(s)):

- One or more managers

- Possibility of Board of managers

- Duration mandate: definite or indefinite

- Statutory appointment possible

Public limited liability company (NV)

- Directors (Bestuurders – Administrateurs):

- Minimum three directors (exception: two directors in case of ≤ 2 shareholders)

- Board of directors

- Duration maximum: 6 years

- Ad nutum dismissal


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Corporate bodies governing the Public Limited Liability Company

- At least 3 directors(Exception: 2

shareholders)

- Residuary powers

- Convene the General Meeting ofShareholders

-Conflicts of interest

- Explicit powers in Companies’ Code or articles of association

- Approval annual accounts

- Discharge of directors

- Amendments to the articles of association

- Needs to be foreseen in the articles of association

- Transfer of powers by the board of directors (exception general management)

- At least 2 persons

- Needs to be foreseen in the articles of association

- Can be a director, but also a non- director

- Daily management


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Corporate Governance

- Anglo Saxon approach:

organization of relationship between owners & managers of the company:

- Separation of ownership & control

- Protection of the minority shareholders

- Creation of Committees, Non-Executive directors,…:

- Audit Committee

- Remuneration Committee: Golden Parachutes

- Nomination Committee

- Corporate Governance Statement

- Comply or explain

- Quid other stakeholders: Corporate Social Responsibility


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Case study


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Case study

- Start-up: Spin-off of Ghent University in 1997

- Founder: Thierry Bogaert (CEO)

- Employees: 250

- Sector: Agricultural Biotechnology

- Worldwide activities: Belgium - USA - South-East Asia

- Products: Pesticides – agrotechnology - crop seeds

- Legal form: Public limited liability company (NV)


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Case study: Timeline

1997: Start up as Spin-Off of UGent

- Initial investors: Gimv and AIST (Agency for Innovation by Science and Technology)

- 1999: FMC Corporation Partnership

- 2003: Sumitomo Chemical Company Partnership

- 2004: Monsanto Partnership – Pioneer Hi-Bred (2004-2008) Partnership

- 2005: IPO at Euronext Brussels - successfully raised more than 33 million euro

- 2009: Leads agri Partnership

2012: Syngenta (Swiss Biotechnology company) takeover-bid for an amount of 403 million euro


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Case study: Shareholdership


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Case study: Stock price 2005 - 2012

Tax


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Accounting result as starting point

The starting point for determining taxable income are the financial statements and accounting result

■ In principle, all Belgian companies are obliged to keep (some kind of) financial accounts

■ Needs to be coherent and documented so that tax authorities can verify


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Balance sheet - liabilities

To start a company, funding is necessary

■ Share capital

■ Debt, such as

– Shareholder loan

– Bank loan

– WinWin-loan (only for Flemish SMEs)

These resources compose the ‘liabilities’ side of the accounts

Interaction (Belgian) tax law

Notional interest deduction on equity

Interest cost on debt


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Balance sheet - assets

With these resources, operations can be funded and the necessary assets can be developed and acquired

■ Non-current assets

– Tangible fixed assets

■ Land/buildings

■ Machinery and equipment (computers etc.)

■ ...

– Intangible fixed assets

■ Patents

■ ...

■ Current assets

– Accounts receivable

– Stock

– Cash

These assets compose the ‘assets’ side of the accounts, used in running the business


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Income statement

Running the operations leads to revenues and expenses

■ Revenues

– Business income

– Financial income

■ Expenses

– Goods & Services

– Salaries

– Depreciation

– Financial costs

■ Difference = accounting result

Profit & Loss account


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Link between accountancy and taxation

Primacy of accounting legislation

■ Accounting rules are applicable for taxation unless the tax legislation provides an explicit deviation

■ Accounting law = basis for taxation

Taxable income is determined on the basis of the income statement

■ However: Taxable base ≠ accounting result!

■ Corrections on net income


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Determination of taxable base


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Foreign expansion and taxes

■ Taxable presence in foreign jurisdiction?

– Provision of services or negotiations of contracts abroad

– Joint venture / partnership

– Local company or branch

■ Tax treaty between Belgium and foreign jurisdiction?

– Purpose is avoidance of mitigation of

double taxation on same income in Belgium and

abroad


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Tax attention points regarding funding

Debt (loans)

■ Interest remuneration: in principle tax deductible

Equity (capital)

■ No interest remuneration, but dividends not tax deductible

■ But notional interest deduction possible in Belgium

Thin capitalization rule

■ If intercompany debt exceeds 5 times equity

interest is not tax deductible without requalification in dividend

■ Requalification of interests into dividends

– Loans by individuals who are shareholder of the company (or the spouse or the minor children of these persons) and by individuals or foreign companies being a director if these exceed the equity


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R&D tax incentives

80% Patent Income Deduction (PID)

■ 6,8% income tax on qualifying patent income

■ Intellectual Property (IP) development and overall operational expenses: fully deductible

■ For SME’s, the condition of research center constituting a branch of activity is abolished

Wage withholding tax exemption

■ For researchers employed: 75% exemption of the wage withholding tax due the tax authorities (as from 1 July 2013: 80% exemption)

Increased investment deduction

■ Only for assets related to R&D

–One-off deduction: 14,5% of acquisition or investment value

–Spread over depreciation period: 21,5% of the depreciation amount

■ Alternative: R&D tax credit

–Refundable if not effectively used after five consecutive assessment periods

■ Full tax exemption qualifying R&D subsidies (e.g. IWT)

Q & A

Thank you

Presentation by

Gert [email protected]+32 2 708 49 85

Koen Van [email protected]+32 2 708 36 72

Thomas [email protected]+32 2 708 38 61


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KPMG Legal and Tax September 2013