Choosing a subsidiary or a permanent establishment?

Set up a subsidiary company?

If you establish a subsidiary company, you create a completely independent entity (a separate “legal person”). In theory, the best choice is a public limited company (NV) or a private limited company (BV). This requires the intervention of a notary and publication in the Belgian Official Gazette. Your subsidiary must also apply for a company number (which also serves as a VAT number) and register in the Crossroads Bank for Enterprises (Kruispuntbank voor Ondernemingen, KBO).

Your foreign parent company is not liable for the liabilities and debts of that subsidiary, except to the extent of the capital you contributed to that subsidiary. In other words, your liability is limited to the company assets.

That subsidiary will also be managed as an independent entity, with its own board of directors or managing director. It must also file annual financial statements each year with the National Bank of Belgium (NBB). 

This subsidiary must also file a corporate income tax return (the profits it makes in Belgium will logically also be taxed here) and comply with all other tax obligations, such as withholding tax on the salaries it pays, drawing up slips for other remuneration it pays, paying the annual corporate contribution, etc.

If you later wish to cease your activity in Belgium, you will have to dissolve and liquidate your Belgian subsidiary according to the (rather complex) rules of company law.

Setting up a Belgian permanent establishment?

A permanent establishment is not considered a separate entity, but is simply part of your foreign company. This implies that the latter is fully liable for liabilities and debts contracted through that branch.

The establishment of a (purely fiscal) permanent establishment (without representation in Belgium) is relatively simple and can be done without many formalities.

Setting up a “branch” (where you have a permanent representative in Belgium), on the other hand, does not require you to go through a notary, but it does require you to complete a number of other administrative formalities. Your branch office must also apply for a company number and register with the CBE.

Regarding the management of the branch office, it is sufficient that your foreign company appoints a legal representative in Belgium. A separate governing body is not necessary.

Your Belgian branch is also required to file the annual financial statements of your foreign company in Belgium with the NBB and to annually report certain financial information relating to your foreign company, information you may prefer to keep confidential. 

That branch is a “permanent establishment” for tax purposes, requiring you to file an annual non-resident tax return (BNI). The profit you make in Belgium that is attributable to your Belgian branch will be taxed in Belgium (and in theory exempt from tax in the country of your foreign company). A Belgian branch also has the necessary obligations regarding VAT. That branch must also comply with all other tax obligations, such as withholding tax on the salaries it pays out, drawing up forms for other remuneration it pays out, paying the annual company contribution ...

You can read more about having a permanent establishment and its tax and accounting consequences here.

If you later wish to cease your activity in Belgium, you will be able to wind up your Belgian permanent establishment or branch in a relatively simple manner, without having to take into account the (rather complex) rules of company law.

If you prefer to start with a permanent establishment or branch and maybe later switch to a subsidiary, this is of course also possible.

Similarities and differences