Belgian foundations on the rise

New rules make the legal form more attractive

With the new Companies and Associations Code Belgians are much less inclined to resort to the Dutch foundation to transfer or anchor their family business. In 2020, over 50% more Belgian private foundations were established in Belgium than the previous year. The number used as an administration office increased almost threefold. What is driving this sudden rise in popularity?

Rutger Van Boven, Partner BDO Tax, Estate Planning

New rules make the legal form more attractive

With the new Companies and Associations Code Belgians are much less inclined to resort to the Dutch foundation to transfer or anchor their family business. In 2020, over 50% more Belgian private foundations were established in Belgium than the previous year. The number used as an administration office increased almost threefold. What is driving this sudden rise in popularity?

“The disadvantages of the old-style Belgian foundation no longer apply.”

Incorporating the foundation = customisation

The establishment of a foundation involves customisation. Be careful and vigilant when drawing up the articles of association.

If you use the foundation as an administration office, there must be clear rules that persist for a few generations. For example, among other things, there must be clear agreements about:

  • management designation;
  • dividend and investment policy;
  • options for stepping down;
  • the circle of people within which certificates must be retained.

In addition, you must determine the conditions for a potential takeover. For example, you can decide that the company must remain anchored in Belgium, or that employment is guaranteed after the acquisition.

The foundation as an administration office

When you donate shares in the family business, you often want to maintain control for a while longer, so that the children can gradually grow into the responsibilities that go hand-in-hand with the company’s management. By working with a private foundation as an administration office, you can split control of the company on the one hand and its financial benefits on the other. The shares of the company are transferred to the foundation, which issues certificates in return. The foundation’s management body (also its only body) exercises voting rights at the (possibly holding) company’s general meeting, while the certificate holders are entitled to dividends, capital reduction or repayment of contributions, or the liquidation balance if the (possibly holding) company is dissolved. As a result, you maintain control of the company and determine who takes charge after your death.

Even if you do not (yet) transfer the company to the children, you want to secure the future of the family business in the event of an unexpected death. You can, for example, assign the management to one or more confidential advisers, or persons who have experience in your business sector, whether or not alongside one or more (active) children.

Today, 1 director is sufficient for a Belgian foundation, instead of the 3 required in the past.

In addition, a foundation allows you to avoid shareholding fragmentation. By placing the shares in a foundation administration office, voting rights can be combined, the transfer of the certificates/shares can be managed effectively, and your (gradual) withdrawal can be planned.

The foundation used as an administration office is fiscally transparent under certain conditions. Dividends paid by the certified company, and subsequently passed on to the certificate holders via the foundation, are not subject to additional taxation. Moreover, the obligations regarding accounting and annual accounts for a foundation administration office are very simple.

Dissolving the foundation/administration office = regulated by law

You cannot simply close down a foundation that acts as an administration office. This is only possible through the courts and in specific, legally determined cases. However, this does not have to be an insurmountable obstacle. If the certificates issued by the foundation are converted into shares in advance – so-called decertification – the foundation can no longer achieve its objective. On this basis, you can request the foundation be dissolved.

The foundation is suitable for lots of applications

In addition to serving as an administration office, a foundation can be valuable for other applications as well:

  • You can invest a certain capacity in a foundation to provide for the livelihood and care of a child with a disability who is managed by one or more confidential advisers.

  • You can use the foundation to protect family assets or a collection of art or valuable objects. In the articles of association, you can stipulate that, in the event of the dissolution of the foundation (also read the box ‘Dissolving the foundation’), the founder(s) or his/her/their rightful claimants can take back the goods contributed by the founder or an amount equal to their value, and also that the remaining balance or liquidation balance is transferred to the disinterested party as described in the articles of association.

  • You can set up a foundation to separate a certain portion of your assets for the benefit of one or more charities (such as scientific research, poverty reduction, etc.). In this case, the foundation pays out sums to people or institutions that meet its objective. In the foundation’s articles of association, you determine the guidelines that must be observed in this regard.