a. How the Use of One or More Independent Contractors Creates a Permanent Establishment in Country and the Ramifications
With regard to permanent establishment, Belgian regulations are generally consistent with those of the Organization for Economic Co-operation and Development (“OECD”) in its Model Tax Convention. The Belgian authorities issued a “Standard agreement for the avoidance of double taxation with respect to taxes on income and on capital and for the prevention of fiscal evasion”, based on the OECD Model. This matter is also regulated by the Belgian Income Tax Code 1992.
According to the said Code, “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Specifically, this includes: a place of management; a branch; an office; a factory; a workshop; a mine, an oil or gas well; a quarry or any other place of extraction of natural resources. A foreign company would be deemed to have a Belgian establishment if, for the same or related projects, it carries out services in Belgium through one or more individuals (that are present in Belgium) for, in total, more than 30 days during any 12-month period.
However, “permanent establishment” shall be deemed not to include:
- the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
- the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery, or of processing by another enterprise;
- the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or collecting information for the enterprise;
- the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
- the maintenance of a fixed place of business solely for any combination of certain activities, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
An enterprise shall not be deemed to have a permanent establishment merely because it carries on business through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
Under Belgian Double Tax Convention law, a dependent agent will only give rise to a permanent establishment if he has, and habitually exercises, authority to conclude contracts on behalf of its foreign principal. Independent agents acting in the ordinary course of their business do not give rise to a Belgian establishment.
b. How the Employment of One or More Individuals Creates a Permanent Establishment in Country and the Ramifications
The same principles under point a. above will apply. The employment of one or more individuals may create a permanent establishment where there is either a fixed place of business, or where business is conducted via a dependent agent. The ramifications include that the foreign company will have to pay taxes in Belgium on its business profits attributable to the permanent establishment.