From September 2018, your family can sit down round a table and reach a negotiated agreement about the distribution of your estate. The aim is to avoid conflict and uncertainty.
In Belgium, it seems self-evident that you should set out a family arrangement for the inheritance of a business as a written agreement. But this agreement will not have any legal standing. A new law hopes to change that.
The purpose of the so-called "family agreement" is to authorise a balanced agreement between the testator and their likely heirs in the case of an inheritance that has not yet been processed, and without applying legal restrictions.
What does this mean specifically?
The first major change relates to the statutory or reserved portion of the inheritance. This no longer depends on the number of heirs, but consists of half the estate. The testator's relatives are therefore no longer regarded as automatically entitled to inherit. If necessary, they may well be able to make a claim for maintenance payments. All children must in any case agree to the distribution of the assets when it does not follow the normal practice.
Another important point for the area of company succession is that targeted agreements can be set up. The value of the shares in the family company that are handed over to an heir as a gift cannot be put back on the table by the other heirs. Goods that were gifted during the testator's lifetime, or bequeathed in a will, are no longer added to the estate in kind, but in value. The heir involved must therefore continue to hold the items as assets in kind. The family agreement can therefore consist of arriving at a subjective balance between the heirs. This means that the inheritance is settled without threatening the continuation of the business activity.
One last change that may apply to the succession for a company is omitting a generation by gifting. Very often the direct heirs are not actually able to run the inherited family business. The only option they then have is to sell the company. If a grandchild, for example, inherits a family business in the form of a gift, the parents will now be able to decide to include the inherited business in their own portion of the inheritance.
Please note that the family agreement that will be available from 1 September 2018 will not help solve all the problems in the world. Despite the fact that recent changes in the law provide more flexibility, succession planning remains a suitable way of preparing yourself against unpleasant surprises due to an inheritance that goes awry. With a fair distribution, you avoid the risk of a joint inheritance, keep the peace within the family, and guarantee the stability of the business activity.
Green light for new law for companies and associations
From 1 May 2019, new legislative rules will apply for Belgian companies and associations.
On 28 February, the Belgian House of Representatives adopted a bill for a new Code on Companies & Associations. The aim? To modernise the current legal framework, align more closely with reality and help make Belgian companies more competitive in relation to their European colleagues.
The aim? To modernise the current legal framework, align more closely with reality and help make Belgian companies more competitive in relation to their European colleagues. The new legislation will enter into force from 1 May 2019 for new companies and associations and 1 January 2020 for all existing companies and associations (unless these opt in before that date). Mass conversion is likely to occur between 2020 and 2023. All existing companies and associations must use this period to review their articles of association and legal status.
The new rules would normally have entered into force on 1 January, but the bill's adoption was delayed by the government shenanigans in recent months (Prime Minister Michel submitted his government's resignation on 18 December 2018 after a Green-Red vote of no confidence, ed.). Although the new legislation has been approved by the House, it hasn't yet been published in the Belgian Official Gazette currently. Also, the implementing decrees will take a little longer. Nevertheless, the new rules will apply as of 1 May this year.
M&A in Belgium? Our country has transformed a disadvantage into solid gold
A small geographical market and linguistic and institutional complexities actually encourage openness and agility on the international business front. Interview of Gabriel Englebert, BNP Paribas Fortis.
The Merger and Acquisition (“M&A”) market in Belgium has been growing steadily since 2016, as the Vlerick Business School’s most recent M&A Monitor can attest. Our companies are once again showing their desire in 2018 to expand in Europe and even beyond. Gabriel Englebert, Head of Corporate Finance: « It’s not all about the BEL 20 companies, I assure you. I’m proud to confirm that the companies looking for acquisitions are among the top 300 Belgian firms ».
Looking beyond Belgium at a very early stage
In a narrow national market, made up of different regions and languages, our companies sometimes have to start exporting at a very early stage of their development. As a result, Belgian companies are natural exporters with a decentralised culture that is extremely favourable to M&A. Belgian companies have solid shareholders and management teams that are often multilingual, highly educated and able to recruit international profiles. Our country is also an ideal territory for niche sectors such as life sciences and healthcare, agri-food, aerospace, industry, building materials, services, consumer goods and technology.
"It’s not so much the absolute deal size that strikes me, but the valuation levels. Valuation levels are high, with rising EV/EBITDA multiples."
A combination of factors can explain such high valuations: the scarcity of opportunities, the amount of cash available and the low interest rate environment. "Current EV/EBITDA multiples can hit very high levels well above 10x. Those are big numbers for only the very best companies in the market!"
Exploring new countries, new activities and technologies
Building on their success, Belgian companies are ready to invest in foreign target companies to gain new market access or knowledge of a country, or to test an adjacent product or service. In a third of all M&A deals, the target is a foreign one. On average, these transactions take six to twelve months to complete – the time needed to negotiate the price and terms, conduct due diligences and clear regulatory approvals, taking account all the while of cultural differences, that can be substantial in some cases.
Gabriel Englebert: « Lastly, I would pinpoint two trends for 2018 among the big Belgian groups: the pursuit of innovation – in many cases a specific technology or know-how – and continued investments in the field of sustainability. ».
The M&A market is changing, we need to be innovative
The traditional auction process involving a very large number of potential buyers, used to dominate the market in the past. This type of very standardised process was sometimes contrary to the desire for discretion of our Belgian clients, who favour highly discrete transactions.
Belgian business leaders do not expect the same from their investment banker in 2018 as they did in the past. Gabriel Englebert: « We are in a world of bespoke processes and tailor-made solutions, and I am absolutely delighted about that! Our ‘made-to-measure’ approach is perfectly suited to our bank, which nurtures long-term relationships with our clients. Our teams use their know-how to articulate in-depth solutions. It means, for instance, that we do not disclose all our recent transactions, even though they are very large in number and in quality. Our business is all about discretion and pure trust. »
What’s the investment banking business model in 2018?
We help and coach business leaders making the right decision in complex, life-changing merger and acquisition transactions, of which some are industry-transformational. Is artificial intelligence set to revolutionise our core business? Gabriel Englebert: « Not in my view. Why would a business leader still need us in 2018? The answer is that we completely trust our ability to offer effective but nuanced judgement regarding many complex M&A situations ».
Backed up by their internal experts, business leaders have massive amounts of information and analysis tools available, together with unlimited data available on the web and consultants’ reports on specific fields. But there is actually too much information out there these days and that can result in confusion. In this context of information obesity, we make a real difference in terms of tactical advice and decision-making timing. A profession like ours, which is founded on intangible factors like trust and confidentiality, demands dedication at every moment. Gabriel Englebert: « As for me, I have already made my choice: I am happy to jump on a plane if a client across the Atlantic needs my advice on a complex transaction ».
Timing in M&A: the key to success
Gabriel Englebert: « Our clients’ interests are our absolute priority. We’ll finalize the transaction in less than three months, if that’s what the parties want ». Other elements are sometimes at stake too, such as business succession or the transfer of shareholdings. Consulting your investment banker about family governance can also bring some helpful neutrality to the thinking process.
What about the future?
Gabriel Englebert: « I would pick out two structural factors: (1) The M&A market, which I believe is to stabilise. Central Banks intend to raise interest rates progressively, which can decisively reshape stock market valuations. (2) The profession: the investment banking model will evolve again: in five or ten years’ time, a new generation will pick up the profession that is fantastic on both human and professional terms. M&A ‘advisory boutiques’ are flourishing but a natural selection will be unavoidable and some will disappear. But we’ve been around for 200 years now and I expect us to be here for a lot more years to come ».
Reforestation and biodiversity in practice
Some causes are more important than the pursuit of EBITDA. Without trees there can be no biodiversity, and flora, fauna, soil, water and air are all affected. That is why WeForest is mobilising companies to plant forests.
Reforestation is neither a luxury nor a question for hippies. It is indispensable for the climate and biodiversity, the quality of our soil and water, as well as for food; it is thus vital for the future of all species.
The solutions, which remain under-recognised, are simply waiting to emerge. They are not technical, do not adhere to the logic of extraction and do not call on limited natural resources. They are tremendously effective, draw their inspiration from natural ecosystems and entail integrating trees into fields. See also the article The full potential of reforestation.
We have pinpointed two relevant non-governmental initiatives: Ecosia, a search engine launched by a start-up in Berlin, has attracted 7 billion users and plants one tree for every 45 searches made – the equivalent of some 27 million trees planted to this day; secondly, the non-profit organisation WeForest is utilising its expertise in this area, its basis in science and its business network to engage in sustainable reforestation. We went to meet Marie-Noëlle Keijzer, the founder of WeForest, to hear her story.
From carbon offsetting to corporate 'water footprints'
In the early days, WeForest was not convinced by carbon offsetting, which it regarded as too reductive. Yet it was a means to connect with its target audience: companies anxious to measure, reduce and then offset the carbon emissions that they are not able to avoid. Today, the objective of 'net positive emissions' has been set, which also aims to offset past emissions.
It is obvious that environmental concerns now extend beyond carbon alone. Many are beginning to examine their water footprint. A new vision is taking hold, which entails development aid via the promotion of reforestation. "Moving countries out of poverty and doing more than simply planting trees and leaving: this is how companies now wish to act in a socially responsible way", explains Marie-Noëlle Keijzer, CEO of WeForest.
Intervening on vegetation, carbon, water, air and employment
With the 270 corporate clients that have joined it since 2011, WeForest planted almost 17 million new trees and restored 13,000 hectares of land by the end of 2017, and aims to double these figures by 2020. It offers high-impact marketing materials to customer companies with messages such as 'one sale = one tree planted'.
In 2014, Brabantia decided to 'do something different'. It wanted to sell products, of course, but also give thought to global issues. Working alongside WeForest, the company entered into a joint financing project supporting reforestation. "Since Brabantia began to state on its website, on YouTube and on its packaging that one tree would be planted for every rotary dryer sold, it has seen a 25% increase in sales every year", explains the head of WeForest, citing well-substantiated case studies with certified benchmarks: "We go beyond the theoretical", she continues. "There is total transparency, with every customer receiving a GPS map of the hectares they have funded. We then ensure the forest is protected, approve our customers' projects and help develop the socio-economic activity of the entire region by initiating alternative revenue sources which create employment."
A tree is more valuable in the ground than on it
WeForest is not engaged in helping Zambia in order to maintain its reliance on international aid, but to educate the hundreds of farmers who chopped down all of their trees in order to sell them for firewood. By bringing them together, the association demonstrates that they do not have to clear trees to sell forestry chips, and that by selectively collecting biomass, they can provide heat without cutting a tree down. WeForest trains women to work as nursery growers, giving them a job, an income and an identity. It also supplies beehives to farmers who have begun to produce honey as a new source of income. Bees have other positive effects too, since they pollinate flowers, plants and fruit crops, for example. "It's really simple", affirms Marie-Noëlle Keijzer. "If we kill bees and birds by using pesticides and insecticides, we are preventing nature from doing its work."
Trees provide a habitat for animals and natural fertiliser for plants
In regions of Brazil where tree coverage is 3%, leopards have completely died out. Agriculture has supplanted forests wherever the ground is level. WeForest cannot operate across the entirety of the country, which is much too large. But they have created green corridors, and life has begun again. Trees and plants have been restored, attracting birds and animals that use them to move around, eat and reproduce.
Trees are also a natural source of fertiliser: corn grows more quickly when it is close to trees. They provide shade and retain water in the soil.
There are trees and trees
Not all reforestation projects are equal. Some trees boost the food supply or increase soil nitrogen levels (such as the lucerne), whereas others are detrimental to diversity. For example, no animals will live in palm tree plantations where the soil is also full of chemicals. "We won't solve the problem if we do nothing to change the causes of deforestation: intensive agriculture for the purposes of producing meat, for example", says Marie-Noëlle Keijzer, firmly convinced. Solutions exist, but everyone needs to accept their share of responsibility.
Sources: BNP Paribas Fortis, WeForest
Simpler rules for VAT on e-commerce are one step closer
Europe is about to modernise the rules relating to VAT levied on goods and services sold online. The aim is to lighten the load on SMEs and turn the EU into a genuine "electronic single market". The first stage will begin on 1 January 2019.
Obligations associated with VAT applied inside the EU can sometimes be a real headache for companies trading within the Union's borders. While self-declaration payment rules for B2B trade are relatively simple to apply (providing the purchasing company has a valid VAT number), selling to individuals within the EU involves a more complex set of formalities. This is because companies that exceed the annual threshold of EUR 35,000 (in Belgium) must register for VAT in the country or countries of destination. According to European Commission estimates, this administrative obligation equates to an average annual cost of EUR 8,000 (per member state) for a company to ensure it complies with local VAT rules, making it costly for SMEs. This observation led the European Commission to put forward an action plan in April 2016, which was ratified by the European Council last December. What will the new rules change?
A new threshold for "digital services" from 1 January 2019
Brussels has a clear objective: it wants to simplify VAT collection from e-commerce companies in order to turn the European Economic Area into a genuine "digital single market". The primary beneficiaries will be companies that offer "digital services" to individual consumers anywhere in Europe (relating to video on demand, music or app downloading and the distribution of video games or e-books, etc.) Up to a new annual threshold of EUR 100,000, these companies can remain subject to VAT in Belgium, thereby avoiding all obligations in the other Member States.
The "one-stop shop" will gradually be extended
In addition, such digital services companies can already make use of the Mini One-Stop Shop (MOSS), a system which simplifies all cross-border VAT operations by allowing companies to make one single VAT declaration: this is submitted electronically in the company's country of origin, for all services in all other Member States. This portal therefore removes a large chunk of the administrative burden on firms. The good news is that this mini portal will be accessible to providers of all other types of services in Europe from 2019.
Distance selling of goods also to be covered from 2021
Companies whose business involves the distance selling of goods will need to wait until 1 January 2021 for the new EUR 100,000 threshold to come into force. But the other change is that the MOSS will also be opened up to these online retailers. There can be no doubt that access to this single portal is a real step forward that will, according to the European Commission, lead to savings of EUR 2.3 billion and increase Member States' VAT receipts by EUR 7 billion. It should also be emphasised that from 2019, micro-businesses with cross-border online sales of no more than EUR 10,000 can continue to apply the VAT rules of their home country.
The other priority: the fight against fraud
This package of new measures also aims to mount a more effective attack against a form of fraud that reportedly led to losses of more than EUR 152 billion across the EU in 2015. As a result, a new measure to take effect in 2021 will remove the VAT exemption on goods with a value of under EUR 22 imported from outside the European Union. This is because it was often abused by companies that exploited it to bring in goods of a higher value while evading payment of VAT in their country of arrival.