On December 15th in 2016, the Belgian Parliament has adopted a new legislation with view on regulating the “alternative funding services” and developing and introducing a financial framework for alternative funding platforms (crowdfunding platform), funding vehicles and start-up funds. This law will enter into force as of February 2017.
1. Tax shelter for start-ups
On August 10th 2015, the Belgian Parliament approved various measures in order to speed up the growth of start-ups in Belgium (the “Act of 10 August 2015”). Among these measures, the tax shelter for start-ups encourages individuals to invest in equity in “start-ups” which are basically defined as small companies of less than four years old.
In return of such direct investment, the investor is granted with a tax relief (reduction and not deduction) on his personal income tax which equals 30% or 45% of his investment. The applicable rate depends on the size of a start-up, 30% for SME’s and 45% for “very small enterprises”.
The Act of 10 August 2015 also provided for the possibility to benefit from the tax relief for indirect investments via a crowdfunding platform, a funding vehicle or a start-up fund. However, for indirect investment the tax relief is then capped to 30%, including for investments realized in a “very small enterprise”.
The Act of 10 August 2015 did not set forth the conditions and formalities required for crowdfunding platforms, funding vehicles and start-up funds to operate. Hence, a new intervention of the Parliament was necessary.
The legislation adopted on the 15th of December in 2016 defines now these conditions and formalities.
2. Investment by an individual – different possibilities
After the entry into force of this new legislation, an individual will be able to invest in a start-up and benefit from the tax relief by opting to one of the four following possibilities:
- An investor may directly invest in a start-up’s capital without the intervention of any intermediary as initially organized by the Act and explained above.
- An investor may invest in a start-up with the intervention of a crowdfunding platform or a regulated company. In this situation, the investor becomes a shareholder of the start-up. The crowdfunding platform / regulated company acts as a “mere” broker between the investor and the start-up.
- An investor may invest in a funding vehicle which invests itself in start-up. The investor does not become a shareholder of the start-up but a shareholder of the funding vehicle. However, the investment is dedicated to a well identified start-up and remains bound to this start-up.
- Finally, an investor may invest in a start-up fund which invests in several start-ups. Here again, the investor is not directly a shareholder in any start-up. His investment is however not bound to a specific startup. The investment is managed by the start-up fund on the basis of its investment policy and may be allocated in a portfolio of a startup that may vary in time.
3. Regulation of crowdfunding platforms
The new legislation also regulates the conditions to be met for the crowdfunding platforms to operate under this regime.
a) FSMA’s approval of the crowdfunding platform
The Financial Services and Markets Authority (FSMA) shall approve any crowdfunding platform except if the services of the crowdfunding platform are offered to qualified investors (professional investors) or to less than 150 persons.
In order to receive FSMA’ s approval, following conditions shall be fulfilled (this list is not exhaustive):
- the crowdfunding platform must be a commercial company, with its head office in Belgium,
- the persons who directly or indirectly control the company shall be identified,
- board members shall be individuals and not legal entities and the executive management shall be performed by at least two individuals,
- the company must have an “adequate internal organization” taking into account the complexity of the activities exercised,
- the company shall subscribe to a professional liability insurance that may not be below EUR 750,000 per loss and per year.
The FSMA shall notify its approval of the crowdfunding platform within a three months’ delay as from receipt of any application.
In addition, in order to be authorized to pursue its activities, the crowdfunding platform shall comply with the following criteria:
- continue to comply with all conditions required for the approval,
- inform the FSMA of all the modification affecting the control of the company,
- refrain from providing other funding services to its clients to the exception of
- investment services and
- services of reception and transmission of orders.
Furthermore, crowdfunding platform will be authorized continue to exercise other professional activities to the extent that these other services:
- do not create any conflict of interest,
- do not affect its reputation,
- are, in terms of organization and accounting, separate from the crowdfunding services.
If the crowdfunding platform complies with these conditions, it will be entitled to directly provide alternative funding services and to commercialize investment instruments in a start-up, a start-up fund or a funding vehicle.
The new legislation precises that such services can also be provided by regulated companies (banks, credit institutions, brokerage firms, …) without requiring any specific approval from the FSMA.
b) Information duty of crowdfunding platforms
When performing services, crowdfunding platforms and regulated companies are bound by a duty of information according to which following information shall be provided to the customers:
- complete identity details and the status of the platform or the regulated company;
- cost of the services;
- a general description of the policy followed by the platform or by the regulated company in case of conflict of interests;
- a general description of the criteria and the selection procedure of the projects;
- information on the maximum amount of tax relief that the individual is entitled to benefit from the tax shelter for start-up.
If crowdfunding platforms or regulated companies do not comply with the conditions listed in points a and b, they will be exposed to administrative fines, that can vary from EUR 2,500 to EUR 75,000 per breach, and criminal penalties (imprisonment from 8 days up to one year and fine from EUR 50 to EUR 10,000).
4. Overview of the tax shelter regime
A company may allow its investors to benefit from the measure up to a maximum of EUR 250,000 (cap at the level of the start-up) and any individual may benefit from such advantage up to EUR 100,000 per year (cap at the level of the investor).
However, in order to offer the benefit of the tax relief to its investors, the start-up has to respect conditions:
- the start-up shall be a Belgian or EU tax resident company or must have a permanent establishment in Belgium or the EU;
- the start-up may not result from a merger or spin-off transaction;
- any director of the start-up is not eligible to the tax advantage;
- the shares received in consideration of the tax shelter investment may not exceed 30% of the start-up’s share capital;
- the tax shelter investment shall be fully paid-up in cash;
- during at least 48 months as of the equity investment, the start-up may not be a management company, real estate company, patrimonial company, investment company, treasury company or finance company;
- the investment may not be used to fund a dividend distribution, to grant a loan or to buy shares during 48 months as from the date of equity investment;
- the start-up may not have distributed any dividend or made any capital reduction previously;
- the start-up cannot be listed on a stock exchange;
- the start-up business may face insolvency issues during 48 months as of the date of equity investment;
Furthermore, the investor should keep the shares which he holds in the start-up’s share capital for at least four years, except in case of decease.
By Clément Pirenne & Thomas Daenen
Lawyers at Beyond Law Firm