Belgium is on a mission to attract foreign direct investment. To help reach that goal, the government has introduced new incentive programs to encourage companies to locate in this important Western European nation.

Among them is an innovative tax instrument or “Notional Interest Deduction” that allows all companies subject to Belgian corporate tax to deduct from their taxable income an amount equal to the interest they would have paid on their capital in the case of long-term debt financing.

“We are the only country in Europe to allow this,” said Guy Verhofstadt, prime minister of Belgium.

Essentially, the notional interest law lowers the effective corporate tax rate in Belgium on average to around 25 percent. But, as experts pointed out, the rate can be substantially lower for financing and leasing companies or branches. The overall aim is to increase the attractiveness of Belgium for capital-intensive companies and equity-funded headquarters.

The notional interest deduction will be accessible to all Belgian resident-companies and Belgian branches of non-resident companies.

Just as Belgian coordination centers have proved to be a success for many U.S.-based multinationals, as well as a growing number of European and Asian groups during the past several decades, the notional interest deduction is expected to raise Belgium’s profile on the international tax scene.

Belgium’s region of Wallonia is also furthering the effort by developing an ambitious action plan to reinvigorate its economy, encourage the creation of new businesses and to help to develop existing ones.

Dubbed the “Marshall Plan for Priority Action,” the program comes with a budget of more than 1 billion euros to be spent during the next four years. During that time, Wallonia will focus on five priorities: reduce corporate taxes, stimulate new business, boost research and development, strengthen the skills of its work force, and create competitiveness clusters.

Belgium is already strong in attracting overseas investment. The World Investment Report, published by the UN Trade and Development organization UNCTAD, said that at $34.4 billion, Belgium was the sixth leading recipient of foreign direct investment in 2004. The nation ranked No. 13 in the world as a location for foreign R&D operations.

Belgium has long offered advantages for companies in a number of key industry sectors, including logistics and distribution, automotive, service centers, biotech and other innovative industries.

Toyota Expands Complex

The automobile industry may be challenged across Europe and North America, with large manufacturers paring down operations and staff, but automotive-related investment continues to flourish in Belgium.

In January, Toyota Motor Corp. completed the expansion of its Toyota Motor Europe S.A./N.V Technical Centre in Zaventem, Flanders. The project involved more than doubling the facility’s floor space. The center will now handle body engineering for all European-produced Toyota models, as well as provide diesel engine evaluation for all Toyota models to be sold in Europe.

Elsewhere in Flanders, Ford Motor Co. has invested nearly $28 million during the past five years at its Proving Ground in Lommel. The testing facility is regarded one of the most modern in Europe.

Similarly, automotive suppliers find Belgium attractive. Michigan-based Jyco Sealing Technologies recently announced it will establish a major automotive sealing production facility in Thimister-Clermont, Wallonia.

“We had a two-year plan in place for entering the European market,” said Sam Jyawook, president and CEO of Jyco Sealing. “At the request of a North American customer, we moved up the timetable in order to participate in one of its new model programs in Europe. Everything else quickly fell into place. Belgium’s location and multi-cultural environment makes Jyco Europe positioned to service customers across the continent.”

Logistical Assets

In 2005, for the second year in row, Belgium retained its leading position in European distribution, according to a report by Cushman and Wakefield Healy & Baker. Among Belgium’s major strengths are its low rents, good location and accessibility to the major European markets.

These were key reasons for attracting Johnson & Johnson, which opened a $36 million European distribution center for medical devices and diagnostics in Courcelles, near Charleroi, last October. The project fits well with Wallonia’s “Marshall Plan for Priority Action.”

The investment brings all Johnson & Johnson distribution activities in Europe together to one central location.

“The effort made by the Walloon region, in conjunction with the central location in Europe, the presence of the airport and transportation infrastructure, and the possibility of teaming up with TNT Logistics were the key factors in making this investment decision,” said Guy Lebeau, chairman of the Johnson & Johnson Medical Devices & Diagnostics Co. Group.

A push for logistics opportunities is ProLogis, which began construction on a 24,000 square yard facility at Vilvoorde, near Brussels. The warehouse is divided into two compartments of 8,400 square yards and 13,200 square yards, with a minimum height of 33 feet. Equipment will include 20 electric carriage rails.

Microsoft Sites Facility

Belgium is high on the list for innovation in high technology. Microsoft Belgium is opening an Executive Briefing Center for European Innovation in Brussels in April. The center is aimed at providing government personnel, businesspeople and students the opportunity to interact with the company’s latest applications.

Demonstrations will be offered on the newest developments in e-government and educational programs, as well as those for private use. Microsoft will also use the facility as one of its network of Student Technology Innovation Centers in Europe, Africa and the Middle East.

A recent study designed to assess biopharmaceutical innovation by the Organization for Economic Co-operation and Development (OECD) found that Belgium is the best performing country. The OECD made separate analyses for industrial achievement, scientific performance and the quality of higher education and found Belgium came out on top in these areas as well.

KitoZyme, a spin off from the University of Liege, is now launching industrial-scale production of its vegetable biopolymers. The product is being marketed worldwide through a network of distributors.