2010 Reports

Inward FDI in Belgium and its policy context

De Beule, Filip; Bulcke, Daniel van den

As a small open economy, Belgium has been actively and successfully attracting inward foreign direct investment since the 1960s and consequently has one of the most internationalized economies in the world. Foreign affiliates represent approximately 35% and 21% of manufacturing and services jobs as well as 42% and 24% of value added by the manufacturing and services sector, respectively. Despite an overall drop in competitiveness of Belgian industry, the introduction of a new and innovative incentive, the notional interest deduction scheme, to lower corporate income tax for all firms in 2005 has led to an increase of inflows of equity capital from 2006 onward, although the financial crisis took its toll on inflows in 2008 and 2009. In addition, the risk capital allowance has done much to promote Belgium's role as a financial conduit, allowing a large proportion of the authorized capital to flow back to other countries in the form of loans. This trend was reinforced by the global financial crisis.