In 2003, Belgium introduced an unlisted, closed-end investment fund ("the private privak") which, due to its corporate and tax features, was intended to encourage Belgian and foreign investment in unlisted Belgian or foreign companies. The purpose of the vehicle was to enable the investment of private equity through an unlisted company, without the need for investors to set up and manage their own company for an indefinite period of time.

In the Summer Agreement 2017, the Belgian government decided to make the private privak more attractive by aligning it more closely to comparable foreign investment funds. To this end, the Act of 26 March 2018 ("the Act") amends both the corporate and tax treatment of the private privak in order to make the vehicle more attractive for investment in private equity and growth companies.

This newsflash highlights the amendments which entered into effect retroactively on 1 January 2018 and are intended to give a renewed boost to the private privak.

Corporate aspects

  • Prior to the Act, the maximum term of existence of a private privak was 12 years, at which time shareholders had to exit the fund. In keeping with other investments funds (such as the recently created real estate investment fund), the Act allows investors to extend the life of a private privak and postpone their exit twice, each time by a period of three years (for instance, in the event of unfavourable market conditions), provided the fund's articles of association allow this possibility.

  • The extension of the term of a private privak must be approved by 90% of the votes cast representing at least 50% of the share capital. In other words, unanimity is not required.

  • Prior to the Act, it was not possible for a private privak to acquire a controlling stake in a portfolio company. A controlling stake is determined with reference to factual criteria such as the possibility to appoint (a majority of the) directors. This prohibition was the most important reason why the private privak was not widely used. The Act abolishes this prohibition. As a result, the private privak may now be actively involved in the management of portfolio companies, e.g. through representation on the board of directors or the provision of consultancy services.

  • A private privak must register with the federal tax authorities. The Act stipulates that a private privak can be established and exist prior to registration but cannot make any investments until the registration process is finalised.

  • The finance minister has stated that, in the near future, the minimum investment threshold of EUR 100,000 will be lowered to EUR 25,000.

Tax aspects

  • In order to compensate investors for the risk associated with new contributions in cash that partially represent capital, a tax reduction of 25% of the losses incurred (capped at EUR 25,000) is granted.

  • While the lower dividend withholding tax rate of 15% or 20% (the so-called VVPRbis regime) applied only to direct investments, the Act extends its scope of application to indirect investments (such as those held through a private privak).

  • Prior to the Act, liquidation of a private privak could be complicated as the tax requirements (such as a maximum liquidation period of 12 months) differed from the regulatory requirements. The Act aligns the tax and regulatory conditions to allow more time to finalise the liquidation process.

In order to benefit from a number of modifications introduced by the Act, such as the possibility to extend the term of a private privak to 12 years, certain steps must be taken. Do not hesitate to contact any of the undersigned should you have any questions in this regard.

The Netherlands does not have a similar private equity vehicle but does offer other structures that are commonly used for private equity purposes. Should you be interested in any of these structures, the most commonly used of which is the cooperative company, please contact Frans van der Eerden or any member of the Dutch tax team.

Luxembourg offers a wide range of investment vehicles - both regulated and unregulated - that can be used for private equity funds and investments. Of the unregulated options, partnerships (the SCS and SCSp) offer a great deal of flexibility for fund structuring and investment, although corporate forms (such as the SàRL) are usually preferred for pure investment purposes. The most widely used regulated entities to structure private equity funds are the SIF and the SICAR. In addition, the RAIF was recently introduced as an alternative to the latter. While not a regulated entity itself, the RAIF must be managed by a regulated alternative investment fund manager (AIFM) and offers the same advantages and flexibility as the SIF and SICAR.