As a rule, all Belgian companies are required to file annual financial statements. However, practice shows that this obligation is sometimes forgotten, especially by foreign parent companies who are unaware of the filing requirement for their Belgian subsidiaries. Failure to file can have serious consequences, including the striking of the company from the Crossroads Bank for Enterprises or its involuntary winding-up. Recent news alerts warn about a large clean-up operation undertaken by the Brussels courts in order to start winding up inactive companies in the Brussels-Capital Region. While the operation is directed at shell companies used for criminal activities, bona-fide inactive companies might be affected too.
Shell companies and inactive companies
On 12 September 2018, the Belgian newspaper De Tijd1 reported that more than 113,000 companies in Belgium did not file their annual financial statements with the National Bank of Belgium (NBB) in 2017, a higher number than in 2016. This staggering figure includes not only shell and fictitious companies but also dormant companies and subsidiaries of international holding companies whose management may not be aware of the filing requirement.
The use of brass plate companies for criminal purposes
For obvious reasons, shell (or brass plate) companies are ideal vehicles for criminal activities, ranging from VAT fraud to drug trafficking and social security schemes. In addition, purchasing a brass plate company or an inactive company is an easy way to circumvent the incorporation formalities, which require the provision of personal information by the founders and their appearance before a notary as well as capital contributions. Unsurprisingly, the impact of phantom companies on the economy can be disastrous.
In many cases, however, failure to file annual financial statements does not stem from criminal intent, but from oblivion. Sometimes a company is simply inactive, sometimes management forgets about the filing deadline, etc. In our practice, we notice that many of our clients need to be reminded about their filing obligation. In addition, larger companies, for example with a foreign parent and a Belgian subsidiary are often unaware that the Belgian subsidiary is required to file its own or consolidated annual financial statements. Some countries, including the Netherlands, provide for a filing exemption for subsidiaries (the so-called 403 declaration) if the parent company files consolidated financial statements and accepts responsibility for the debts of its subsidiaries. This exemption does not apply to Belgian subsidiaries, which are still required to file their annual financial statements in Belgium.
Belgian law provides for the imposition of a number of sanctions on companies that do not file their financial statements. First of all, the NBB imposes fines for late filing, which increase over time. Second, after three years, the company will be struck from the Crossroads Bank for Enterprises. Third, failure to file financial statements can lead to the involuntary winding-up and liquidation of the company. The Brussels courts recently started a major clean-up operation to remove dormant and shell companies from the Brussels-Capital Region, with an emphasis on greater transparency concerning natural persons and legal entities actually residing in Brussels.
While the proactive stance adopted by Brussels authorities against non-compliant companies is good news for the fight against money laundering and other crime, it cannot be excluded that companies acting in good faith will be tarred with the same brush as shell companies. In order to avoid the risk of being wound up, dormant companies are therefore encouraged to make sure that their financial statements are approved by their shareholders within 6 months from the close of the financial year and filed with the NBB within 30 days from shareholder approval. Even if the deadline for filing has elapsed, it is recommended to still file the financial statements, although a late fee will apply.