New rules on crowdfunding entered into force on 1 February 2017. What is the framework and what does it mean for investments?

New rules on crowdfunding entered into force on 1 February 2017. The law passed in December by the Parliament now regulates the legal status of crowdfunding platforms and how they function.

"Crowdfunding is a type of participative financing that consists of requesting private investment to gather funds to finance a specific project through an internet platform."

In Belgium, in addition to direct investment, a tax reduction will be granted for any financing for an SME starting up, starter funds or financing vehicle. However the law does attach several conditions. For example, it is only possible to invest in companies founded less than four years ago. The investment must be made for a period of four years. The SME may only raise EUR 250,000 this way. Finally, each individual or entity may only invest a maximum of EUR 100,000 per year.  

The Minister for SMEs, Willy Borsus, points out that SMEs make up the "backbone" of the economy, as they account for 99.2% of companies: "It is crucial to invest in these young companies, in these starters, and to support this type of system that is an addition to more traditional financial services."

Platforms may request authorisation

Since 1 February, platforms wishing to set up in crowdfunding have been able to lodge an authorisation request with the FSMA. Alexander De Croo, the Minister for the Digital Agenda, believes that with the authorisation of alternative financing platforms, "the system is now complete."

In concrete terms, a tax reduction is now granted for investments in the capital of a young SME of up to 45% for microbusinesses (10 employees per year and EUR 700,000 annual turnover) and 30% for SMEs.

The four ways to invest are:

• Direct investment in a target company (in stocks or shares, which has already applied since 1 July 2015);
• Investment in a target company through marketing on a platform (here, the investor is a direct shareholder in the company);
• Investment in a financing vehicle that then invests in a target company through a platform (the investor isn't a shareholder in the company, it is the 'vehicle' that remains the shareholder);
• Finally, investment in a starter fund that then invests in several companies (with risk spreading).

All the details are available on the FSMA website. 

Very few Belgian companies can point to the kind of sparkling growth achieved by Odoo, a world leader in business management software for small and medium-sized firms. Underlines Odoo CEO Fabien Pinckaers: “We need a bank with real backbone. We count on BNP Paribas Fortis to support our development.” Watch the video interview.

In the space of barely fifteen years, Odoo has carved out a prime position in its sector. Basing its products and services on open source development, this young company, headquartered in the Walloon Brabant municipality of Ramillies, today does business on several continents and employs over 1,000 people worldwide. Odoo doesn’t do things the same way as other firms – and that includes its approach to banking. 

BNP Paribas Fortis recently came up with solutions to two essential requirements for Odoo’s growth: carrying out a restructuring of its shareholder base; and making sizeable real estate investments in local farms in Brabant – one of the hallmark features of the company, which focuses a considerable part of its business there – plus also a major extension project at Louvain-la-Neuve.

Disruption

"Odoo is a disruptive company that tends to shake up the norms on all fronts. This prompts us to think about our business as bankers,” says Jean-François Pierreux, Odoo’s Relationship Manager at BNP Paribas Fortis. He points out: "The company has a positive attitude. It keeps moving forward, it sees the big picture, and it hires people. It’s also pursuing its impressive growth in spite of the health crisis. So it’s our job as bankers to find innovative solutions to the firm’s financial needs and provide them with real added value.”

Europe is about to modernise the rules relating to VAT levied on goods and services sold online. The aim is to lighten the load on SMEs and turn the EU into a genuine "electronic single market". The first stage will begin on 1 January 2019.

Obligations associated with VAT applied inside the EU can sometimes be a real headache for companies trading within the Union's borders. While self-declaration payment rules for B2B trade are relatively simple to apply (providing the purchasing company has a valid VAT number), selling to individuals within the EU involves a more complex set of formalities. This is because companies that exceed the annual threshold of EUR 35,000 (in Belgium) must register for VAT in the country or countries of destination. According to European Commission estimates, this administrative obligation equates to an average annual cost of EUR 8,000 (per member state) for a company to ensure it complies with local VAT rules, making it costly for SMEs. This observation led the European Commission to put forward an action plan in April 2016, which was ratified by the European Council last December. What will the new rules change?

A new threshold for "digital services" from 1 January 2019

Brussels has a clear objective: it wants to simplify VAT collection from e-commerce companies in order to turn the European Economic Area into a genuine "digital single market". The primary beneficiaries will be companies that offer "digital services" to individual consumers anywhere in Europe (relating to video on demand, music or app downloading and the distribution of video games or e-books, etc.) Up to a new annual threshold of EUR 100,000, these companies can remain subject to VAT in Belgium, thereby avoiding all obligations in the other Member States.

The "one-stop shop" will gradually be extended

In addition, such digital services companies can already make use of the Mini One-Stop Shop (MOSS), a system which simplifies all cross-border VAT operations by allowing companies to make one single VAT declaration: this is submitted electronically in the company's country of origin, for all services in all other Member States. This portal therefore removes a large chunk of the administrative burden on firms. The good news is that this mini portal will be accessible to providers of all other types of services in Europe from 2019.

Distance selling of goods also to be covered from 2021

Companies whose business involves the distance selling of goods will need to wait until 1 January 2021 for the new EUR 100,000 threshold to come into force. But the other change is that the MOSS will also be opened up to these online retailers. There can be no doubt that access to this single portal is a real step forward that will, according to the European Commission, lead to savings of EUR 2.3 billion and increase Member States' VAT receipts by EUR 7 billion. It should also be emphasised that from 2019, micro-businesses with cross-border online sales of no more than EUR 10,000 can continue to apply the VAT rules of their home country.

The other priority: the fight against fraud

This package of new measures also aims to mount a more effective attack against a form of fraud that reportedly led to losses of more than EUR 152 billion across the EU in 2015. As a result, a new measure to take effect in 2021 will remove the VAT exemption on goods with a value of under EUR 22 imported from outside the European Union. This is because it was often abused by companies that exploited it to bring in goods of a higher value while evading payment of VAT in their country of arrival. 

We explain how stricter rules now apply to the "split purchase" of a property obtained via a company. This is a favourable fiscal arrangement for a company director, but one that must be approached with more caution than ever.

The "usufruct/bare ownership" structure

For several years now, the so-called mixed purchase (private/professional) of a property has been common practice for some company directors. This fiscally beneficial solution is based on the principle of "breaking up" full ownership of the property. On one hand, the usufruct is assigned to the company for a certain amount (proportion of the purchase price). This means that the company is entitled to use the property with no rental liabilities during a given period (generally between 20 and 30 years). On the other, the company director acquires bare ownership of the property, which allows him/her to retake full possession of the building once the usufruct has expired without paying a euro more.

The crux of the issue: the valuation of the usufruct

Where is the interest in this arrangement? It lies in maximising the cost to the company of acquiring the usufruct. This is because the larger the sum paid by the company, the smaller the sum the director has to pay at the time of purchase (not forgetting taxes, registration levies, indemnities, etc.). In addition, the company can deduct building/service charges such as withholding tax, maintenance and financial costs, and amortise the value of the usufruct over the agreed term. This is the best possible fiscal scenario, but one that has resulted in a certain amount of abuse at the point of the oft-mentioned "usufruct valuation". It is not by chance then that the tax authorities have been studying the issue for a few years now with a view to tidying things up a little.

The taxman turns the screw even more

Up until now, the authorities used a formula known as the Ruysseveldt formula to calculate the usufruct value, based on the discounted proceeds of gross rental yield for the duration of the usufruct term. However, this approach led to over-valuations, and so did not prove effective enough in the eyes of the tax authorities. This is why they recently decided to apply a new financial appraisal formula which is much tougher. In reality, this is the method already in place since 2016 to assess cases filed with the Service des décisions anticipées (SDA) (advance ruling service) of Federal Public Service Finance. It should be recalled that this service has established a "pre-filing procedure" for usufruct arrangements (used in advance of the official application) to ensure the future operation benefits from a certain degree of legal security.

The "advance ruling" formula is much less favourable

By changing its stance on the issue, the tax authorities could cause problems for some directors who have been too greedy. This is because the two formulae produce rather different results. Take this basic example of a property with a purchase price of EUR 500,000, for which the company acquired the usufruct at a cost of EUR 425,000 under the Ruysseveldt formula (85% of the price). In this case, the director has only paid EUR 75,000 for the bare ownership. Based on the authorities' new approach, the financial valuation of the usufruct would actually sit at around 60%, with bare ownership at around 40%. This means the individual would have had to pay EUR 125,000 more – an altogether different situation.

Handle with care

So any head of a company who wishes to be involved in this kind of operation will need to be more prudent than ever before. One of the most important things is to demonstrate that the arrangement genuinely reflects a financial logic. With this in mind, well-informed entrepreneurs will ensure they prove the property deal will profit the company, and will adequately evaluate the usufruct's value and term. Finally, we should emphasise that approval can be sought from the tax authorities via the fiscal ruling website.

While we are hearing more and more about the ICO, this way of raising money in cryptocurrencies can still seem nebulous and uncertain. This is because anything remotely linked to virtual currencies is subject to rather polarising debate. Will the ICO become a real way for companies to raise funds ?

Raising equity in the digital era

The Initial Coin Offering (ICO) is an alternative financing method which involves raising funds in digital currency in the startup phase of a company. Specifically, the company issues chips (i.e. digital assets known as tokens) on a dedicated platform and, in exchange, receives an amount in a cryptocurrency, whether this be Bitcoins, Ethereum or any other altcoin (the name given to the hundreds of cryptocurrencies in existence). The whole transaction is therefore based on blockchain technology.

Similar to crowdfunding

Comparable to an IPO (Initial Public Offering) - the operation which allows a company to list its shares on a stock exchange - the ICO is more similar to fundraising via a crowdfunding platform. In effect, it can be accessed by anyone who holds virtual currency and requires neither shares to be issued nor a stake to be acquired. This means that the investor is not subject to any potential dilution of the capital. The crypto investor therefore bets on a specific project and, in exchange, receives digital assets, access and use of the service being offered, plus part of the profits generated by the company.

Is it reserved for blockchain companies?

The phenomenon of raising funds via an ICO is taking on considerable proportions (in 2017, more than 4 billion dollars are believed to have been raised via ICO worldwide), but it is still primarily reserved for companies which have built a link to a blockchain technology into their project. This is because the operation tends to be quick, flexible and simple, requires no intermediary and, above all, is unregulated. This type of financing therefore primarily attracts blockchain startups looking for significant funds... From the crypto investor side, while some cryptocurrency billionaires say that they want to support blockchain projects, there is no doubt that their interest is based partly on the significant liquidity of the ICO, as well as on the quick returns on their investment, which are the result of the considerable price volatility.

Communicate well for a successful consultation

In most cases, this starts with the drafting of a white paper (equivalent to the prospectus for an IPO) in which the framework of the project, especially the underlying technology, is laid out in order to arouse market interest. Generally, the company puts forward its own cryptocurrency, then sets the terms of the ICO (duration etc.) and the value of its tokens - which will be purchased, for example, with Bitcoins or Ethereum - according to the amount required to complete its project. What follows is often a huge surge...within only a few minutes!

Growing appetite

12.5 million dollars in 15 minutes (for the decentralised predictive markets platform Gnosis in the Netherlands), 36 million dollars in 1 minute (for the startup Brave which is developing a new generation of web browser), 250 million dollars for Filecoin (the American company which offers a data storage solution based on blockchain)... There are tons of crazy fundraising examples. At the start of 2018, the encrypted messaging service Telegram reported that it wanted to create its own blockchain technology to house decentralised services, via the most significant ICO to date: over one billion dollars. "Old hands" are also embarking on the adventure: Kodak, for example, who announced a project to develop a blockchain specially dedicated to managing copyright.

What does the future hold for the ICO?

Clearly, the world of cryptocurrency must often navigate greed, excess and speculation. In this sense, both for companies and for crypto investors, the ICO does not just present advantages. Potential hazards include the lack of guarantees of the relevance, seriousness and quality of a project, and also the huge volatility of virtual currency prices. Many experts are also predicting that it will create a bubble which will indeed burst one day. But when ? It's too early to say! As with the dot-com bubble at the start of the century, this might give us a clearer picture and allow us to clean up the world of digital currencies. In any case, there is no doubt that the question of regulation and the framing of this kind of financing will also be one of the main challenges facing the ICO in future...