Coalition agreement - What are the changes for Private PRICAF?

Lately, a growing interest from certain major investment players on the market has arisen in setting up collective investment funds in Belgium.

What is the definition of undertakings for collective investment?

Undertakings for collective investment (UCI) (Organismes de placement collectif / Instellingen voor collectieve belegging) are investment vehicles created to manage funds contributed by a group of investors. These contributions are pooled into a single investment portfolio, which is managed by a professional fund manager (either within or external to the group incorporating the fund). The manager acts solely in the best interests of the investors, following the principles of risk diversification and the investment policy set by the UCI. In return for their contributions, investors receive shares that represent their stake in the assets of the UCI.

Spotlight on the Private PRICAF

Among the various types of UCI available in Belgium, the Private PRICAF has gained attention during the coalition agreement negotiations of the new Belgian government. This note outlines the regulatory and tax framework of the Private PRICAF.

Current Regulatory Framework

A Private PRICAF can be set up as a private limited liability company, a public limited company, or a limited partnership. Depending on the chosen structure, specific conditions must be met in accordance with the Belgian companies and associations code (BCAC) — for example, the minimum capital requirement in the case of a public limited company.

Investment. The Private PRICAF is authorised to only invest in financial instruments issued by private (or unlisted) companies.

Limited duration. The Private PRICAF is incorporated for a maximum duration of 12 years, subject to the (conditional) possibility of extending this period by a maximum of two periods of maximum 3 years.

Registration with the FPS Finance. Any company seeking Private PRICAF status must apply to be listed on the Private PRICAF Register monitored by the Federal Public Service (FPS) Finance before starting its investment activities.

A minimum of six shareholders. Whilst, in general, a company in Belgium can be established by a single shareholder, the regulations for Private PRICAFs are stricter. At the time of registration with the FPS Finance, the company must have at least six shareholders.

Independence of the shareholders. These shareholders must be independent from each other, meaning there can be no controlling relationships as defined by the BCAB and meaning that they cannot have family ties up to the 4th degree. Before subscribing to shares, they must provide a certificate to the Private PRICAF to attest this independence.

Specific investments. The company can only begin its investment activities once it has received confirmation of its registration on the Private PRICAF list.

Compartments. Every Private PRICAF has the right to create different categories of shares, each representing a separate part of its assets, known as a compartment. Each compartment must also be registered with the FPS Finance and respect specific regulatory conditions (for example, six shareholders per compartment).

Aspects of the current Tax-friendly Regime

Various tax measures have already been taken in the past to make Private PRICAF more attractive to venture capital investors.

Reduced tax base. The Private PRICAF benefits, subject to the fulfilment of various conditions, from a very reduced tax base. One of the conditions for this reduced tax base is the compliance with all the rules arising from its regulatory status. Additionally, the Private PRICAF should also limit its investments to share that are eligible for the participation exemption, shares of other Private PRICAFS and, with certain limitations, cash and cash-like items. 

Favourable tax measures for shareholders. The attractive regime is reinforced by advantageous tax measures specifically designed for the shareholders of a Private PRICAF.

Indeed, in addition to several exemptions from withholding tax on dividends, which will not be affected by the coalition agreement, the tax legislator has implemented a tax reduction exclusively applicable in the event of the liquidation of a Private PRICAF. Where an individual (resident or subject to non-residents income tax) realises a capital loss on shares or units of a Private PRICAF which is being liquidated, that individual is entitled to a tax reduction under certain conditions. The reduction is equal to 25% of the amount of the capital loss, it being understood that this capital loss is only taken into account for the tax reduction up to an amount of EUR 25,000 per year. 

What’s next ? 

The coalition agreement foresees to strengthen venture capital, and intends to simplify the regulatory framework for private PRICAFs. In particular, the coalition agreement provides that: “issues related to the existing regulatory framework, such as the limited duration, the number of shareholders, the introduction period, and the permitted investments, will be deleted”. This future simplification of the regulatory requirements will facilitate the incorporation of Private PRICAFS and could lead to a significant increase of the number of Private PRICAFS that are active in Belgium. 

From a tax point of view, the coalition agreement also provides for the abolition of the abovementioned tax reduction for capital losses realized upon the liquidation of the Private PRICAF. The practical impact hereof is, however, expected to be limited, since as far as we are aware, the abovementioned tax reduction was not very often applied in practice. The positive impact of the relaxation of the regulatory requirements is expected to largely outweigh the disadvantage caused by the abolition of this specific tax measure. 

There is at this stage no official communication on the timing and the practical implementation of the changes. We are monitoring these developments closely. Please do not hesitate to reach out if you have any questions in this respect.