Simone ROMANO
OECD
Caroline KLEIN
OECD
OECD Economic Surveys: Belgium 2024
OECD Economic Surveys: Belgium
Abstract
SMEs account for substantial shares of Belgium’s employment and output. Fostering innovative capacity and productivity growth in this sector is therefore critical for sustaining high living standards and for thriving in the digital and green transitions. Evidence points to scope for a stronger inflow of new firms into Belgium’s SME sector and for a greater share of high-growth firms. Adopting a whole-of-government approach to reduce the high administrative and regulatory burden on small firms can help to support start-ups and firms’ growth. The SME sector can also be helped by boosting the potential for more female entrepreneurship, including through tackling gender bias in educational choices and developing mentoring programmes. Improving access to training, through consultancy services and flexible training modules, can help address skills shortages that hamper firms’ capacity to scale up. Finally, SME policy would benefit from less numerous and fragmented support programmes and better targeted R&D tax incentives.
Boosting the resilience of the Belgian economy, and its capacity for innovation and productivity increase, is key to facing short and long-term challenges, including population ageing, and the green and digital transitions. Productivity growth has slowed significantly since the 1990’s, more than in other advanced economies, though it does remain high in level terms. Weak business dynamism, reflected in comparatively few firms’ entry and exit and low growth among entrants, has been identified as among the factors underlying the productivity growth slowdown (OECD, 2019). Also, the relatively high level of spending on research and development, and the fast adoption of digital technologies in the business sector have not translated into higher productivity gains in the economy. This suggests that slow technological diffusion has contributed to deepening the productivity gap between technological-frontier and laggard firms identified in past OECD analyses.
Small and medium-sized enterprises (SME) have an important role to play not least as the sector accounts for around 99% of businesses, 65% of total employment and 56% of the total value added (Figure 5.1). The SME sector is heterogeneous (Box 5.1), as is its contribution to productivity and technological developments. A subset of young firms, most of them small in size, have been important for productivity growth and for introducing disruptive innovations (Dumont, 2021; Haltiwanger et al. 2016; Dumont and Kegels, 2016). At the same time, many small firms tend to lag behind in the adoption of technologies and face structural barriers to expand and innovate (OECD, 2023d). OECD analysis of productivity patterns at the firm level finds that young, small, and dynamic firms are yet to achieve their full potential in Belgium (OECD, 2019).
This chapter first looks at key features of Belgium’s SME sector, including its dynamics over time and productivity. The chapter then examines four central policy areas for SMEs’ performance and resilience: i) policies to improve the business environment for SMEs, including to reduce administrative and compliance costs; ii) gender gaps in entrepreneurship; iii) the financing of young innovative firms; and iv) challenges in attracting and retaining talent, and in providing training and skills development.
Note: Share of firms employing up to 249 employees (see Box 5.1 for more details). All sectors of the business economy are included, except financial services and insurance activities.
Source: OECD Structural Business Statistics
The SME sector, writ large, is typically defined by the number of employees. A common definition of small and medium-sized enterprises is businesses with between 10 and 250 employees, with small enterprises counting between 10 and 49 employees and medium-sized enterprises between 50 and 249 employees. It can also include enterprises, which employ fewer than 10 employees (microenterprises). The analysis of this chapter is mainly aimed at SMEs including microenterprises.
SMEs have diverse structures, operations, and challenges. Micro firms are particularly distinct. These sub-sectors are dominated by traditional trades, such as those in the construction sector, the retail sector and in some professional services. Entrepreneurs often aim to earn sufficient income to support themselves and their family or to improve their financial situation (necessity or opportunity-driven entrepreneurship). By contrast, “start-ups” are commonly defined as young firms (less than five years), aimed at creating and expanding an innovative product with high and rapid growth (growth-driven entrepreneurship).
The number of Belgian SMEs has increased rapidly over recent years
Since 2016, the number of SMEs has increased by around 4% on average (Figure 5.2, Panel A). Interestingly, the number of firms has grown strongly since the COVID-19 pandemic. Between 2020 and 2022, the average number of firms entering the market each year has been around 115 000, compared with an annual average of 85 000 per year between 2012 and 2019 (Figure 5.2, Panel A). Bankruptcies and job losses were well below the average level of the 10 years prior to the pandemic and have remained contained in the aftermath of the crisis (Figure 5.2, Panel B and C). It seems likely that Belgium’s substantial public support for businesses during the COVID-19 pandemic, including a moratorium on bankruptcies, and during the energy crisis has played a role in this.
The number of self-employed has grown rapidly in recent years. While all size-classes of SMEs have grown in number in the last decade, the average annual growth in the total number of firms without employees has been much more pronounced. The growth rate was particularly high in 2021-22, at 5.2% (Figure 5.2, Panel D). This may partially reflect changes in mentality and behaviour towards work that the COVID-19 pandemic brought about, with people more inclined to switch to more flexible forms of employment and become independent (Baker et Cai, 2023). Policy has also been playing a role in the strong growth of self-employment. There have been several reforms intended to make self-employment more attractive in recent years, with the aim of unleashing untapped entrepreneurial potential and offering alternative solutions to increase employment. These reforms include as regards pension rights, family and health insurance, and social protection. For instance, new schemes aiming to encourage self-employment were introduced, including Primostarter (reduced social-security contributions), Active after pension (support for retirees) and Student-entrepreneur status (for young entrepreneurs). Furthermore, the difference between income tax and corporate tax for small entrepreneurs has likely contributed to relatively strong growth in microenterprises, the difference between capital and labour taxation has provided financial incentives for entrepreneurs to incorporate (see Chapter 2). At high levels of income, the difference between the wage and the corporate income effective tax rates is estimated at around 17 percentage points, one of the highest in the OECD (see Box 2.6). Empirical evidence also suggests that the sizeable tax wedge plays a role in the large share of self-employed (Baker et al., 2018).
Meanwhile, growth in the number of SMEs with employees has been comparatively weak, particularly in the smallest size groups. Between 2012 and 2022, the number of firms with 1 to 9 employees grew by only around 1% annually (Figure 5.2, Panel D). Furthermore, business dynamism – measured as the combination of the birth and the death rates of enterprises – has been lower than in most EU countries for small and larger firms over the past few years, which has been identified as a key factor behind the productivity slowdown (OECD, 2019).
Note: In Panel A, the creation rate is the number of new firms per year as a percentage of the total stock of firms, while the cessation rate is the number of firms exiting the market as a percentage of the total stock of firms. The net increase rate is the difference between the two.
Source: SPF Economie and STATBEL.
High-growth SMEs are particularly rare in Belgium
Belgian SMEs appear to face difficulties growing in size. Belgium faces a lower-than-average share of high growth enterprises (Figure 5.3, Panel A). The average size of SMEs has dropped. One contributory factor may be the high and growing share of enterprises with no employee in the sector. They represent more than 74% of all the active enterprises in Belgium, a higher share than the OECD average (Figure 5.3, Panel B). More than 96% of firms in Belgium employ less than 10 employees, but they account for only 36% of total employment (STATBEL, 2022).
Note: Panel A shows the share of high growth enterprises, which are enterprises with an average annualised growth in number of employees greater than 10% per year over a three-year period and having at least 10 employees in the beginning of the growth. This share is measured as the number of high growth enterprises divided by the number of all active enterprises with at least 10 employees. Panel B shows the share of self-employed and micro enterprises over the total number of all active enterprises. The OECD average refers to 26 member countries.
Source: Eurostat and OECD.
Belgian SME productivity gaps with large enterprises are narrower than the OECD average, but wider than top performers in this dimension. As in many countries, the level of productivity tends to be greater in larger firms. In Belgium, among firms with 1-9 employees, productivity is less than 60% of that of large firms, while the share is over 90% for businesses with 50-249 employees (Figure 5.4). These productivity gaps reflect a multitude of factors, including economies of scale, sectoral distribution and positive feedback between firm-level growth and productivity. For instance, recent OECD analysis finds that firms that undergo a period of high employment or turnover growth tend to be more productive before scaling up and have a higher productivity growth up to two years after their high growth phase (OECD, 2021d).
Productivity gap by size class 2020 or latest year available
Note: Top 5 countries group comprises the five countries with the lowest productivity gap in the SMEs sector as a whole, which are Estonia, United Kingdom, Iceland, Luxembourg, and the Netherlands.
Source: OECD.
Digital technologies such as artificial intelligence (AI) have the potential to raise productivity growth by automating tasks, freeing up resources, and developing data-driven decisions. The adoption of digital technologies is relatively well advanced in the private sector in Belgium, but small firms are lagging behind larger ones, similar to other OECD European countries (OECD, 2022b). Only around 12.5% of SMEs use AI technology compared to around 48% of large firms in 2023 (Eurostat, 2024). Integrating digital and AI technologies in work processes requires expertise and resources, making their adoption challenging for small firms.
Similar to many other advanced economies, Belgium’s governments provide a wide range of support and concessions to SMEs. Economic justification for such support is often, at least implicitly, based on the idea that potential innovative capacities of the SME sector should be nurtured. Given this, many measures aim to support SMEs perceived as having strong growth potential, particularly through technology and research. SME support can also reflect other issues, for instance recognition that regulatory burden can unduly weigh on smaller firms (Box 5.2).
A flavour of the range of support is provided in Table 5.1. Tax and social security concessions for Belgium’s SMEs include a reduced rate of corporate taxation and schemes providing concessions on social security for selected groups (these are discussed in detail in section 5.4). Support for financing includes schemes run by regional-government investment companies, recently supported by the European Investment Fund (EIF) and the InvestEU programme. Other support includes regional programmes to finance the formation and upskilling of SME employees and encouraging female entrepreneurship.
As elsewhere, the entire package of SME support is difficult to fully identify, and the impact and efficiency of many measures is largely unknown. Alongside multiple programmes explicitly targeting SMEs, advantages and concessions for the sector are often built into other areas of policy, such as policies encouraging research and development. With a view to increasing the effectiveness and efficiency of policy and given the challenges of targeting policy on the appropriate segments of the SME sector as well as putting public finances on a sustainable path (Box 5.2, Chapter 2), sound assessment of policy effectiveness is needed.
Public support for SMEs is prevalent across OECD countries. A common argument for this support is that the sector makes a distinct contribution to the economy, particularly in terms of job creation and innovation, alongside associated positive externalities. However, there is little empirical evidence of substantial externalities for the SME sector as whole (Bergner et al., 2017). This likely reflects the heterogeneity of SMEs. Another argument is that the sector suffers disproportionately from market failures, including issues such as information asymmetry, entry barriers, and challenges in accessing finance. These market failures tend to affect business dynamism and lead to sub-optimal investment levels. Nevertheless, the applicability of this argument is debatable, as it may not uniformly pertain to all SMEs. Once again, the heterogeneity of the SME sector is underscored.
Much of SME policy recognises the heterogeneity of the SME sector, and, consequently, that some business warrant support more than others. In particular, a case can be made to focus on innovative, young, small firms that have potential to grow and challenge large, established business. Such firms often face financial constraints, market entry barriers, and high compliance costs compared to their established counterparts. For example, young innovative firms may confront substantial obstacles in securing financing due to uncertainty surrounding their business models.
There is justification for some forms of general support for the SMEs sector. This typically relates to disadvantages arising from small-scale operations. In particular, SMEs incur elevated fixed costs associated with tax obligations and regulatory compliance. Moreover, SMEs experience a competitive disadvantage compared to large multinational corporations that engage in specialised tax optimisation services and this may prompt them to make greater use of tax avoidance schemes (Sarin and Summers, 2019).
Source: OECD (2015) ; Bergner et al. (2017).
A set of general principles to ex-ante evaluations, that are indeed often – albeit not systemically – carried out in Belgium, should be applied to ensure cost-effectiveness of SME policies. Positive externalities and market failures that each support measure targeted at SMEs are supposed to promote or address should be identified and compared with alternative solutions. The measures should be considered against the revenue and the efficiency losses they generate. Potential for unintended downsides should also be assessed. Size-contingent policies can create distortions and barriers to growth. They can add unnecessary complexity, inducing high compliance and monitoring costs, for instance by requiring additional record-keeping, monitoring, or application procedures. Preferential tax incentives for instance can lead to tax arbitrage, with taxpayers changing expenditure or business structure to benefit from the provision. Careful targeting of SME policies can reduce their cost and potential distortions while ensuring that the intended goals are met. However, as illustrated during the COVID-19 crisis and pointed out in the OECD evaluation of Belgium’s policy responses, targeting measures can prove challenging as regional governments do not have access to a wealth of data collected by the federal government (OECD, 2023e).
The Belgian Court of Auditors (Cour des Comptes, 2018) has pointed out shortfalls in the federal government’s public policy assessment; by implication this includes federal SME support measures. The different Services public fédéraux (SPFs), which oversee the evaluation process, tend not to collaborate sufficiently with each other, and do not keep a complete inventory of past and planned evaluations. Evaluations are most often carried out ex-ante, before a new policy is introduced, but ex-post evaluations that aim at measuring the impact of existing policies over time are less common at the federal level. Moreover, often the Services public fédéraux do not have enough means to carry out evaluation properly, and the complex Belgian institutional system makes it more difficult to gather and standardise data, which are crucial for policy assessment (Cour des Comptes, 2018). As underlined in the OECD evaluation of Belgium’s COVID-19 Responses (OECD, 2023e), strengthening co-operation among different governments and increasing the use of data and evidence for decision making would help increase effectiveness of policy support. A key priority should be to further develop data collection and sharing to better design, target and evaluate economic measures.
There are some examples of good practices on public policy assessment in regional government that can be scaled up. In 2007, Flanders introduced the Vlaamse evaluatie platform, which enables the exchange of good practice on policy assessment between different institutions. Flanders also runs an evaluation unit within its Economy, Science and Innovation Department, which aims to initiate, supervise and monitor public policy evaluations through a transparent evaluation framework. In Wallonia, the Institut wallon de l’évaluation, de la prospective et de la statistique (IWEPS) leads its policy evaluations through a well-established process. Each evaluation is described in detail and is published on the IWEPS website (Centre Jean Gol, 2021).
Policymakers need to ensure support measures for SMEs are accessible and easy to use. Firms need to be aware of what support is available, and not dissuaded by the complexity of individual schemes or confused by the multiplicity of schemes. As in in many areas of support policy, alongside adding new measures, attention to weeding out or adjusting programmes that are redundant or ineffective is important. Streamlining support measures could enhance clarity and effectiveness, while freeing up resources to finance effective programmes and new policy initiatives as detailed below. The institutional structure of Belgium, with shared competencies between the federal and the regional governments adds complexity to such efforts.
Complex regulation and cumbersome bureaucratic red tape impose significant costs on all businesses, but small firms bear a disproportionate burden, have comparatively less influence in the decision-making process, and this contributes to exacerbate imbalances with larger competitors. Complicated and costly insolvency procedures impede small firms’ restructuring and an effective reallocation of resources in the economy. Improving the business environment though streamlined administrative processes, simplified insolvency procedures and further anti-corruption and transparency initiatives can foster a level playing field, reducing barriers to entry, and spurring growth in the SMEs sector.
Simplifying administrative requirements
Regulatory complexity across different layers of government, lack of coordination among institutions and policies, red tape, inefficient and multiple procedures to comply with administrative requirements result in a heavy regulatory burden and high compliance costs for businesses. These affect disproportionality smaller firms, as they are typically less well equipped than large companies to understand the regulatory environment and comply with its norms (OECD, 2023d).
Despite substantial progress over the last 20 years, Belgium still has ample scope to make the regulatory environment more conducive to entrepreneurship and competition (Figure 5.5, Panel A). According to OECD Product Market Regulation indicators, Belgium performs worse than the OECD average or best performing countries in four key areas for SMEs: simplification of the administrative and regulatory burden, the administrative requirements for new firms, barriers to entry in service sectors and lobbying regulation (discussed in more detail below) (Figure 5.5, Panel B). While digital one-stop shops exist at the federal and regional levels, entrepreneurs still need to contact up to four different administrative bodies directly to start a business. As regards the simplification of procedures, there is no requirement to use 'plain language' in the drafting of new primary laws and subordinate regulations. While there are inventories of licenses and permits, there is no requirement to regularly review them and assess whether they are still required. Finally, overly restrictive entry requirements in professional services, such as lawyers, accountants, architects and real estate agents, impedes competition and the entry of new firms. Restrictive entry may also induce higher costs and limit access to quality services, including for SME’s operating in other sectors. It is thus welcome that in late 2023 to early 2024 regulation for real estate agents and architects was eased on the required percentage of professionals in governing bodies, their shareholding and voting rights, as well as rules on company goals and multidisciplinary activities.
Source: OECD 2023/2024 PMR database.
Belgium’s SMEs perceive regulation as difficult to comply with. According to a survey carried out by the Federal Planning Bureau, the majority of enterprises were not satisfied with the system of regulation (Federal Planning Bureau, 2024). Surveyed firms point to issues with the consistency, clarity, and adaptability of regulation (Figure 5.6, Panel A). While firms in general appear slightly more satisfied regarding interactions with the administration, they report difficulties in identifying the appropriate interlocutors (Figure 5.6, Panel B). Business representatives also report that frequent regulatory changes increase firms’ compliance costs (UCM, 2023).
Note: Panel A and B show the percentage of companies that fully agree with the statement.
Source: Belgian Federal Planning Bureau.
Past policy efforts to reduce red tape, simplify the regulatory framework and digitalise public services have been substantial (Box 5.3) and have contributed to reducing administrative costs. Over the period 2000-2022, administrative costs are estimated to have declined by around EUR 3 billion, from around 3.5% of GDP in 2000 to 1.1% of GDP in 2022 (Figure 5.7, Panel A, BOSA, 2020). However, further efforts would be welcome, and could be targeted at SMEs. As of 2022, the share of total administrative costs incurred by small enterprises far exceeded their weight in the economy (Figure 5.7, Panel B and D). The burden per employee in small firms is 8 times higher than for large firms (Figure 5.7, Panel C). Furthermore, administrative costs have decreased less for small than for large firms (BOSA, 2020).
In 2004, the federal government introduced the Kafka Test to assess the impact of new draft regulations on administrative burdens. In 2013, the test was replaced by the Regulatory Impact Analysis (RIA), a self-assessment tool designed to raise awareness among the authors of regulations. It is used to prepare, consult, and assess the impacts of proposed regulations. The RIA is mandatory for all primary legislation and Royal decrees discussed in the federal Council of Ministers. The RIAs are published alongside parliamentary documents and are freely accessible.
The federal and regional governments have invested in reducing red tape and developing digital public services. Since 2014, the “Only-Once” Principle” guarantees the principle of a single collection of data affecting various administrative procedures. In 2019, the new Belgian Code on Companies and Associations aimed at modernising and simplifying company law and facilitating online certification. A federal action plan for administrative simplification was adopted in 2022. The Digital Economy and Society Index suggests Belgium performs above the EU average as for digital public services, including those directed to businesses (European Commission, 2023e). E-government has accelerated since the COVID-19 pandemic. eBox Entrerprise, a messaging and information system centralizes communication with the administration. The platform e-Procurement has been renewed and modernised. Electronic invoicing has been mandatory for transactions with the government since March 2024 and will become mandatory for business-to-business transactions from 2026. Biztax allows to file tax declarations online, JustAct and eDepot allow to create companies electronically. Simplification of electronic signing rules is envisaged.
One-stop shops for entrepreneurs, providing information on procedures and regional support are in place or are being developed in regions. Indicators suggest Flanders is well advanced in the digitalisation of public services (van der Linden, 2023). The “Flanders Innovation and Entrepreneurship – VLAIO” coordinates a digital one-stop shop for Flemish entrepreneurs.The Government of Flanders adopted an action plan 'Reduction of Regulatory Burdens' with approximately 250 projects of regulatory and administrative simplification, based on proposals from within the administration and stakeholders. The 2020-2025 plan for administrative simplification and the Easybrussels agency aim to reduce administrative burdens and advance digitalisation of public services in the Brussels region. The Digital Wallonia strategy includes programmes to further digitise services, develop the use of data and digital services for internal processes. Wallonie Entreprendre provides entrepreneurs with information on the 1890 online platform. The national Recovery and Resilience Plan includes a range of measures for the digitalisation of the administration at the federal and the regional level.
Some OECD countries managed to reduce administrative costs through a whole-of-government approach in consultation with the private sector (Box 5.4). The Simplex program in Portugal focuses on enhancing public service efficiency based on input from businesses and households. The programme has resulted in over 1 000 simplification initiatives, leading to significant time and cost savings for businesses and citizens. British Columbia's Red Tape Reduction Task Force made over 600 recommendations, leading to a 15% reduction in regulatory requirements. Similarly, the UK's Red Tape Challenge website facilitated open discussions with businesses, leading to 3 000 reforms aimed at cutting red tape. Establishing comprehensive digital one-stop shops, as done in Flanders and providing dedicated personal points of contact can also help smaller enterprise to comply with administrative requirements. Dedicated personal contact can help guide enterprises through the administrative requirements and procedures. At the same time, digital innovations, including artificial intelligence (AI), could be used to raise effectiveness and targeting of guidance services. For instance, AI has the potential to help governments move towards public services able to anticipate and handle user needs before action is required (e.g. completing a form; Scholta et al., 2019). When developing the use of AI in the public sector, governments need to ensure that it is transparently communicated to citizens and remains in line with OECD AI Principles regarding privacy, security, data reliability, fairness, and accountability (OECD, 2024b).
Note: Panel A shows the total amount of administrative costs for firms and self-employed. Panel B shows the share of total administrative costs per each firms’ size category. Panel C shows the average administrative costs incurred per each employee, breaking it down in the three costs categories. Panel D shows the costs in relation with annual turnover of each size category. Data in Panel B and D refer to 2022.
Source: Belgian Federal Planning Bureau.
Data suggest administrative costs relating to fiscal issues (such as tax compliance) are dominant for small enterprises (Figure 5.7, Panel C and D, Federal Planning Bureau, 2024). Effective and easy-to-use taxpayer communication and service channels can reduce these costs and help strengthen tax compliance. The app “MyMinFin”, launched by SPF Finance, simplifies procedures to deal with tax returns. Nevertheless, programmes to assist business owners with meeting their tax obligations are on a one-to-many basis in Belgium, such as the provision of guidance or reminders as well as calculation and reporting tools. Advances in technology, including artificial intelligence, mean communications between tax authorities and businesses can become more tailored, helping businesses address taxation cost-effectively and without recourse to in-person government services or private-sector services (“self-service” tax administration). New technologies can also improve tax-form pre-filling. Belgium could take inspiration to further improve its services from the many initiatives in other OECD countries. For instance, in Portugal, application programming interfaces allow to connect the corporate and the tax administration systems (OECD, 2024a).
Launched in 2006 in Portugal, the Simplex programme aimed to achieve progress across government in a range of objectives: improving regulation, reducing the administrative burden, enhancing interoperability, easing access to public services and promoting e-Government. Stakeholders were heavily involved in defining the simplification initiatives. In 2018, an evaluation of 40 SIMPLEX+ measures estimated a saving of EUR 174 million for businesses and a reduction in compliance time of 17.9 million hours. The “automatic tax declaration” and “logistics helpdesk” initiatives were particularly successful (European Commission, 2020). Other successful initiatives include “On the Spot Firm” in which a company can be registered in less than one hour and a transfer of a firms’ property in one day (OECD - OPSI, 2019).
In British Columbia, the “Red Tape Reduction Task Force”, comprising representatives from the private sector and industry made over 600 recommendations for reducing red tape, which were assessed by the government and implemented. This was followed with provisions for citizens and businesses to submit suggestions and comments on regulatory improvements. It is estimated these policies have cut the number of regulatory requirements in British Colombia by 15% (OECD, 2021c).
Denmark’s “Business Forum for Simpler Rules”, launched in 2012, was based on a comply-or-explain principle, to identify business regulations that firms perceived as the most burdensome and propose simplification. The “Burden Hunt Programme” enhanced businesses’ participation, allowing them to set the agenda and be directly heard.
In the UK, over 2011-13, the “Red Tape Challenge” website promoted open discussion with businesses and entrepreneurs on regulating in the least burdensome way. Comments were used by the British government to design a package of 3 000 reforms to cut red tape (OECD, 2019).
Improving tax advantages for small businesses
Belgium provides SMEs with a number of tax advantages (Box 5.5). The preferential tax treatment can be justified by the proportionately high administrative costs SMEs bear, including as regards paying taxes (see Figure 5.7). However, size-contingent tax incentives potentially give businesses an incentive to remain small, add complexity to the tax system and generate administrative burdens for taxpayers and tax authorities (OECD, 2015b). These issues could be exacerbated when there are additional concessions for small firms, such as exemptions to employment protection legislation. Thorough analyses of the cost and benefits of preferential taxation can potentially help calibrate policy. However, the policy objectives of these measures are often not well defined, which complicates such an evaluation (Belgian Court of Auditors, 2021a).
Belgium’s corporate income taxation system includes specific features for SMEs, including a reduced corporate income tax rate, an accelerated depreciation rate, and investment tax allowances (Box 5.5). Lowering corporate income taxation can foster investment and increase tax compliance, but its positive impact varies significantly across firms’ type and depends on the policy tools used (Hanappi, 2023). Experience of other OECD countries suggests that reduced CIT rates may have unintended negative effects on business dynamism and tax compliance. It can lead to misreporting of taxable income or size (Bergner et al., 2017) and reduces incentives for firms to scale up (Garicano et al., 2016; Tsuruta, 2020; Hosono et al., 2023; Almunia and Lopez-Rodriguez, 2013). The literature suggests that other factors than size, such as age, market position, or financial constraints are found to play a more significant role in determining investment (Zwick and Mahon, 2017; Egger et al., 2018; Hanappi et al.; 2023). The cost of the reduced tax rate and investment deductions has more than doubled in four years, from around EUR 367 million in 2017 to EUR 797 million in 2021, partly reflecting the rapid rise in the number of firms covered by the schemes (SPF Finance, 2024). As recommended in a previous Economic Survey of Belgium (OECD, 2020a), the costs and benefits of the preferential treatment of SMEs in the CIT system should be reviewed and, if needed, transitional measures should be introduced to smooth out cliff-edge effects when businesses transition from the preferential status.
Belgium’s preferential tax treatment for SMEs applies to companies with 50 or fewer full-time employees, and a turnover and a balance sheet of maximum EUR 9 million and EUR 4.5 million, respectively. Non-income criteria relating to business activities, shareholdings, capital yield and directors’ remuneration also apply to avoid abuses.
SMEs fulfilling the above criteria pay a reduced corporate income tax rate of 20% on the first bracket of EUR 100,000 profit (instead of 25%). In addition, firms may qualify for a tax credit when investing equity in the business and are exempted from penalty rates of taxation when insufficient advance tax payments have been made.
Tax incentives to foster SMEs investment in tangible and intangible assets mostly consist in accelerated depreciation allowances and investment deductions.
SMEs fulfilling the above criteria may be eligible for accelerated depreciation methods, allowing them to write off the cost of assets more quickly than the standard depreciation rates.
An investment deduction of 8% adds to the normal tax depreciation and can be carried over to the following year. A 20.5% and a 13.5% deduction rate applied for investment in security and ICT respectively in 2023. Like other companies in Belgium, SMEs benefit from a 13.5% deduction on investments made in green research and development as well as environmentally friendly investments. The 20.5% and 13.5% deductions can be carried forward indefinitely but are subject to an annual ceiling. In 2023, the government proposed reforms that included an increase in the standard investment deduction rate from 8% to 10%. Deductions of 40% for SME green investments were also proposed (30% for large firms).
Social security contributions are reduced for initial hirings (“réductions groupe cible pour premiers engagements”). The generosity of the measure was diminished in 2022, with the introduction of a ceiling for the deduction applied to the first employee (permanent deduction of maximum EUR 3 100 quarterly in 2024) and a reduction in the maximum number of eligible employees from six to three. Microenterprises are exempted from the 1.6% social security contributions for unemployment. Reduced social security contributions (lump sums) are also offered to small firms in the HORECA sectors up to 5 employees.
Belgium offers tax incentives and exemptions targeted at startups and scale ups, including the “tax shelter” schemes for investors, exemptions for capital gains taxation realised from the sale of qualifying startup shares and from the withholding tax. Start-ups (defined as firms created less than 48 months ago) are partially exempted from the withholding tax – an advance on professional income tax firms should collect and return to the state (10% for small firms and 20% for microenterprises). The tax shelter scheme provides taxpayers a tax reduction of 30% of the amount invested in startups (defined as companies with less than 50 employees and 4 years old), 45% for investments in micro-enterprises (less than 10 employees and 4 years old) and 25% for scale ups (less than 10 employees, 5 to 10 years old and more than 10% annual growth). The amount invested that qualifies for the reduction is limited to EUR 100 000 per taxpayer per year. A company can benefit from such investments up to EUR 500 000 (1 million for scale ups).
In Belgium, differences between capital and labour income taxation are large, which encourages incorporation for self-employed and services employees. The dividend income is subject to a flat tax that is lower than the income tax rates. In addition, social security contributions and sub-central taxes are not payable on dividend income and capital gains on shares are not taxed.
Source: SPF Emploi, travail et concertation sociale, Sécurité Sociale, SPF Finance
Frequent small changes to corporate income taxation, including investment deduction rates, over the past years and the postponement of the tax reform in 2023 (Chapter 2) have increased uncertainty and compliance costs. Increasing the predictability of the corporate income tax system would reduce costs for firms, which could be especially beneficial for SMEs in helping them with investment planning. Some features of the Belgian tax system could also discourage entrepreneurship among wage earners. Entrepreneurs who combine their work with a regular employee contract face a relatively large tax burden: their business earnings are combined with their wage income and taxed under the personal income tax, which is characterised by high progressivity with the top tax rate applied to a relatively low income level (see Chapter 2). The large gap between capital and labour income taxation needs to be revised as it affects the efficiency of the tax system by creating tax arbitrage opportunities and encourages incorporation (Box 2.6).
Belgium’s reduced employer social security contributions on hiring the first several employees has been reformed (Box 5.5) but could benefit from further adjustment. The scheme was extended in 2016 by not restricting the amount or duration of exemptions. Evidence suggests it had little positive impact on employment and experienced a cost overrun, especially as the number of high-wage workers being in the scheme increased (Belgian Court of Auditors, 2021b). Against this backdrop, exemptions have been restricted in 2022 (Box 5.5). This should increase the cost efficiency of the measure as evidence points to social security contributions having a stronger impact on employment at the lower end of the wage distribution. Changing the subsidy into a lump sum and moving to a time-limited deduction for the first employee would improve the targeting further as regards encouraging young firms to take on low-wage employees. This would also limit wasting resources on prolonged support for unprofitable firms and windfall gains for incumbents.
Tailoring insolvency procedures to SMEs
Efficient insolvency regimes can contribute to maintaining a healthy business dynamism and ensuring an effective allocation of resources. Systems that are designed to facilitate corporate restructuring of viable firms encountering temporary financial distress, without excessively penalising business failures, can facilitate resource reallocation towards more productive uses and encourage entrepreneurial risk taking. Insolvency regimes should have provisions that cater for SME’s. For example, business and personal finances tend to be interlinked in small firms calling for a strong coordination between corporate and personal insolvency regimes. The complexity and the high cost of long procedures are major obstacles for smaller firms restructuring, as they tend to have limited financial resources (André & Demmou, 2022). Improving insolvency procedures for SMEs can bring large economic benefits, as the proportion of assets and capital sunk in zombie firms is usually much higher in SMEs than in large companies in advanced economies (Banerjee & Hofmann, 2020)
Belgium’s insolvency regime has been reformed over the past decade. The OECD insolvency indicator suggests that Belgium’s regime was less favourable than those of many other OECD countries in 2022. The transposition of the EU Restructuring Directive (2019/1023) and a new insolvency law in force since September 2023 should bring further improvements. The new legal framework simplifies amicable agreements and out of court settlements as well as enhances early warning systems. A distinction between SMEs and large enterprises is made in the context of collective agreements with creditors on the proposed restructuring plan. SMEs have the possibility to opt for a simpler regime, where voting on the restructuring plan is not carried out according to the classes of creditors.
Nonetheless, some aspects of insolvency reform still need to be refined. The SME regime closely resembles the reorganisation procedure by collective agreement with creditors that was already in place before the new norm, and as such remains quite complicated. Emphasis should be placed on streamlining procedures further during the implementation of the new insolvency law. Effectiveness of the reform will depend on the willingness of SME owner-managers to use the new procedures, such as early warning tools (McCarthy, 2020). Helping SMEs to familiarize with the new norms and to fully understand the options and possibilities will be important.
Strengthening efforts to tackle corruption
Corruption raises the cost of doing business, undermines public trust and hampers growth. Small businesses may bear a larger cost as corruption can distort competition by favouring larger firms with greater resources and connections. Indicators suggest control of corruption in Belgium is in line with the OECD average (Figure 5.8). Preventive measures against corruption are in place and progress has been made in recent years to fill some gaps. More adequate human and financial resources for the justice system have been provided and the public integrity framework for elected and appointed officials has been strengthened through the extension of the existing Code of Conduct to cover all members of ministerial private offices. The rules on gifts and benefits for members of Parliament and Government and the rules on revolving doors for Government and their private offices were also reinforced (European Commission, 2023b). The Royal Decree on integrity policy and management in the federal public sector adopted in 2023 foresees the creation of a more autonomous and central Integrity Bureau and formalises the role of “Integrity Coordinators”. The latter will help federal public organisations to adopt a strategic approach to public integrity and report annually on implementation progress. The EU directive on whistleblower protection was transposed in 2023 reinforcing the reporting channels and protection of persons reporting integrity violations in federal public authorities. It requires establishing channels and procedures for internal reporting, covers facilitators and third parties and allows anonymous reporting (Belgian Federal Government, 2022.
However, transparency and integrity measures related to lobbying and influence activities still have gaps in Belgium. Transparency requirements apply to members of parliament but exclude ministers, their cabinets and public officials. A lobby register is publicly accessible and lists all groups and individuals communicating with members of parliament to influence the legislative process, but the absence of legal requirements to register and of sanctions for non-compliance undermines its efficacy. The Higher Council of Independents and SMEs supports and represents SME interests, for instance by advising on regulation that impacts the sector and providing guidance to their members. Nevertheless, lack of transparency in lobbying and influence activities still poses particular problems for SMEs, as they often have limited capacity to cope with an opaque public sector and lobby for their needs (European Commiteee of the Regions, 2019; OECD, 2013). A legislative reform on lobbying is under discussion, with a view to expand the scope of the existing transparency register to members of Government, but the timeline for adoption remains unclear. Other transparency measures, such as a legislative footprint, covering both members of parliament and government must be adopted. Also, more precise rules and guidelines are needed on how public officials should manage contacts with lobbyists. The purpose of contacts should be made more transparent by identifying the persons with whom or on behalf of whom the contact has taken place, the specific subject matter of the discussions, and the purpose of the engagement.
Note: Panel B shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project. Panel E summarises the overall assessment on the exchange of information in practice from peer reviews by the Global Forum on Transparency and Exchange of Information for Tax Purposes. Peer reviews assess member jurisdictions' ability to ensure the transparency of their legal entities and arrangements and to co-operate with other tax administrations in accordance with the internationally agreed standard. The figure shows results from the ongoing second round when available, otherwise first round results are displayed. Panel B shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing.
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy Project, V-Dem Dataset v12. Panel E and F: OECD Secretariat’s own calculation based on the materials from the Global Forum on Transparency and Exchange of Information for Tax Purposes; and OECD, Financial Action Task Force (FATF).
Belgium has a relatively high share of “missing entrepreneurs”. The number of entrepreneurs would be almost 60% higher if the whole working age population was as active in business creation as 30-49 year old men, all else equal. (Figure 5.9, panel A). Women account for the vast majority of them (OECD, 2022). Following a European trend, gender gaps in entrepreneurship have declined in Belgium over the last two decades. The number of female-led SMEs grew almost two times faster than male-led SMEs from 2012 to 2022 (Figure 5.9, Panel B). Nevertheless, only 23% of SMEs were led by women in 2022 (Figure 5.9, Panel C).
Note: In Panel A, the number of “missing entrepreneurs” is estimated by subtracting the number of actual entrepreneurs from the number “potential” entrepreneurs, that there would be if everyone was as active as 30–49-year-old men in starting and managing new businesses, i.e. setting the activity rate of the whole population to the activity rate of 30-49 year old men. Data for Panel C and D refers to 2022.
Source: OECD (2020), Inclusive entrepreneurship policies country assessment notes: Belgium 2020 and SPF Economie.
Note: In Panel A, the number of “missing entrepreneurs” is estimated by subtracting the number of actual entrepreneurs from the number “potential” entrepreneurs, that there would be if everyone was as active as 30–49-year-old men in starting and managing new businesses, i.e. setting the activity rate of the whole population to the activity rate of 30-49 year old men. Data for Panel C and D refers to 2022.
Source: OECD (2020), Inclusive entrepreneurship policies country assessment notes: Belgium 2020 and SPF Economie.
Data show that women entrepreneurs in Belgium are less likely to be operating growth-oriented businesses and to have employees (OECD/European Commission, 2023). Women are underrepresented in limited liability companies, and relatively more are operating as sole proprietors or natural persons (Figure 5.9, Panel D). This is unfortunate as separating personal and business status tends to ease access to finance, investment and recruitments, and reduces risks (Yoon-Suk Baik et al, 2013). These dynamics might be partially due to sectoral differences, with female-led SMEs operating more in sectors where limited liability companies are less common, such as health and social care.
Women face specific barriers to entrepreneurship, including more difficult access to finance, limited exposure to entrepreneurial skills and entrepreneurial networks, and deeply rooted social norms and stereotypes. Tackling these barriers would contribute to equality of opportunities and promoting economic independence for women. It would also help to untap unused entrepreneurial potential, promoting economic and social stability and fostering growth and innovation (OECD/European Commission, 2023). Recent empirical estimates from several OECD countries confirm that closing the gender gap in entrepreneurship would have a sizeable positive impact on the economic activity in the medium and long run (ISED, 2022; Rose Allison, 2019).
Reducing gender bias in access to finance
Access to finance can be a key obstacle for women entrepreneurs. Evidence based on OECD countries suggests women tend to start their business with significantly lower levels of financial capital than men and raise significantly lower amounts of incremental debt and equity in the first years of business operation (Lassébie, 2019). Also, female-led businesses are less likely to raise venture capital than their male-led counterparts, and, when they do, they raise lower amounts, despite yielding on average higher returns (Aernoudt and San José, 2020). Both supply and demand side factors are at play. Gender biases in lending practices have been identified and can be partly explained by women’s underrepresentation among lenders in the venture capital industry and in sectors in which venture capital is more developed (Lassébie, 2019; Pavlova and Gvetadze, 2023). Furthermore, OECD analysis suggests that women have less financial expertise than men even when various socio-economic factors are considered (OECD, 2020b). This may limit the range of financing opportunities they consider, and can negatively impact how women pitch their businesses to lenders and investors (OECD, 2023c).
In 2023 the federal government launched a “Female Entrepreneurship” plan, encompassing numerous measures to enhance the access to finance for female entrepreneurs (Office of the Deputy Prime Minister and Minister for the Middle Classes, Self-Employed, SMEs and Agriculture, 2023). The measures feature the development of better indicators and data on female entrepeneurship, including access to finance, an effort in line with the G20/OECD High-Level Pirnciples on SME Financing (OECD, 2022a). The plan also aims to mobilise banks and private investors. Events with key players in entrepreneurial finance have been organised to raise awareness of gender biaises. Also women entrepreneurs will be surveyed to analyse the gender dimension in access to finance. Support is provided to networks of female investors and entrepreneurs emphasising training opportunities and access to venture capital, for instance, the Women Business Angels for Europe’s Entrepreneurs or the “Hors Norme” network in the Brussels region.
More could be done to develop financial support tailored for female entrepreneurs as part of Belgium’s policy on female entrepreneurship. Traditional policy responses include loan guarantees and grants to help overcome gender biases in lending practices and investor preferences. For instance, Australia’s “Boosting Female Founders Initiative” encourages private sector investments in female-led start-ups through matched funding grants (Government of Australia, 2022). The grants are matched, providing a maximum of half of the financing needs. Matched funding grants can enhance the probability of success of the funded projects and the expected returns on invesment by providing access to aditional financial resources and reducing risks. Providing financial management training should also be considered. Training has increasingly focused on helping women tap into financing via fintech and crowdfunding (Horvat, 2018; Halabiski, 2017). Policy supporting microfinance can also facilitate financing for women entrepreneurs; they represent the majority of microfinance borrowers in the EU. Policy options include the provision of loan guarantees as in, for instance, Italy and of technical support to strenghten non-financial services, such as training and coaching (OECD/European Union, 2021). An assesment of adequacy and efficiency of support provided to microfinance by regional public agencies in Flanders and Brussels and through the Social Fund at the federal level should be conducted to identify potential gaps, loopholes, and potential efficiency gains.
Combating gender stereotypes
Social norms and models are also a barrier to female entrepreneurship. These are usually deeply rooted in the culture and influence the division of roles within a family, with women usually assuming the heavier burden of caring for children and household tasks. This, in turn, affects the time and energy available to female entrepreneurs, and their ambitions. Moreover, social attitudes and cultural views still tend to exert a negative influence on women’s desire to start a business, as well as on women’s self-confidence and relatively higher fear of failure (Halabisky, 2017).
Policy measures should aim to change these social norms and stereotypes, including via the education system and through role models. Policy can also facilitate women’s participation in entrepreneurship by increasing the availability and affordability of childcare services (Chapter 3; OECD, 2021a). One pillar of Wallonia’s plan to support female entrepreneurship is dedicated to reducing cultural-led obstacles and encompasses sensibilisation campaigns promoting female success stories. In the same vein, Booming Belgium, a platform dedicated to successful entrepreneurs, was developed at the federal level and offers more visibility to women entrepreneurs. Another pillar of Wallonia’s plan – the “Prime Femmes entrepreneurs” – supports women entrepreneurs during pregnancy and maternity leave by providing a replacement and funding that covers 75% of their gross salary. Uptake, however, has been rather limited so far.
Facilitating women’s access to entrepreneurial skills and networks
Women tend to be less exposed than men to entrepreneurial skills when growing up and have less access to entrepreneurial networks (OECD, 2023c). Scaling up and enhancing the reach of effective regional programmes can contribute to reducing these gaps. Wallonia provides training courses to women who want to set up and develop their own business, filling the gaps that might exist in entrepreneurial skills. “Women in Business”, the Brussels region’s hub dedicated to support female entrepreneurship, provides different business support services, among them, training and networking. According to the 2023 barometer of female entrepreneurship (Hub Brussels, 2023), 80% of the women entrepreneurs interviewed find these policy actions useful, especially those related to fostering networking. “Flanders Innovation and Entrepreneurship – VLAIO” programme includes a network of women entrepreneurs (Markant vzw) and an award celebrating female entrepreneurial talent. Since 2022, the “Fempreneurs project” has aimed to support six hundred female entrepreneurs in Flanders over two years, through mentoring, bootcamps and digital workshops. The mentoring initiatives, which pairs recent female entrepreneurs with more experienced ones, might be particularly effective in accelerating knowledge and confidence.
Small innovative firms play a central role in business dynamism and growth potential. They tend to grow more and faster than other firms, challenge incumbent firms (Dejardin, 2011), and can be a key source of sustainable value creation (Colombelli et al., 2016). Indicators suggest that despite relatively good performance compared with other European countries, Belgium’s SME sector could be more strongly engaged in innovation. The country’s economy-wide innovative performance has improved substantially over the past decade with spending on research and development (R&D) reaching 3.4% of GDP in 2021 from only 2.2% ten years ago. Indeed, Belgium has the highest business R&D intensity in the EU. As elsewhere, R&D spending is concentrated in large incumbent firms and in certain sectors, such as pharmaceuticals. Similarly, patents are concentrated in a few entities and a few sectors (Schoonackers, 2020).
SME’s share of business research and development in Belgium is relatively low (Figure 5.10) suggesting a relatively large gap in engagement in research compared with big firms. Furthermore, analysis by the European Commission suggests business dynamism in the innovation ecosystem lags behind other EU countries, with a very low number of high growth firms in the most innovative sectors, including digital (European Commission, 2023a). In 2020, only 11% of Belgian businesses in information industries were start-up firms, compared to 25% across the OECD. Increasing the role of start-ups in the research and development landscape could potentially improve innovation outcomes in these sectors.
Ensuring appropriate innovation support to SMEs
Belgium’s public support to business R&D spending is generous in international comparison and is centred on expenditure-based tax incentives (Box 5.6). In 2020, public support to business R&D spending was estimated at around 0.3% of GDP, comprising more than 70% tax incentives (from less than 30% in 2007) (OECD, 2023h). Large firms tend to be the main recipients of public support and disproportionally benefit from the R&D tax expenditures (Dumont, 2022). This concentration of public support in large firms is relatively pronounced in Belgium by international comparison (Figure 5.10). While international comparability is constrained by data limitations, indicators suggest that the share of R&D tax support accounted for by small firms was low by OECD standards and well below their contribution to business R&D spending at around 20% of the total.
Some recent research suggests that tax credits may not significantly increase R&D investment in Belgium (Dumont, 2019; Dumont, 2022). One reason is that some of the tax credit goes to R&D that would have taken place without it (deadweight loss). The same research finds that direct support – mostly subsidies provided by regions – and the partial exemption from payment of the withholding tax on the wages of R&D personnel, encouraged investment in R&D. To better support SMEs and improve the efficiency of public innovation support, a reform of R&D support should be considered, as recommended in past Economic Surveys of Belgium (OECD, 2020a; OECD, 2022b).
Corporate Income Tax expenditure for R&D
The cost of R&D support in the CIT system amounted to EUR 1.3 billion in 2021, which is around 0.1% of GDP. This includes deductions for patent income (EUR 0.78 billion), tax credits (EUR 0.27 billion), and tax deduction (EUR 0.17). The support comprises the following (there are no specific provisions for SMEs):
R&D tax credit provides 3.4% of tax credit for R&D spending in 2024. The tax credit is refundable if it has not been deducted for four subsequent tax years (since 2024, 5 years before). Where the credit carryover equals or exceeds EUR 703 190, the maximum credit claimed in any year is 25% of the carry-over amount.
R&D tax allowance (investment deduction) provides a 20.5% tax allowance on R&D expenditure in 2024. The allowance cannot be refunded but can be carried over indefinitely. Where the allowance carryover equals or exceeds EUR 4 136 390, the maximum allowance claimed in any year is 25% of the carry-over amount.
Innovation Income Deduction, a tax incentive available to all Belgian companies, including SMEs, based on income derived from intellectual property rights. Under the Deduction, a portion of the income generated from intellectual property rights, such as patents, copyrighted software, and certain other intangible assets, may be tax-exempt or subject to reduced taxation.
Payroll Withholding Tax Credit
A refundable R&D payroll tax credit applies to research employees with specific diploma requirements (80% of the payroll tax for master’s level and above and 40% for bachelors). The tax deduction is limited to the tax liability and is included in corporate-income taxation. “Young Innovative Companies” benefit from the payroll exemption without their R&D staff having to meet the qualification requirements. The cost of the measure is estimated at EUR 1.3 billion in 2021 (Belgian Court of Auditors, 2023).
The efficiency of tax incentives for R&D activities could be increased by targeting small firms that are financially constrained. Evidence points to a stronger effect of the R&D tax credits and/or subsidies for these firms (Appelt et al., 2020; Dechezleprêtre et al., 2023) and, more generally, finds the impact of tax incentives to decline with firm size in Belgium (Dumont, 2019). Refunding the R&D tax credit every year instead of every four years could improve its effectiveness. Indeed, evidence suggests immediate refundability increases the share of SMEs receiving public R&D tax support (OECD, 2020a). Consideration should also be given to making tax incentives redeemable against payroll taxes like done in the Netherlands and thus disconnected from the profit position of firms. Research has found that this can triple firms’ responsiveness to tax support (OECD, 2023a). Another option is to offer refundable R&D tax incentives (i.e. businesses receive payment from the tax authority if the value of the incentive exceeds the income tax otherwise owed). France, Canada, and Australia have such arrangements, for instance. Capping the total amount of public support that companies can receive or basing support on the increase in R&D spending rather than its level would also improve targeting and limit the fiscal cost of the measure.
Share of SMEs in business expenditure on R&D and tax incentive support, %
Note: Figures for Austria, Belgium, Estonia, Finland, Germany, Hungary, Italy, Lithuania, the Netherlands, New Zealand, Norway, Slovenia, and Switzerland, refer to 2019 instead of 2020. For Chile, figures refer to 2018, for Denmark and France, they refer to 2017 and for Spain to 2014. Figures for Canada and the United States (corporate claimants only) refer to 2013. In the case of Sweden, estimates of government tax relief refer to 2020 while direct funding figures refer to 2013. Some countries offer multiple R&D tax incentive schemes but are only able to report information for selected instruments. In the case of Belgium, figures refer to the payroll withholding tax exemption and the R&D tax credit.
Source: OECD R&D Tax Incentives Database, http://oe.cd/rdtax.
Ensuring good coordination between federal and regional government on SME tax support (which is entirely federal) and subsidies (which are largely regional) is important. Regional-level subsidies account for around 80% of direct public support to business R&D (grants and subsidies). This underscores the importance of coordinated support across federal and regional governments. Poor co-ordination can mean gaps in support in some dimensions and excessive support in others. Synchronised action across regions can boost outcomes by leveraging market size effects and technology spillovers across regions. Research found that measures are less efficient when the same company combines tax support measures and subsidies (Dumont 2019).
There is scope to improve the detection of abuse in the R&D tax support schemes (Schoonackers, 2020). In 2019, the Belgian Court of Auditors identified loopholes in the monitoring of exemptions of payroll withholding tax (Belgian Court of Auditors, 2019). Four years later, a follow-up audit found improvements in the monitoring of exemptions from withholding-tax payment regarding professional income, but no improvement as regards R&D. This partly reflects poor clarity in the legislation on the sharing of responsibilities on the exemption between the Federal Public Service Finance and Belspo – the federal public planning department in charge of science policy. This has led to legal disputes and undermined legal certainty (Belgian Court of Auditors, 2023). As recommended by the Court of Auditors, the eligibility criteria and the administrations’ respective competences for monitoring should be clarified.
Developing non-bank sources of finance
Small innovative firms, especially at early stage of development, frequently face challenges in accessing financing due to their limited collateral and track record. Around one fifth of Belgian SMEs report that the lack of financial resources hinders their innovation potential (SPF Economie, 2023b). Since 2022, increases in interest rates have damped investment; the average cost of credit increased from 2.3% to 4.5% between mid-2022 and 2023 (UCM, 2023, SPF Economie, 2023a). A range of EU-funded programmes have been implemented to support investment in small firms. For instance, in 2023 and under the Invest-EU programme, the European Investment Fund signed agreements with major banks and regional public agencies to allocate up to around EUR 800 million to Belgian SMEs (European Commission, 2023d; EIF, 2023).
Belgian SMEs rely almost exclusively on bank loans to finance investment. Almost 83% report that equity financing and other forms of financing through capital injections as irrelevant to their business (SPF Economie, 2023e). Nevertheless, small innovative firms may have specific financial needs associated with their business models, necessitating alternative forms of financing, such as private equity investment and venture capital. Empirical evidence shows that companies financed by private venture capital investors have a greater increase in innovation output (Bertoni, 2012; Amess et al, 2016), and that venture capital has a positive causal impact on firms’ growth (Peneder, 2009; Paglia and Harjoto, 2014) and encourages the creation of spin-off firms (Sampsa Samila, 2011). The share of venture capital investment has increased in the last 5 years in Belgium but remains relatively low compared to other OECD countries (Figure 5.11).
Equity markets can serve as viable alternative for firms financing, often complementing rather than replacing bank financing. Equity owners’ willingness to take risk and tendency to evaluate firms according to their growth opportunities rather than the availability of collateral makes them the best suited investors for innovative firms (Demmou and Franco, 2021). However, small innovative firms face important barriers to access equity finance in OECD countries, including large information asymmetries, scarcity of transparent credit data, and regulatory obstacles (OECD, 2017). Reducing costs and simplifying listing requirements can facilitate smaller firms' access to equity markets. The issuance of preferred shares, which enables securing additional financing without relinquishing control of the company, can stimulate the adoption of such instruments (Boschmans, 2017). The corporate bond market could also be developed by establishing a dedicated credit rating mechanism and a specialised framework for private bond placements by small companies, drawing from European examples such as Italy's mini-bond market.
Total venture capital investment, 2022
Source: OECD Entrepreneur Financing database.
Belgium has taken initiatives to foster the provision of non-bank financing to SMEs. In 2015, the “Tax Shelter for start-ups and scale-ups” was introduced to encourage private taxpayers to invest in young SMEs (see Box 5.5). Estimates suggest this measure has mobilized around EUR 210 million of additional investment for 2 500 firms (around 0.2% of the total SMEs population) (SPF Economie, 2023d). The initial objective of the measure was to sustain innovative and rapidly growing firms. SMEs operating in the information and communication (ICT) sector were prominent among the beneficiaries. Meanwhile, only a small proportion of the beneficiaries were start-ups and around 70% of supporting firms had no employees. Female entrepreneurs were also underrepresented among beneficiaries. Analyses indicate that while ceilings on investment amounts and firm size have not been binding, relaxing conditions on the age of the firm and allowing deductions by the owner of the firm could increase take up (SPF Economie, 2023d).
The slow development of non-banking finance partly reflects a seemingly low level of trust in it. While over 70% of surveyed Belgian SMEs report feeling confident in talking with banks about financing, less than a third are comfortable with equity investors and venture capital enterprises (European Commission, 2021). Mistrust and low financial literacy likely play a role. Research emphasises that enhancing financial literacy among managers improves firms’ capital structure, with positive impact on SME growth (Hussain et al, 2018). It also underscores that trust is positively correlated with SME attitude towards equity financing (Dowling et al, 2019). Initiatives in Flanders (FINMIX) and the Brussels region (Hub Brussels) aim to promote non-banking finance among SMEs. Under these programmes, a panel of funding experts – typically representatives from banks, government, and private venture capitalists – provide SMEs with advice on financing. One goal of these “investment readiness” programmes is to address SME concerns about surrendering ownership and control from equity-type financing (OECD, 2015a). SMEs also get support for funding through Euroquity, a digital platform bringing together an international community of start-ups, investors and advisors. Similar programmes have been implemented in many OECD countries, such as the UK Investment Readiness Programme, or the Prep4Seed Investor Readiness Programme” by Enterprise Ireland. The extension of these programmes should be considered if cost-benefit evaluations are positive.
Skill and labour shortages pose concrete challenges to SMEs. In 2023, 75% of Belgian SMEs declared that skill shortages negatively affect their general business activities, above the EU average of 63% (European Commission, 2023c). The issue has grown over the years and has become particularly acute post-COVID, due to a relatively tight labour market (see Chapter 2). Nevertheless, the vacancy rate has been higher than the EU average for at least 10 years, pointing to structural issues (Figure 5.12, Panel A). This problem, while having repercussions more broadly on the whole economy, affects directly and foremost SMEs, as the vacancy rate is higher in small enterprises than in large and medium-sized ones (Figure 5.12, Panel B; STATBEL, 2023). Vacancies are widespread among different sectors and levels of skills but are particularly pronounced in accommodation and food services; construction; information and communications technologies (ICT); and professional, scientific and technical services (Figure 5.12, Panel C and D).
Note: Panel A shows the job vacancy rate in Belgium and EU27 business economies (NACE B-N). Panel C shows vacancy rates in i) Professional, scientific and technical activities; ii) Accommodation and food; iii) Information and Communication Technologies (ICT); iv) Construction; v) Wholesale and retail; vi) Industry. Data refer to 2023Q4.
Source : Eurostat. – Statbel Enquête trimestrielle sur les postes vacants (offres d’emploi).
Skill mismatch plays a major role in firms’ recruitment difficulties. High skilled occupations account for a relatively high share of job vacancies in Belgium (Figure 5.13, Panel A, OECD, 2023f) and people with less than secondary education are overrepresented among jobseekers. Low levels of education and low work-related skills are listed as the two main barriers among people experiencing employment difficulties (Fernandez et al., 2020). While OECD indicators point to an average level of qualification mismatch in Belgium, they suggest underqualification of workers is pronounced by international comparison (Figure 5.13, Panel B). Skills shortages create competition between firms to attract talent and reinforces incentives to upskill their pool of employees. However, smaller firms are often penalised in this race because of challenges in competing on salary and benefits. Small firms also face more difficulties than larger firms in investing into training (OECD, 2023g; Williamson, 2002).
Note: In Panel A, high skilled occupations are ISCO occupational groups 1 to 3 (Managers, Professionals, Technicians and associate professions); medium skilled occupation correspond to ISCO occupational groups 4 to 8 (Clerical support workers, Service and sales workers, Skilled agricultural, fishery and forestry workers, Craft related trades workers and Plant and machine operators), and low skilled occupation correspond to group 9 (Elementary occupations). Shares of employment in each skill tier are computed as the corresponding employment in each group over the total number of workers in shortage in each country. Panel B measures the average percentage of workers that have a qualification that does not match their job’s requirements. Data refer to 2019 in both graphs.
Source: OECD Skills for Jobs and. World Indicators of Skills for Employment (oecd.org)
Addressing shortages in STEM skills
The specialised, scientific, and technical activities sector represents a large segment of Belgian SMEs numerically, accounting for approximately 20% of the total active Belgian SMEs in 2022. Together with information and communication (around 5% of total active SMEs), this sector had the highest growth over the past decade, averaging 5.2% between 2012 and 2022. Recent OECD estimates show that this sector is where the needs for digital and technology, and scientific knowledge are greatest (OECD, 2022c). Digitalisation is increasing demand for STEM skills. More than 60% of SMEs reported hard-to-fill vacancies for jobs requiring ICT specialised skills. This share has increased significantly over the past decade (Figure 5.14).
Note: Share of enterprises that had had hard-to-fill vacancies for jobs requiring ICT specialist skills among enterprises that recruited or tried to recruit ICT specialists by size class of enterprise.
Source: Eurostat.
At the same time, Belgium has a relatively small share of graduates in skills critical for science and technology-based companies (SPF Economie, 2023c). Belgium has a higher-than-average share of the population who attained a tertiary education degree (45.8% against an OECD average of 40.4% as of 2022), but the share of tertiary graduates in the fields of natural sciences, mathematics and statistics, and ICT is one of the lowest in the OECD (Figure 5.15, Panel A). Moreover, Belgium performs poorly in terms of the share of female graduates in these disciplines (Figure 5.15 Panel B; OECD, 2023c). Contributory factors to low participation in STEM subjects, ranges from low levels of numerical skills, lack of qualified teachers and relative low wage premia in STEM-related careers in comparison with other EU countries (OECD, 2022c). Job vacancies are high in these fields and demand will likely increase with the digital transition. Encouraging a bigger uptake in these fields of study, in general and among female students, will help technology-based SMEs.
Note: Panel A shows graduates in each educational field as a percentage of the sum of graduates in all education fields. Panel B shows the share of female graduates. ICT refer to Information and Communication Technologies, SMS refer to Science, Math and Statistics and STEM refer to Science, Technology, Engineering and Mathematics.
Source: OECD Education at a Glance database.
There are numerous policy initiatives aimed at increasing the uptake of STEM disciplines, however coordination could be stronger. On a federal level, “Woman in digital”, inter alia, promotes a gender-neutral image of the digital sector and highlights its career advantages. Flanders’ “STEM Agenda 2030” promotes STEM careers and tracks progress through monitoring educational indicators. “Wallonie Relance” features several initiatives to raise awareness of STEM, including establishing a dedicated centre and efforts to boost collaboration between the public employment service and vocational training. Events organised by the Brussels region support and promote women’s entrepreneurship in technological fields (the Woman Ambassadress for Technology and Sciences award and the Woman Digital Festival). While these examples, and other existing policy efforts, are welcome, coherence and coordination is also important, as highlighted by the previous Survey (OECD, 2022b). Germany, also a federal state, has been relatively successful in increasing the uptake of STEM disciplines. Notably, its policy includes the National STEM Forum, which helps ensure initiatives are tailored to their context but also coherent on a national level (Centre Jean Gol, 2020).
Reducing gender imbalances in STEM fields requires attention to educational choices. Promoting traditionally male-dominated fields to girls, combating gender biases among teachers regarding the perceived strengths of boys and girls in specific domains, can reshape preferences in educational decision-making (Brussino et Mc Brien, 2022). In the French Community of Belgium, the “Girls day, Boys day” project aims to introduce primary and secondary school students to educational and professional pathways that do not comply with traditional gender stereotypes. Early exposure to science, technology, and engineering for all children has been shown to reduce gender disparities in interest in technology (Master et al., 2017). In Italy, the implementation of a coding course specifically designed for female middle-school students led to a 10% rise in participants’ aspirations to become computer programmers (Carlana and Fort, 2020). Exposing young girls to mentoring from female STEM role models also has a significant positive impact on their attitudes towards technology (Guenaga et al., 2022). Other successful initiatives include one-to-one mentoring and hands-on training in technology.
Supporting within-firm training
Skill shortages can also be eased by within-firm training. Upskilling and reskilling can be powerful tools for SMEs to confront skills shortages (OECD, 2023g). Belgian enterprises with more than 10 employees are above EU average, and among top performers in the EU, when it comes to providing vocational training (CVT). Furthermore, attendance in courses is relatively high compared with EU peers. This also applies to female participation and the good performance extends to the relative number of hours spent in CVT courses (Figure 5.16). However, a large majority of Belgian SMEs have less than 10 employees. Micro enterprises tend to face substantial challenges in enhancing employee skills and tend to make much less use of training support initiatives than larger companies (ILO, 2017).
Smaller firms face particular barriers regarding investment in training and skills development. Such firms do not usually have specialised human resources departments. This implies greater difficulties in knowing about public support available for training courses, and the administration required to access it. Moreover, small firms can find it difficult to create time for employees to attend training because employee absence makes it difficult to conduct everyday business. The resourcing challenges of training for small business is reflected in Belgium’s Labour Deal. The law, enacted in October 2023, entitles employees to 5 days of training per year, except for companies with fewer than 10 employees. While this provision might relieve smaller firms from training obligations that are hard to plan for, it could also act as a deterrent for firms from expanding over the threshold of 9 employees and make micro firms less attractive to employees. An alternative policy would be to introduce training entitlements for micro firms but accompany this with support that helps overcome the practical challenges.
Belgium’s regional governments are responsible for much of policy in encouraging employee training in SMEs. A range of tools are used. For example, the “Flanders Innovation and Entrepreneurship – VLAIO”, measures include the SME e-wallet, that provides financial aid to entrepreneurs for investing in workforce skills development. Similarly, the “Walloon Office for professional training and employment – Forem”, provides training cheques that subsidise half of course costs in approved training centres. In the Brussels region, training allowances cover up to 60% of training costs for small enterprises, and up to 70% for micro enterprises.
Note: Panel A, B and C show the percentage relative to the overall firms’ population, while panel D show the hours per 1000 hours worked. Data refer to 2020. Continuing vocational training refers to training after initial education or after entry into working life.
Source: Eurostat.
Additional measures should be considered. Belgian sectoral training funds, which play an important role in in-firm upskilling, have developed initiatives that might be worth scaling up (Box 5.7), notably initiatives aimed at making it easier and more advantageous for micro firms to engage in upskilling activities. Providing consultancy to micro firms to develop tailor-made training solutions could also be considered as in Flanders for instance. The 'Competency Checks for Enterprises’ is an EU-funded programme for SMEs in Flanders in which training experts work with both employees and employers to identify training needs and develop a customised action plan. This initiative could be made permanent if it proves successful with a limited impact on public finances.
In Belgium, the sectoral training funds are jointly managed by employers and employee organisations and are not directly linked to national or regional governments. The funds provide an interface between business needs and external training programs, identify training needs and support in-company training (Cedefop, 2008). Most training funds were created in the early 1990s, following an intersectoral agreement between employers and employees to spend 0.18% of the gross wage bill on training and employment support initiatives. The funds have developed specific measures to address training for micro firms, these include:
a) Consultancy visits by training experts to SMEs. These visits help identify training needs to develop tailor-made training solutions. Sectoral funds liaise with training partners on behalf of the company and directly pass on information on training opportunities.
b) Short courses and modular training programmes that take place at the end of the working day or during lunch breaks. Some funds also endeavour to make access to training more convenient, through for instance workshop-buses.
c) Mentoring systems for "on-the-job" training that support experienced workers to become coaches of new recruits.
In-work training policies, particularly as regards SMEs in other OECD countries, also provides potential inspiration for new measures in Belgium (Box 5.8). Perhaps of particular interest are “external human resource department”-like services to micro firms, which provide logistic and financial aid to replace employees engaged in training activities and to help firms take advantage of the different – and often numerous – support programmes.
Enhancing the engagement of SMEs in vocational and educational training (VET) based on dual learning (i.e., where students complement their school-based theoretical learning with practical training that takes place in a company) can also help firms ease skills shortages. Participating in dual learning programmes potentially helps establish a training culture inside the enterprise, which can benefit experienced workers as well as trainees. A deeper engagement of SMEs in dual learning training, especially if firms are involved in designing the training programmes, might help develop a pool of potential new employees with skills particularly useful for SMEs (Kuczera, 2017).
In Denmark, the Arbejdsmarkedsuddannelser (AMU) system provides external human resource department services to micro firms, including the evaluation of training needs and the identification of courses and the provision of certifications. The adult education system also helps firms find replacement workers and provides wage subsidies to employers for hiring long-term unemployed workers as replacements.
In France, the AFEST – Action de formation en situation de travail – aims to formalise and structure on-the-job informal training in SMEs. The programme allows firms and workers to access financial incentives that are normally reserved for organised forms of training. The benefits of the programme are greater for micro- and small-sized firms to help overcome the particular challenges of organising training in small enterprises (OECD, 2021b). However, early evidence suggests the programme may have difficulties, as some companies have been found to use AFEST funds to finance business activities or teach overly focused skills (Duclos, 2021).
In Netherlands, the MKB! Dee is a subsidy scheme that aims to stimulate SME investment in training and skills development. SMEs are asked to propose solutions for the barriers encountered in training and helps them carry them out. The scheme is reserved to the firms which have the capacity to elaborate a coherent upskilling strategy. MKB! Dee allows proposals by partnerships of small businesses, which helps access. Details of the projects that received funding are published, helping provide templates for other businesses to follow (OECD, 2021b).
In Germany, under the 2019 Qualification Opportunities Law, in-firm training subsidies vary inversely with firm size. Companies with more than 250 workers can receive subsidies up to 20% of the training cost, while the training cost is fully covered for micro enterprises. In addition to direct training costs, micro enterprises can also receive a subsidy that covers up to 100% of the wage bill of the employee involved in the training.
Many SMEs however are reluctant to participate in dual learning programmes, as they consider regulation and bureaucracy as overly burdensome. In addition, surveys of firms suggest there is a general problem of weak interest in such courses by students, that often leads to poor quality candidates in these courses. In Belgium there is a common perception among students and parents that dual-learning-based VET is sub-optimal, compared to the mainstream school-based vocational education, which also provides opportunities for internships in the school curriculum, causing more talented students avoiding this educational path (Fédération Wallonie-Bruxelles et al,, 2022). As of 2021, the share of all upper-secondary students enrolled in vocational programmes is relatively high in Belgium, reaching 73%. Yet, the proportion of students in dual education (i.e., vocational programmes that combine traditional classroom-based learning and on-the-job training) is only 6%, far below the OECD average of 30%. In addition, the share of students enrolled in programmes that lead to partial of upper secondary education or are insufficient for level completion is 5 times higher than the OECD average (Figure 5.17).
2021, percentage
Source: OECD Education at a Glance database.
More policy effort is needed to make dual learning a useful resource for SMEs. First, as the success story of Germany’s VET based on dual learning shows, enhancing the attractiveness of programmes to students is important. This partly requires that courses have adequate enrolment numbers and a sufficient range of offerings, so that the qualification holds significant value in the job market. This in turn requires widespread participation by firms (including SMEs). To this end, Belgian regions have deployed many initiatives, mainly involving financial incentives and awareness-raising programmes. For instance, each region provides bonus grants to firms taking on apprentices. Additionally, in Flanders a premium is available for students engaged in dual training at the secondary level. However, other issues remain, including the administrative burden that SMEs face or anticipate. Reinforcing special bodies that match employers with students looking for workplace training and facilitate cooperation amongst different SMEs in dealing with administrative duties involved in apprenticeship training as is done in Australia and Norway can help (Adalet McGowan et al, 2020). Encouraging SMEs to offer training jointly as in Switzerland, Austria, or Norway, could also facilitate their participation in work-based learning (Kuczera and Shinyoung, 2019).
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