As Belgium gears up to try to restore Antwerp's position of Antwerp as the world diamond center by introducing tax incentives for diamantaires, Israeli industry leaders are not worried about the potential outflow of diamantaires.
"The new regulations, which are still in the process of legitimization, are no threat to Israeli diamantaires and the Israeli diamond industry," Martin Rapaport, chairman of the Rapaport Group and publisher of the Rapaport Diamond Report told The Jerusalem Post. "Israel has a much better package to offer for the internationally verticalized diamond trader plus labor cost are too high in Belgium."
In contrast, however, advocate Harel Locker, partner at the law firm Shochat, Locker & Partner, a specialist on tax issues, believes that the convenient conditions that would be offered by the Antwerp market would benefit Israeli diamantaires, who before long likely would contemplate moving their business activity to Antwerp.
"Israeli diamantaires have strong business ties with the Belgium diamond industry, often family-related, and as such they naturally can operate there more easily than in Dubai."
Antwerp has been in danger of losing its crown to Dubai as the global center of the world diamond market. Dubai is considered to have an edge over Antwerp in terms of its tax-free status.
Another reason for this shift is that Belgium's rigid federal legislation regarding money laundering and checks on the use of diamond money as a measure to combat trade of "blood diamonds" have led some manufacturers to turn to the tax-free haven of Dubai's free-zones.
The High Diamond Council, the governing body representing Antwerp's diamond sector, in March explored a number of regulations enabling the diamond sector to better arm itself against the growing competition from Dubai and ease trade hampering conditions, to which the Belgium government committed itself.
"The new regulations are a formal way for the Belgium government to fix rules in an international context in order to restore the competitive balance," Rapaport said. "The government expressed a specific commitment to the diamond industry as they realized that if they did not pay attention they might lose the market which is central to Belgium's economy."
One of the major regulations include a tax amnesty measure by which diamantaires will be allowed to revalue their inventory and declare an additional amount by the end of 2007. On that additional amount, a one-off tax of 3 percent would be payable.
"This regulation, in effect, would allow diamantaires to launder money that was not declared," said Locker.
Another incentive is the tax exemption for dividends or profits outside of Belgium. As such, profits earned outside of Belgium can be freely repatriated back to Belgium on the condition of a maximum ratio of one to five on declared Belgian-to-foreign profits. For example, if a company declared a profit of $1 million in Belgium, it would be allowed to transfer up to $5m. from an overseas company without being subject to any tax obligation in Belgium.
In addition, the new regulations would see a cancellation of import duty of the current charge of 0.3% on rough diamond imports from outside the EC. Part of the plan would also be a diamond free-trade area at Brussels Zaventum airport similar to those in Dubai.