A gift from the tax authorities
Withthe transfer of shares in a family company, either by gift or inheritance, one must take into account, in addition to the many issues involved in a company takeover, possible tax levies. These include income tax (26.9%) and gift or inheritance tax (10%-20%). These taxes are applicable in the situation that the transfer takes place from parents to child(ren).
There arevarious types of business transfers possible within families, each of which followsa different process. The Tax Authorities have introduced a scheme to make the transfer of a business within a direct family more attractive. This so-called business succession arrangement (BOR) makes this transfer fiscally advantageous and ensures the continuity of the business.
Income tax can be deferred
If someone owns 5% or more of the shares of a B.V. or N.V., for the purposes of income tax there is a substantial interest. Upon the death of the substantial shareholder or donation of his or her shares, 26.9% income tax is due on the capital gain on the shares. The BOR allows the income tax claim to be transferred to the acquirer. In other words, the income tax need not be paid at that time, but is deferred.
Exemption from inheritance and gift tax
If a company is donated or inherited, a 100% exemption applies to the first €1,119,845 of the total business assets. Above this value, an exemption of 83% applies. Of the amount above this limit 17% is taxed, assuming the maximum inheritance tax rate (20%) the total tax burden is only 3.4%.
The application of the BOR is subject to a number of conditions. The company must have been in the possession of the testator for at least one year. For the donation of shares this period is five years.
The heirs and those who have been gifted with the shares must also meet a number of conditions. The most important condition is that those who have inherited or have been gifted the shares must keep them in their possession for at least 5 years. The company must also be continued during this period.
The tax exemption via the BOR is conditional. This means that the tax will still be collected if the conditions are no longer met.
What is the situation with the BOR in 2021?
Left-wing political parties in particular want to abolish the BOR. These parties believe that there is an inequality in wealth and want to abolish the arrangement. The current coalition formation process may therefore have an impact on the BOR. It is therefore important to consider the timing of a possible business succession.