The regulation, which was introduced in 1997, will be reviewed, and will most likely enter into force as of 1 January 2012.
1. The current situation
The donation of both the assets, which are being used for the operations of an enterprise, as of
the shares of an enterprise, is subjected to a gift tax of 2%. In order to maintain this reduced
gift tax, the activities of the family enterprise need to be continued at least for 5 years, and
the immovable property cannot be used for habitation.
On the other hand the inheritance of a family enterprise was exempted from succession duties, on the condition that the enterprise paid at least 500.000 EUR (indexed) wage shares during the twelve quarters (three years) that precede the decease, and also continued paying 5/3rd of the initial wage shares after decease for at least 20 quarters. Additionally, a correction of these wage shares will be implemented, when it relates to the wage of the director or his family.
Moreover, the value, which serves as the basis for calculating the exemption of the succession duties, is subjected to corrections as well. It should be noted that the differences will be taxable.
The inheritors, who profited from the exemption, are obliged to demonstrate that the exemption conditions have been fulfilled 5 years after decease.
2. New set of rules as to be expected
One of the most remarkable provisions is the removal of the exemption concerning the succession
duties with the transfer of a family enterprise.
As soon as the decree enters into force, the inheritance of a family enterprise will be charged at 3% for the acquisition in straight line and between spouses and cohabitants and at 7% for the acquisition between other persons. The conditions, that apply to enjoy the profitable tariff, are the same as those, which apply for the donation of family enterprises.
On the other hand the donation of a family enterprise will be exempted of gift taxes.
This means the donation of assets, are invested professionally in a family enterprise, or in the shares of a family enterprise.
Obviously, some restrictions are foreseen in order to avoid abuses. For instance, the exemption does not apply to immovable property, which is mainly determined for habitation. Furthermore, the patrimony company is excluded from the benefit. Patrimony companies are these in which more than 50% of the assets consist out of sites and buildings and the remunerations and charges are equal or lower then 1,5% of the total assets.
Family companies or enterprises are those, which handle industrial, trade-, craft- or agricultural or liberal professional activities or have those activities as their corporate object. When the shares of a holding company would be donated, the latter can still be qualified as a family company, if it would prove to have a direct participation of at least 50% in a company, which respond to the conditions. The company’s seat, wherever from the actual management is being carried out, needs to be located within the EEA.
So far the exemption was only in favour of the spouses, however under the new regulation cohabitants can also enjoy the exemption. It concerns the person who, at the day of the donation either legally lived together or lived together permanently for at least 3 years before the donation and who was part of a joint household with the donor.
Moreover, the participation criterion is extended to three branches. A participation of 30% in full property of the donor is sufficient, on the condition that the donor together with another shareholder and his family is full owner of 70%, or with two shareholders and their family are full owner of 90% of the shares.
It is essential that the donation always takes place by authentic act, to which an attestation of the Flemish tax service needs to be enclosed.
After the donation a couple of conditions still need to be fulfilled to continue enjoying the exemption. More specifically, the activity of the family enterprise needs to be pursued for three years and the immovable property, which was involved in the donation, cannot be used for habitation during these three years. For the companies a similar condition is applicable, the company needs to continue to have a trade and industrial activity (and can therefore not become a patrimonial enterprise), and she needs to continue her activities for three years (and publish her annual accounts). Furthermore the capital of the enterprise may not be attenuated, and the seat of the actual management needs to stay within the EEA.
After three years, the donation exempted from taxes or the inheritance with reduced succession duties will be examined. Provided that the conditions would not have been fulfilled, the gift tax respectively the succession duties will be charged at the usual rate.
Finally,, the legislator clarifies that he wants the donation of the family company to take place under the new regulation. After all, the shares and the assets, which are intended with these regulations (family company), and are donated 7 years before the decease (calculating as of 31 December 2011) will be part of the inheritance and will be charged based on the succession tax at the usual rate, when the conditions for a donation to a family company or enterprise are have not been fulfilled. In other words the “suspicious period” for a donation (without rights to pay) of a family company or of the assets that belong to a family company is prolonged to 7 years.
Whether or not the new regulations apply, can have rather substantial financial consequences. We
strongly advise family entrepreneurs and directors to contemplate about their succession in due
time. Hopefully this regulation has created enough arguments for potential successors of family
enterprise to persuade their predecessors to take measures for their succession in due time, and
that this will have as consequence that the amount of knowledge and experience will be maintained,
organized and passed on. In times of crisis such is of huge significance.
It is Important to mention that the abovementioned regulation only enters into force after approval and announcement of the decree. Until then the current (old) regulation is still applicable.