The Flemish government is committed to preserve the continuity of the enterprises, as well as to ensure the transfer of knowledge and experience from the director to the next generation. Therefore, a number of fiscal support measures have been created, through which the transfer to the next generation at living or deceased was facilitated.
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.
3. Conclusion
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.