Good news for the heirs of family companies. The legislator has provided a favorable regime for the inheritance of shares in family companies. For example, an inheritance tax of 3% applies to partners or (grand)children and 7% in other cases. That saves a lot from the standard (heavy) inheritance tax, which can amount to 27% for partners and (grand)children and up to 55% for people with no family connection.
To benefit from the reduced rate, you must meet a number of strict conditions. After all, one does not intend to invest all of one’s private assets in a company to avoid higher inheritance taxes. Firstly, it must be a “genuine family company”, in which the testator and his family hold at least 50% of the voting rights. In the construction where father and mother have 50 shares, son and daughter each own 20 shares, and an external investor has 10 shares, this condition is met (assuming that each share has one vote).
In addition, one must carry out a ‘real economic activity’. The favorable regime does not apply to patrimonial companies (i.e. a company in which there are no exploitation activities), nor to management companies.
Take the following example: the inheritance consists of shares in two companies: on the one hand, company A operates a construction company, and on the other hand, company B only owns real estate. In that case, the favorable regime will only apply to the construction company’s shares. With regard to the shares in the real estate company, the heirs will pay the regular progressive inheritance tax.
In addition, there are a number of other conditions. For example, the company must continue to exist for at least 3 years after the death of the testator and continue its activities unchanged.
FAMILY COMPANIES WITH PRIVATE GOODS
A rightly asked question is whether the favorable regime applies to “active” family companies that own one or more private goods. Can a butcher, for example, transfer his apartment by the sea to the family company so that it is also taxed at a reduced rate? The Constitutional Court has recently confirmed that such an ‘all-or-nothing’ arrangement is legal. Read more about it here.
Family companies that have economic activity but own land or buildings that are not or only partially used for this economic activity fall entirely under the preferential rate, provided that these are not abused for tax purposes.
Tax abuse is likely to occur when:
- the butcher’s company contains not only the commercial premises of the butcher’s shop but also the apartment by the sea, grandfather’s old-timer, and the yacht in the port of Antwerp;
- or, the apartment by the sea is brought into the company just before the death by selling it to the company or contributing it in kind.
Do you have questions about your family business?
Please feel free to contact us.
Dries Van Duffel
Expertise Corporate Law / Technology & Privacy