New rules for the transfer of family companies
In the Flemish Region family companies can be transferred to the next generation in a tax friendly manner. The decree of the Flemish Government reforms the existing system. The new system remains advantageous for the tax payer, but is especially clearer and simpler.
A favourable measure
Apparently the possibility to transfer a family company in a tax friendly way was not very often used by the younger generation, since the rules were complex and not well known. The new rules which are applicable as from 1 January 2012 are easier and less confusing.
The measures are both applicable to a transfer under the living (a gift) as to a transfer after death (an inheritance). The gift of a family company is exempt from stamp duties. In case of a transfer after death a special rate of 3% applies for inheritance taxes between husband and wife and between parents and children, and 7% between 'others'.
Conditions to be complied with by the giver
Hereafter a brief summary of the conditions to be met to benefit from the favourable tax regime:
It concerns the transfer of the property or the usufruct of the assets profesionaly invested in your company. When making a gift, you can keep the usufruct or the naked property in order to keep say in your company.
A family company is concerned. Only companies creating economic value qualify. Your immovable property company cannot benefit from this regime. The same goes for management companies. For the same reason the favourable tax regime does not apply when there is a house in the family company. On the other hand, the gift of an immovable property that serves the economic exploitation of a company and also serves as private dwelling for the company director, can benefit from the special tax scheme.
The shares of the transferred company should be your or your family's property as giver for at least 50%. This percentage is reduced to 30% when you have, together with another shareholder 70% of the shares, or with two other shareholders 90%. In order to qualify as shares, voting rights are required. It is after all the purpose that control of the company is transferred.
You should dispose of a statement that all conditions are met. This statement can be applied for with the Flemish tax authorities.
The following persons are considered as 'family': your husband or wife or the person which you live with legally or factually, your children en grandchildren and the partner they live with, your brothers, sisters, brothers and sisters in law (whether or not married) and the children of earlier deceased brothers and sisters.
Conditions to be complied with by the recipients
Only the persons acquiring your company, should respect a number of conditions:
The activity of the company should be continued.
The capital of the company should be maintained.
The immovable property which is included in the transfer cannot be used as private dwelling during the first three years upon the notarial transfer or the decease. If not, the acquisition of the building is taxed at the standard rate.
A suspicious period of seven years
The normal 'suspicious period' in the inheritance tax code is three years: when a giver deceased within a three year period after the gift, the benificiaries pay the normal inheritance tax. Especially for the gift of family companies, this period is extented to seven years. This longer period applies as from 1 January 2012. Meaning that when you have made a gift on 31 December 2011, the suspicious period runs until 31 December 2014. However, when you make the gift on 1 January 2012, the new suspicious period runs until 1 January 2019.