Transfer of the family business in corona times
When transferring a family business, you can, when complying with a number of
conditions, avoid gift or inheritance tax. One of the conditions is that you
uninterruptedly continue the business, but this was during the corona crisis
not that evident.
Exempt transfer of a family business
A gift from a company is in principle subject to gift tax. And even if a company
is part of an estate, inheritance tax is in principle due. That gift or
inheritance tax can add up, which could mean that the gifted or heir must sell
the company in order to pay the tax.
To avoid this, the three regions introduced a special regime for companies, both
in terms of gift tax as well as inheritance tax. In the Flemish Region, there is
an exemption from gift tax for the donation of family businesses and companies;
if there is no donation, but if the company owner dies, a reduced inheritance
tax rate applies.
Exemption from gift tax
In order to benefit from the gift tax exemption, several conditions should be
fulfilled at the time of the gift. The exemption only applies to family
businesses or family companies. A family business is a business which is
exploited or operated by the donator or his spouse or cohabiting partner,
whether or not together with others. A family company is a company which is
owned by the donator, together with his family.
The exemption only applies to professional goods. A house is always excluded
from the exemption.
In case of a company, the donator should hold shares in full ownership which
represent at least 50% of the voting rights in the company, or which represent
at least 30% of the voting rights in the company when the donator, together with
another shareholder, holds shares in full property for at least 70% of the
voting rights or he, with two other shareholders holds shares representing at
least 90% of the voting rights in the company.
Asset management companies and companies with no real activity are excluded. A
company is considered as having no real economic activity when salaries, social
charges and pensions (code 62 on the income statement) are maximum 1,5 of the
total assets (code 20/58 of the balance sheet), and sites and buildings account
for more than 50% of the total assets (code 20/58 of the balance sheet).
There are also several conditions which have to be fulfilled during a period of
3 years after the gift, being:
the activity should be continued uninterruptedly.
the immovable goods of the company which are transferred under the reduced rate
cannot substantially be used for habitation.
when a company is concerned, it cannot become a company without a real economic
activity and its equity capital cannot decline due to allowances or repayments.
For inheritance tax a reduction applies: no exemption. The rate amounts to 3%
for a directly descendant heir or partner of the testator. In all other cases
the net value of the acquisition is taxed at 7%.
The conditions at the time of decease are more or less the same as those for the
gift tax exemption. As with gift tax a number of conditions should be met 3
years after the decease. The same as for gift tax.
Corona has had an impact on the activities of almost all companies. Some
entrepreneurs even had to stop their business for a while. Others had to lay off
personnel (whether or not under temporary unemployment).
Stopping your activity, even temporarily, interferes with the uninterrupted
continuation of the same or similar economic activity. This would mean that the
special regime would no longer apply.
Also, by laying off personnel, there is a risk that the company becomes a
company without a real economic activity. After all, next to the condition of
maximum 50% buildings and sites, salaries, social charges and pensions cannot be
lower than or equal to 1,5% of the total assets. This salary charges condition
is possibly no longer fulfilled. Do not forget that this condition is checked at
the time of the gift or the passing away, so that at that time there can be a
Flemish Minister of Finance, Matthias Diependaele, was interrogated on this
point in Flemish Parliament. The Minister answered that the continuation
condition cannot be a problem. Even when there is a temporary, mandatory or
voluntary closure, the company continues uninterruptedly.
With respect to the salary changes conditions, the Minister indicates that there
is a double condition for a company without a real economic activity: the
buildings and sites cannot be more than 50% of the total assets, and the salary
charges cannot be lower than or equal to 1,5% of the total assets. When the
buildings and sites are not more than 50% of the assets, the lower salary charges
are no longer an issue.
Only when both conditions are fulfilled, there might be a problem, but even then
the Minister states that you still have the possibility to demonstrate that the
immovable goods in the company are used for the economic activity and that no
private patrimony is concerned. In such case there is still a real economic
Moreover, you can also invoke force majeure.
For directors who want to donate their company in the future, but at the time of
the donation, due to corona, do not fulfil the salary charges condition, the
same reasoning goes. When both conditions for exclusion are fulfilled, the
director can still demonstrate that the immovable goods in the company are no
private goods and that they serve the business.