Transfer of family-owned companies by succession or by gift inter vivos according to Belgian succession and registration taxes

• Author: Bertel de Groote; Katrien Van Boxstael.
• Position: Professor University College Ghent Faculty of Business Administration & Public Administration Bertel. Researcher University College Ghent Faculty of Business Administration & Public Administration Katrien.
• Pages: 121-127

A version of this paper was published in Kierkegaard, S. (2006) Business Law and Technology Vol.2 and presented in the 2006 IBLT Conference, Denmark.

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Preamble

Under Belgian constitutional law, Succession tax and Registration tax are regional taxes. More precisely, the federal government guarantees the collection of succession and registration taxes. On the other hand, the Flemish, Walloon and Brussels region are competent to adopt the rate, to determine the taxable amount and the exemptions from succession and registration taxes. Consequently, the regions have formulated their own conditions and advantages regarding tax aspects of the transfer of companies by gift inter vivos or due to inheritance at the occasion of the decujus' death (see: special law, adopted with a qualified majority, of January 16th 1989, as modified by the special law of July 13th 2001, regarding the finance of the regions - article 4, §1 Bijzondere wet van 16 januari 1989 betreffende de financiering van de Gemeenschappen en Gewesten, zoals gewijzigd door de Bijzondere wet van 13 juli 2001; DE BLAUWE R., 1997).

For the Flemish government, the legislative competence in this field seems an important instrument for policy making. In an attempt to sustain familial entrepreneurship, as a valuable element in our society's economic texture, the inheritance of a family-owned company is exempted from the Succession tax (art. 60bis Flemish Succession Tax Code). For the transfer by death, an exemption exists; for the gift of a company inter vivos, a reduced tax rate is to be applied (art. 140bis Flemish Registration Tax Code).

It is useful to analyse both measures. More precisely it is interesting to determine both the material conditions of the exemption and the reduced tax rate and policy-goals that inspired them. Lastly, the Flemish measures to promote entrepreneurship from the viewpoint of Succession tax and Registration tax need to be situated in an international and interregional context.

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1. Social context and economic purposes

1.1. Exemption of succession taxes in case of decease

Regarding Succession Tax, in 1996 a decree - as legislative acts of the regions are called - was adopted issuing a reduced tax rate of 3% for the inheritance of shares and assets in family-owned companies. The aforementioned decree has been promulgated by the former Flemish Minister of Finance, Wivina De Meester (VERSTAPPEN, J., 1997).

In 1999, the present Flemish Minister of Finance, Dirk Van Mechelen, took the initiative to elaborate a decree on the same theme, introducing an exemption of Succession Tax, instead of a reduction of the tax rate. The decree was adopted on December 22nd of 1999 (Official Journal 30-12-1999).

The main objective of both decrees assured that the inheritors of family-owned companies should not have to sell their company to pay the (generally large amount) of succession taxes, the amount of which is generally high on the value of the inherited company. Due to the provisions in both of the decrees, such negative side-effect needed to be avoided, as experiences from the past show that the forced selling of the company mostly resulted in a loss of employment.

As a consequence, the Flemish legislator stipulated the maintenance of employment in the company during the five years after the decease of the testator as an additional condition for the reduction/exemption of Succession Tax. It aimed to implement the employment policy that the Flemish government wanted to adopt.

1.2. Reduced registration taxes in case of donation

Since 1999, a reduced tax rate under the federal Registration Tax Code applies to the donation inter vivos of companies. At that time, the determination of the tax rate was still a federal competence, so it had its influence on the three regions. A 3%-rate has been implemented in the Belgian rule of law to comply with the request of the European Commission to simplify the transfer of companies inter vivos, having in mind the continuation of companies and at the same time the guarantee of employment in these companies.

In 2003, there has been a liberalisation of the conditions by which a reduction of the Succession Tax was bound, as well as a further reduction of the tax rate to 2%. The Flemish government hereby wanted to really stimulate the transfer during the life of the owner. A transfer preceding the decease of the owner of the company allows a better planning with regard to matters relating to the succession of the company and relating to the transfer of capital.

The reduced tax rate is only retained on the condition that the company remains continuously functioning during the five years after the deed of gift, without additional condition of maintenance of employment.

Contrary to the exemption-measure by transfer of the company at the occasion of death, we note that in this context the family-owned character is not a necessity to have the advantage of the reduced rate.

2. Statutory basis

The material conditions of the exemption by death for the Flemish region are stipulated in article 60bis Flemish Succession Tax Code; the reduced tax rate by gift is defined in articles 140bis-quinquies Flemish Registration Tax Code.

The Belgian Civil Code (BCC) is applicable to the whole of Belgium. It regulates all civil law aspects of succession or gift inter vivos. Given that each region of Belgium has adopted particular rules to address specific issues regarding notably tax rates and exemptions, three Succession Tax Codes (the Flemish, Walloon and Brussels Succession Tax Code) and three Registration Tax Codes (the Flemish, Walloon en Brussels Registration Tax Code) are applied in Belgium.

Concerning inheritance law in Belgium, the significant factor, to determine the region that is allowed to apply its rules (and that is allowed to benefit form the collected succession taxes), is the domicile of the deceased at the time he passed away. For inheritance tax purposes, the domicile is deemed to be the place where the deceased lived with his family or managed his fortune. In this respect the most significant presumption result's from the deceased's name appearing on the list of the inhabitants of the municipality of the particular territory.

Conform article 1 Succession Tax Code the (Flemish, Walloon or Brussels) tax law of the last domicile of the deceased governs succession to the worldwide movable property. Concerning the gift tax (Registration Tax Code dealing with registration taxes on gifts inter vivos) in Belgium, a similar rule is to be applied. The significant factor is the domicile of the donor at the moment of the deed of gift. Also in this respect, the domicile is deemed to be the place where the deceased lived with his family Page 123 or managed his fortune and the most significant presumption result's from the deceased's name appearing on the list of the inhabitants of the...