Insights
TAX & BUSINESS
Tax burden on intra‑family transfers
Transferring a business to the next generation is often a major challenge for those involved. In addition to commercial and civil‑law considerations, tax issues are of particular importance. Timely planning of the transfer can optimise the relevant tax burden.
In income tax law, a distinction is made between consideration‑based (sale) and non‑consideration (gift) business transfers. If the consideration does not exceed 25 % of the market value of the business, the transfer is deemed non‑consideration. If the consideration is at least 75 % of the market value, it is to be assumed that a (consideration‑based, taxable) sale has taken place. If the consideration is more than 25 % but less than 75 % of the market value of the transferred asset, the overall circumstances must be examined, with transfers between close relatives usually regarded as non‑consideration transactions. The parties' intent is decisive and must therefore be reflected contractually in any case.
Since 1 August 2008, no gift and inheritance tax is levied any more. However, gifts made during life are subject to a reporting obligation above a certain amount (EUR 50,000 within one year for relatives).
Half‑rate tax and loss carry‑forwards
For consideration‑based transfers, the entrepreneur can avail various income‑tax incentives. One such incentive for natural persons is the so‑called half‑rate tax. If the business is sold for certain reasons (e.g. reaching the age of 60 and ceasing employment) and at least seven years have elapsed since the business was started or the last consideration‑based acquisition, the income tax on the capital gain from the sale or cessation can, on application, be reduced to half of the average tax rate applicable to the total income.
Special caution is required with loss carry‑forwards. A loss carry‑forward is a highly personal right and therefore belongs only to the person who incurred the loss. Only in the event of death can the deceased’s loss carry‑forwards – under certain conditions – also pass to the heir (different rules apply to corporations).
Real‑estate transfer tax and the New Foundation Promotion Act (NeuFöG)
Real‑estate transfer tax is payable when immovable property (land, buildings, etc.) is transferred. Within the favoured family circle it ranges from 0.5 % to 3.5 % (graduated rate) of the land value, which must be determined according to specific procedures. For non‑consideration transfers of property that is part of business assets, there is, under certain conditions, an exemption of EUR 900,000 (EUR 365,000 in the area of agriculture and forestry).
The New Foundation Promotion Act (NeuFöG) also provides incentives for business transfers (e.g. court fees, real‑estate transfer tax), for which certain confirmations must be obtained in advance.
Early planning
To make the transfer as tax‑efficient as possible, early planning and a thorough review of the specific facts are of great importance. Preparatory measures are often necessary to achieve the optimal tax outcome. We are happy to provide advice on this matter.
Since 1 August 2008, no gift and inheritance tax is levied any more. However, gifts made during life are subject to a reporting obligation above a certain amount (EUR 50,000 within one year for relatives).
Half‑rate tax and loss carry‑forwards
For consideration‑based transfers, the entrepreneur can avail various income‑tax incentives. One such incentive for natural persons is the so‑called half‑rate tax. If the business is sold for certain reasons (e.g. reaching the age of 60 and ceasing employment) and at least seven years have elapsed since the business was started or the last consideration‑based acquisition, the income tax on the capital gain from the sale or cessation can, on application, be reduced to half of the average tax rate applicable to the total income.
Special caution is required with loss carry‑forwards. A loss carry‑forward is a highly personal right and therefore belongs only to the person who incurred the loss. Only in the event of death can the deceased’s loss carry‑forwards – under certain conditions – also pass to the heir (different rules apply to corporations).
Real‑estate transfer tax and the New Foundation Promotion Act (NeuFöG)
Real‑estate transfer tax is payable when immovable property (land, buildings, etc.) is transferred. Within the favoured family circle it ranges from 0.5 % to 3.5 % (graduated rate) of the land value, which must be determined according to specific procedures. For non‑consideration transfers of property that is part of business assets, there is, under certain conditions, an exemption of EUR 900,000 (EUR 365,000 in the area of agriculture and forestry).
The New Foundation Promotion Act (NeuFöG) also provides incentives for business transfers (e.g. court fees, real‑estate transfer tax), for which certain confirmations must be obtained in advance.
Early planning
To make the transfer as tax‑efficient as possible, early planning and a thorough review of the specific facts are of great importance. Preparatory measures are often necessary to achieve the optimal tax outcome. We are happy to provide advice on this matter.