The energy and time that an entrepreneur dedicates to developing their company will generally result in an increase in its value. This value will constitute an asset of their estate and will generate in some countries a significant tax burden in case of death.
Belgium differs from other countries by the low taxation of donations of movable assets made by Belgian residents in direct line or between spouses, but also to non-related persons. In addition, subject to certain conditions, the rate of gift and inheritance tax is reduced to 0% (exemption in Flanders) for the transfers of company shares. The application of the 0% rate (or the exemption) to a donation or an inheritance allows the entrepreneur to prepare the transfer of their company with an easy mind.
As the matter of donations and inheritance is down to the federated entities – Flanders, Wallonia, Brussels-Capital Region – each region has adapted specific rules. All of them foresee the application of the reduced rate or the 0% rate (exemption in Flanders).
It should be emphasised that the treaty-based avoidance of double taxation in the case of gifts and inheritance is only slightly developed, so it is always necessary to ensure that, in the presence of an externality, the operation does not have a tax implication in another country.
In addition to registered donations, discussed below, manual donations of movable assets may be made. As these do not have to be registered, no gift tax will be paid. However, if the donor dies within three years of the donation, the gift will be reintegrated into the estate for the calculation of inheritance tax.
Registered donations require the intervention of a notary who will establish the deed. The notarial deed will be registered and the duties collected on the gross emolument received by each of the donees. The applicable rate will depend on the nature of the donated assets. Movable assets are, in principle, subject to a reduced rate of 3% (3.3% in the Walloon Region) in direct line and between spouses. For donations to other persons, the rate is set at 7% (5.5% in the Walloon Region). This reduced rate applies to furniture, works of art, movable rights such as copyrights, as well as securities (shares, bonds, certificates, etc.) of Belgian or foreign companies.
Donations of company shares that carry on an industrial, commercial, agricultural or liberal professional activity themselves or with their subsidiaries whose effective management is located in the European Economic Area can benefit of a 0% rate (exemption in Flanders) as long as the conditions set out region by region are met.
In practice, there are two sets of conditions: those that must be met at the time of the donation and those that must be met for three to five years from the date of the deed of donation.
The Brussels-Capital Region intends to encourage the transfer of ‘family’ companies, i.e. a company or group of companies that is at least 50% owned by the donor and his family. Holding companies can also benefit from the reduction of duties as long as they hold at least 30% in a company that carries out an industrial, commercial, agricultural or liberal profession activity. The reduction will be maintained if the company’s activity continues for three years, the capital is not reduced during the same period and the registered office is not transferred to a country outside the European Economic Area. The conditions are similar for Flanders.
The Walloon Region insists on maintaining the activity and employment for five years. The donees have to demonstrate that the employment has been maintained up to 75% compared to the situation on the day of the donation. On the other hand, the donation may concern securities representing at least 10% of the voting rights. It is also interesting to note that the 0% rate can be applied to donations of debt obligation – provided it does not exceed the paid-up capital on a company eligible for the application of the said rate. As far as holding companies are concerned, they are eligible for the reduced rate if, on a consolidated basis, the main activity of the group consists of the supply of goods and/or services to third parties.
In conclusion, Belgium is a host country for companies whose corporate purpose is the holding of participations. Dividends paid by subsidiaries are generally exempted from taxation. The existence of a reduced rate (3% or 0%) for donations of company shares is undoubtedly an additional advantage.
