Are you about to transfer your business to the next generation? Or are you involved in assisting business transfers for your clients? In both cases, it is crucial to be aware of the Business Succession Regulation (BOR), a powerful tool that promotes the continuity of (family) businesses and enables tax savings.
The BOR applies when an entrepreneur transfers his or her business to a successor within the family. To qualify for the scheme, the transferred business must be a so-called "tangible business. This means that the business has business assets consisting primarily of assets used in the business.
An important aspect of the BOR is the exemption from gift or inheritance tax that can apply to the value of the business. This exemption can amount to 100% of the value of the business, depending on the circumstances. In addition, the BOR can also result in reduced gift or inheritance tax assessments applicable to the transferred business assets.
Advantages and disadvantages BOR scheme
Applying the BOR scheme brings a number of benefits. First of all, the tax savings due to no (or less) gift or inheritance tax being due. In addition, the procedure of the BOR scheme offers a lot of flexibility in the transfer which also ensures the continuity of the company.
Nevertheless, the BOR scheme also has some disadvantages/points for consideration. As discussed, the BOR is specifically designed for a company's business assets with which only limited benefits apply to the company's investment assets. In addition, the BOR has certain conditions and requirements that cannot be waived in order to maintain the desired tax benefit. This makes the scheme complex and complicated, in part because of the changing regulations surrounding business transfers and their tax consequences.
BOR calculation example
The overview below outlines a situation in which, using the BOR scheme, 40% of the business is donated and 60% is sold. These proceeds can be used by the seller and can serve as a pension, for example, but can also be used to transfer assets to other children.
The calculation shows that over 1.7 million euros in gift tax is ultimately saved by using the BOR scheme. In addition, the seller was still able to cash in a portion to use as a pension.
Criteria for the BOR exemption
To make use of the BOR scheme, several requirements must be met namely:
- The company must carry out an actual business activity;
- When making a gift, the donor must have owned the business for at least 5 years;
- The person receiving the gift must continue the business for at least 5 years.
Conclusion
By using the BOR scheme, entrepreneurs can retain the financial resources and use them for further business growth and development. However, it is also important to consider the complexity of the scheme and its requirements. Every situation is different.
It is therefore advisable to seek timely professional advice in order to apply the BOR correctly and maximize the benefits. Also given the changes currently being implemented by Den Haag and planned for the coming years.
