If a succession situation arises within a family business, it may be interesting to make use of the Business Succession Regulation (BOR).
Within the Dutch business community, the percentage of family businesses is approximately 71%. Within the SME in particular, there are many family businesses (CBS). If a business succession situation arises within such a company, it may be interesting to make use of the BOR. But what exactly is the BOR and for whom is this regulation interesting?
BOR, the conditions and how does it work?
When inheriting or gifting a business, the new owner must pay gift or inheritance tax on the value of the business. If the new owner wants to continue the business, they can use all or part of the BOR. If one does so, the new owner pays significantly less or no gift tax.
To be eligible for the BOR, however, the business must meet a number of conditions including, among others, the following;
- The BOR only applies to an existing business where actual entrepreneurial activities take place.
- If the business is donated, the donor must have owned the business for at least five years.
- The person taking over the business must continue the activities for at least five years. In the case of shares in a B.V. or N.V., the new owner must hold the new shares for at least five years.
- If the aforementioned five years are not completed, this must be declared and the tax due is recalculated.
Exemption, going concern value versus liquidation value and deferral of payment
If the business is continued, an exemption for gift or inheritance tax can be obtained. How much exemption a new owner receives depends on the value of the business. This requires a brief explanation of the difference between the going concern value and the liquidation value of a business.
The going concern value is the value of the business assets as a coherent whole. This therefore includes any goodwill that applies to a transfer.
The liquidation value is the total value of individually valued business assets or business assets that act as a cluster.
Four situations apply for the exemption (see www.belastingdienst.nl).
The Transaction
In a recent transaction, where Anna Dijkhuizen took over her father's business, use was made of the BOR. In this way, the tax burden involved in a family transfer could be substantially alleviated.
Father Hans Dijkhuizen (70) years was DGA of a successful trading company and wanted to slow down. His daughter Anna (41) had been working within the company for several years and had ambitions to continue the family business. The business in question had a going concern value of approximately €3.5 million and a liquidation value of €1.5 million.
Example calculation
- Hans donates the business to Anna with a going concern value of approximately €3.5 million. This value is higher than the liquidation value of approximately €1.5 million.
- In this case, Anna receives 100% exemption from gift tax up to an amount of over €1.06 million. If we reduce the going concern value of € 3.5 million by this amount, an amount of approximately € 2.4 million remains.
- Anna receives an 83% exemption on this amount. This gives an additional exemption of over €2 million.
- In the end there remains an amount of about € 400,000 which is taxable with gift tax.
- Over the amount of €400,000, Anna will ultimately owe gift tax. Taking into account the different brackets, Anna owes the tax authorities an amount of over € 70,000.
With a going concern value of about €3.5 million and a gift tax liability of €70,000, this gives a tax burden of about 2.02% for Anna.
If there is a family transfer, it can therefore be very interesting from a tax perspective to make partial or full use of the BOR.
