Belgium is a country of small and medium-sized family businesses. To make the transfer of these businesses to the next generation easier, the Regions have implemented favourable tax measures with the introduction of reduced rates on donations of family businesses.
While the Flemish and Walloon Region made it possible to donate family businesses at a rate of 0%, the Brussels Region kept on applying the right of 3% on donations of family businesses.
In order to put them in a better position in this interregional tax competition and to favour the continuity of these businesses in the Brussels Region, the Brussels government has implemented an extensive reform of the existing tax regime in order to make it more transparent and in order to align the Brussels preferential regime with that of the other two Regions. The reform mainly focused on preventing that owners of businesses or companies that are located in Brussels would move to the Walloon Region or to the Flemish Region so that they could benefit from a more favourable tax regime.
1. Exemption of the registration fee on donations of family businesses or family companies
The main change in relation to the former legislation can be found in the tax rate applicable to donations of family businesses or family companies: this rate has been reduced from 3% to 0%,
in order to exempt these donations from registration fees.
In order to make it easier for the donors to benefit from this favourable tax regime, the conditions for obtaining and maintaining the exemption have also been adapted.
2. Tax base for donations
Before, the preferential regime was only applicable in case of donation of the “full ownership”. From now on, the new preferential regime applies to donations of the “full ownership, the bare ownership or the usufruct of assets that were invested professionally”. So this regime was softened in order to offer a bigger freedom of choice with regard to the transfer of the business or company. From now on, the donor has the possibility to transfer his business or company while maintaining control over that business or company by keeping the usufruct on the donated goods.
Furthermore, the Brussels ordinance states that the immovable goods which are mainly used or intended for habitation are excluded from the exemption regime.
3. Conditions for the detention of “shares of a family company”
With regard to the donation of shares of a family company the donation will be exempt provided that the donor or his family fully own the shares for at least 50%. Nevertheless a 30% participation is sufficient provided that the donor and his family fully own at least 70% of the company shares together with another shareholder and his family” or “if they own at least 90% of the company shares together with two other shareholders and their family”. In this respect the ordinance states that it must concern shares representing the social capital and each share giving rise to a vote.
An important novelty results from the introduction of this notion of “family of the donor or shareholder”. Article 140/1, §2, 4° of the Code of registration fees defines this notion broadly: it concerns the partner or legal cohabitant of the donor or shareholder, their relatives in the direct line as well as the collateral relatives of the donor or shareholder up to the second degree as well as their partner or legal cohabitant.
4. Respect for the granting conditions during a period of three years
The new regime provides a reduction of the period within which the granting conditions must be fulfilled. With regard to the family businesses the activity must be continued for an uninterrupted period of three years. With regard to the family company the company must continue to respond to the definition of “family company” in the meaning of article 140/1, §2, 2° of the Code of registration fees for an uninterrupted period of three years and the company’s activity must be continued during that period.
In conclusion, by introducing a regime of tax exemption regarding donations of family businesses or family companies, the Brussels government aligns with the preferential regime of 0% existing in the two other Regions.
It is really a shame that, with this extensive tax reform, the Brussels government has not harmonised with the favourable tax regime applicable on inheritance rights in the Walloon Region. That is why the introduced tax regime does not provide an exemption regime of the inheritance rights for the transfer of family businesses (as it was the case in the Walloon Region), currently it is more fiscally interesting to donate one’s family business during one’s lifetime, possibly while maintaining the usufruct on the donated good, rather then to transfer it by way of inheritance.
This new regime is applicable since January 1st 2017.