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14 February 2017 at 09:54 BST

Germany ushers in new business succession inheritance tax reform

Company heirs should take note of new inheritance tax legislation that has come into force in Germany - retrospective effect as of July 1, 2016.

Berlin, Germany sborisov

Company heirs can largely continue to escape inheritance tax provided they satisfy certain requirements – but will have to adapt to several changes,’ stated GRP Rainer Lawyers and Tax Advisors.

Most significant reform

Among the most significant reforms is setting the maximum factor by which the operating profit can be multiplied at 13.75 for the purposes of assessing the value of the company when calculating the tax. If an heir is not able to pay the inheritance tax, it can be deferred for a period of seven years. However, interest will then fall due from as early as the second year. Up until now, it had been possible to defer taxes interest-free for ten years.

Assets valued at more than €23 million

In cases involving a transfer in the stake of a company valued at more than €26 million, company heirs shall have to demonstrate that paying the inheritance tax would place too great a burden on them.

For the purposes of a means test, it would then also be necessary for private assets to be disclosed, half of which can be drawn on to settle the inheritance tax. If the heir rejects the needs test, the tax burden will increase with the company’s assets.

In cases involving company assets valued at €90 million or more, a tax concession is no longer possible.

Assets valued at less than €23 million

If company assets amount to less than €26 million, company heirs can largely continue to escape inheritance tax if they carry on the business and retain jobs. If the business continues to be operated for at least five years, it is possible to receive an exemption worth 85 per cent.

The inheritance tax ceases to apply entirely if the company is carried on for seven years. Demonstrating that jobs have been retained has to be done with reference to the payroll. Firms with no more than five workers are exempt from this obligation to furnish evidence.


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