The tax bill for transferring a family business (KPMG Enterprise global family business tax monitor)
For business families planning to transfer their business from one generation to the next, the tax costs can vary widely, depending on where the business is located according to the KPMG Enterprise global family business tax monitor. Some countries offer substantial tax breaks to help family businesses succeed and grow in the hands of the next generation while other countries tax transfers within families in the same way as any other transaction, creating significant costs.
“A thriving family business sector contributes to a vibrant economy. Tax-efficient transfers between generations leave wealth in the hands of entrepreneurial families to invest in profit-producing activities — and that can help stimulate job creation and innovation across generations,” says Jonathan Lavender, Co-chair KPMG Enterprise Family Business & Global Chairman, KPMG Enterprise.
Both regionally and nationally, however, there is considerable variation in the tax rules governing family business transfers. The report examines these differences in 65 jurisdictions and their varying impacts on the successful transition of family businesses from one generation to the next.
KPMG’s study found that Canada, Venezuela and Japan are among the countries that impose the highest taxes on family business transfers on death, even after you claim all available tax breaks. For transfers during the family business owner’s lifetime, Canada, Venezuela and Australia are among the highest-taxing countries, after reliefs are claimed.
Other countries – like China, New Zealand and Nigeria – apply no special taxes on these transfers at all. Between the extremes, tax outcomes vary widely. Western economies tend to impose higher taxes on family business transfers during lifetime and through inheritance than emerging economies. Generous tax breaks in Western economies tend to put levels of taxation more at par, but only when business families meet conditions that can be difficult to meet.
UK business families brace for Brexit
As the United Kingdom (UK) and the European Union (EU) are still working out how Brexit will unfold, the implications for family businesses in the UK are unknown. The biggest impacts are expected for family businesses that employ EU nationals in key roles and for businesses that conduct trade with the EU.
“UK-based family businesses should think through potential talent management issues that could arise due to changes in the immigration status of employees,” says Tom McGinness, Co-chair KPMG Enterprise Family Business and Partner, KPMG Enterprise in the UK. “Family businesses should also review the terms of any commercial contracts with parties in the EU and make contingency plans to minimize any business disruption once Brexit’s final terms are known.”
Governments set sights on shadow economy
In many countries, the shadow economy is widespread and many businesses, including family businesses, operate outside of formal business structures. The size of the informal economy creates fiscal pressure, often causing legitimate businesses to shoulder higher tax burdens. For informal businesses, the lack of formal books and records, bank accounts and governance may hamper their profitability and prospects for growth.
In cultures where informal businesses are common, family businesses may see only disadvantages from regularization. While tax and regulatory compliance bring new costs and administrative burdens, these are outweighed by the benefits of participating in the legal economy.
KPMG Enterprise’s Global family business tax monitor examines these differences in 65 countries, regions and jurisdictions and how they can influence the successful transition of family businesses from one generation to the next. Through case studies analyzed by KPMG Enterprise practices in the participating countries, the monitor highlights the effects tax can have on the transfer of a business worth EUR10 million to family members — both through inheritance and a lifetime transfer (on retirement).
The report also features insights into global trends that are expected to alter the tax landscape for family business transfers in the coming years, along with key succession planning points that business families should consider, wherever in the world they are located. Click here to access the report. And remember that if you are thinking about set up a company in Spain, or if you have workers in Spain, don´t hesitate to contact our team of experts.