Restructuring your family enterprise within 3 years after a gift or inheritance


A recent preliminary decision (October 2022) of the Flemish tax authorities was rendered on the question whether a full demerger of a family enterprise would impact the qualification of a family enterprise for gift tax purposes. 

The facts: an active family enterprise (holding) was donated by the parents /donors – with certain control mechanisms – to their 3 children after having obtained the prior certificate for family enterprise. As the company qualified as family enterprise, a gift tax exemption was applicable on this donation. However, in order to maintain this exemption, amongst others, no capital decrease (by means of distribution) could take place within 3 years after the donation. 

A few months after the donations took place, the intention was expressed to demerge the active family holding into 3 equal holding companies, in order for the children to set out their own investment strategy without being dependent on the strategy of their siblings and without losing the equality between the 3 children.

The family obtained a positive preliminary decision that the full demerger into 3 holding companies won’t impact the qualification as a family enterprise. The allocation of the capital into the 3 newly established companies won’t be seen by the tax authorities as a capital reduction. Of course all the required conditions will have to be assessed 3 years from the donation on behalf of the 3 newly established companies.

It is to be noted that the tax authorities have a different approach in assessing the reduction of capital for a full demerger versus a partial demerger.  

In an earlier preliminary decision on a partial demerger (okt/2016)) the Flemish tax authorities argued that the partial demerger of a family enterprise within the 3 years after the inheritance, would cause additional progressive inheritance tax for the value of the transferred assets, due to capital decrease within the 3 years period after the inheritance of the family enterprise. 

Summarizing, the impact on the qualification of a family enterprise is key when restructuring your company shortly after a gift/inheritance. In the two preliminary decisions mentioned above, we see asking a preliminary decision from the tax authorities might help you to obtain certainty on the planned restructuring of your family business.

Thanks to Marieke Lannoo for her contribution.