News

High inheritance taxes are blocking family businesses

21-05-2017 - Bridge Consulting

The Dutch inheritance tax is higher than in neighboring countries and appears to be an obstacle for entrepreneurs in family businesses. This is shown by research from the University of St. Gallen and accountancy firm EY. 'The analysis contains new and unexpected insights into worldwide inheritance tax and their impact'.

Case

The university and EY have researched the heritage rules of 69 countries to identify the economies that offer the best conditions for the transfer of family businesses. She presented the same case to each country:

Bob Smith (58) is 100% owner of the company and is a resident of the capital of the research country. The taxable value of the company amounts to USD 10 million. Bob has two children, Mike (28) and Molly (25). Bob comes to die unexpectedly. His will states that he passes the company on to his children. Bob's children are willing to continue the business for at least ten years.

Highest tax

In this case, the highest taxes have to be paid in Japan, followed by the United Kingdom and Canada. There are no differences between the case of a one-man business and the case of a company. The Dutch nominal rate is 40% levy, effectively the children who take over a business pay according to the study approximately 3.4% in inheritance tax, depending on the total value of the company. With the exception of Belgium, the rate in neighboring countries is much lower. According to EY, there is a link between business activities in a country and low tax rates. "So it seems that a high inheritance tax impedes entrepreneurship," says EY. Because there are other tax options for business succession, the Netherlands ultimately scores relatively well in an international context.

Amount of business successions

According to EY, the inheritance tax will play a role in the coming years because many business transfers are due to the age of the current management boards. The Netherlands has a relatively large number of large family businesses, of which twelve are in the top 500 worldwide. Only Canada (13), Mexico (14), China (16) and the USA (126) are doing better.