close
Share with your friends

Business families face complex, shifting tax landscape

Business families face complex, shifting tax landscape

KPMG Private Enterprise Global Family Business Tax Monitor compares tax implications for transferring a business across 54 countries and territories.

1000
Melany Eli

Global Head of Marketing

KPMG International

Contact

Related content

  • Taxes on transfer of a family business tend to be higher, with complex exemption requirements, in larger, developed economies; but families in emerging economies can face a challenging tax burden as well.
  • Of the 54 countries and territories surveyed, 15 have an inheritance/wealth tax that applies for the intra-family transfer of a EUR10 million family business, 16 have a gift tax that would apply for a lifetime transfer.
  • The US has one of the highest tax rates globally for transfer of a EUR10 million family business, by gift or inheritance, before exemptions.  However, US families potentially benefit from a US$10 million (indexed for inflation) exemption, currently scheduled to sunset after 2025.
  • France, Ireland, the Netherlands, Spain and the UK have the highest tax rates of countries surveyed in Europe for transfer of a EUR10 million family business at death, before exemptions, but taxes are reduced substantially by exemptions.
  • In Asia-Pacific, South Korea stands out for having one of the highest tax burdens in the world for the transfer of a family business. By contrast, China currently does not impose any gift or inheritance tax.

Family business helps drive the global economy, accounting for the majority of global GDP and employment.  But for families that want to keep their business in the family, and pass it on to the next generation, there can be a multitude of challenges.  Not least are often complex tax regulations that can apply to transfer of a family business.

Charting a path for the future,” the 2020 KPMG Private Enterprise Global Family Business Tax Monitor*, provides in-depth perspective on the varied and changing tax environment for family business around the world, along with insight on how families can best prepare for transitioning their business to the next generation.  The report highlights how the impact of COVID-19 could increase the pressure on families in the coming years.

“Depending where they are domiciled, the tax complexity for family business can be enormous and the burden is likely to grow as government budgets are stretched and the need for additional revenues becomes more acute,” said Tom McGinness, Global Leader, KPMG Private Enterprise Family Business, KPMG Private Enterprise in the UK. “In many cases, a family looking to pass its business to the next generation is eligible to claim exemptions or deductions, but as our report shows, the requirements can be onerous, require very thorough planning and are likely to tightened or modified in many instances.”

The Tax Monitor details the various tax treatments, across 54 countries, for the intra-family transfer of a family business valued at EUR10 million. Of the 54 countries surveyed, 14 have a specific inheritance tax that applies (the US applies a wealth tax for family business inheritance), while 16 have a gift tax that would apply to lifetime transfers of the business. Of the 10 countries with the largest GDPs in the survey, six (Brazil, Canada, France, Germany, US, UK) have taxes that apply both for inheritance and lifetime transfers, while four (China, India, Italy and Russia) have neither gift or inheritance tax on transfer of a family business. Other taxes, such as capital gains tax and personal income tax, are applied in some jurisdictions as well.

Tax policy of countries surveyed with largest GDPs, for transfer of €10M family business:

Countries with both inheritance tax and tax on lifetime transfers:

Brazil

Canada

France

Germany

United Kingdom

Unites States

Countries with no applicable inheritance or gift tax:

China

India

Italy

Russia

While there are tax reliefs in most jurisdictions that can lessen the burden on families transferring their business, many of these are coming under increased scrutiny and families need to be prepared for change.  For example, in the US, families transferring a business currently benefit from a gifts and estates exclusion of US$11.58 million – the exclusion presently has effect until 2026, but there is the potential for the exclusion to be modified or eliminated.  Similarly, families in the UK benefit from business property relief (BPR) in transferring a business, but there are proposals that could modify or remove this relief. 

“Families with businesses and other wealth to manage are anticipating government policy changes in a number of jurisdictions that will result in increased taxes,” said Olaf Leurs, Tax Partner, KPMG Meijburg & Company, KPMG in the Netherlands.  “The planning cycle for families has accelerated, even more so with the COVID-19 pandemic.  Families have an increased sense of urgency about protecting the future of their business, and they should.  Decisions on how or whether to transfer the business, which may have taken years in the past, in many cases now need to be made in a matter of months.”

Tax planning for the transfer of a family business needs to be part of an overall planning process and the Tax Monitor provides a blueprint to follow that encompasses establishing robust family governance, including a family constitution, as well as ensuring the next generation is prepared to assume control of the business.

“The impact of COVID-19 is also prompting families to take stock of the sense of purpose and values of their business”, said McGinness.  “Family businesses tend to take a long-term view and have a strong sense of community.  Increasingly, families are considering the broader societal impact of their business and their role in addressing issues from climate change to inequality and education.”

Learn more by accessing the full report.

About the Global family business tax monitor report

The Global family business tax monitor is based on the findings of 54 countries, regions and jurisdictions who undertook a taxation review on two case studies providing details on how their local tax regulations would apply to each case. The study explores the effects taxation can have on the transfer of the business to family members upon inheritance and as a lifetime transfer (on retirement).

About KPMG Private Enterprise

Passion, it’s what drives entrepreneurs, it’s also what inspires KPMG Private Enterprise advisers to help you maximize success. You know KPMG, you might not know KPMG Private Enterprise. KPMG Private Enterprise advisers in member firms around the world are dedicated to working with you and your business, no matter where you are in your growth journey – whether you’re looking to reach new heights, embrace technology, plan for an exit, or manage the transition of wealth or your business to the next generation.

Working with KPMG Private Enterprise, you’ll gain access to a trusted advisor – a single point of contact who shares your entrepreneurial mindset. With access to KPMG’s global resources and alliance network, we’ll help you drive your business forward and meet your goals. Your success is our legacy.

Visit: home.kpmg/privateenterprise

KPMG Private Enterprise Global Center of Excellence for Family Business

As with your family, your business doesn’t stand still — it evolves. Family businesses are unique and KPMG Private Enterprise Family Business advisers understand the dynamics of a successful family business and work with you to provide tailored advice and experienced guidance to help you succeed.

To support the unique needs of family businesses, KPMG Private Enterprise coordinates with a global network of member firms dedicated to offering relevant information and advice to family-owned companies. We understand that the nature of a family business is inherently different from a non-family business and requires an approach that considers the family component.

Visit: home.kpmg/familybusiness 

About KPMG Family Office & Private Client Network

As tax systems become ever more complex, it is important to have advisers who can help you understand the rules to ensure you are paying the correct amount of tax at the right time and in all the right locations. Our team of tax professionals can help you with all aspects of personal and family taxation.

The ever increasing mobility of people, their capital, and their businesses, means many people require multi-jurisdictional advice. KPMG’s Family Office and Private Client practice is specifically designed to do just that.

We aim to understand our clients’ needs and aspirations, applying our whole firm’s experience and skills to provide advice that helps them manage their tax obligations and relationship with relevant tax authorities on a global basis while working to minimise risk and potential duplication.

KPMG’s Family Office and Private Client team understands that every family and private entity is different. We provide bespoke support customised to the needs of you and your families. We advise on the establishment and operation of Family Offices with a focus on growth whilst preserving your energy.

We assist individuals, families and family offices operating in all sectors, irrespective as to how their wealth and success as has accumulated.

Visit: Family Office & Private Client

About KPMG International

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

*Encompasses KPMG Private Enterprise and KPMG International member firms.

**Source: KPMG Enterprise Global family business tax monitor, October 2020. 

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal