Global Family Business Tax Monitor

Global family business tax monitor

Plan for the future — Comparing the impact of tax regimes on family business

May 2018

kpmg.com/familybusinesstaxmonitor Foreword

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.”

Jonathan Lavender Co-chair KPMG Enterprise Family Business & Global Chairman, KPMG Enterprise

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. For business families around the Increasingly, governments are looking world, KPMG Enterprise’s global beyond their borders, cooperating family business tax monitor delivers to share best practices, and working information and insights on the taxes to ensure their tax systems operate and reliefs available when transferring efficiently and interact appropriately the family business to the next with those of other countries. generation, both on retirement and The same trend is not as prevalent through inheritance. Since the first where the taxation of family business edition in 2014, covering 23 European transfers is concerned. As the case countries, the monitor has now grown studies in this report show, there to span 65 countries, regions and are significant disparities between jurisdictions. regimes on whether: In this edition, KPMG Enterprise and — the donor or recipient is subject KPMG International member firms to tax in each jurisdiction that was covered provided a snapshot of the domestic — a specific tax relief is available tax rules governing family business and what conditions must be transfers (details can be found in the met to gain that tax relief country summary notes at the end — taxes are applied on inheritances of this report). KPMG Enterprise and and family gifts directly, or KPMG International advisers from through other taxes and charges member firms also provided their such as capital gains taxes and detailed analysis of the outcomes of stamp duties. two case studies: one in which a family business is transferred on the owner’s This report also aims to provide an death, and a second in which the understanding of the tax differences transfer happens during the owner’s and their varying impacts on the lifetime. smooth, successful transition of family businesses from one generation to The variations among regimes the next. There are also insights into across the globe are striking — and trends that are expected to alter the tax somewhat surprising in view of landscape for family business transfers the general global trend toward tax in the years to come. Finally, you will rule harmonization. Since the first find key succession planning points tax monitor was published, the that business families should consider, globalization of tax has accelerated regardless of where in the world they and tax rules have started showing are located. signs of converging, especially for value-added taxes and the taxation We trust that business families will find of transactions across borders. this report useful while preparing for the future of your family enterprise.

Jonathan Lavender Greg Limb Co-chair KPMG Enterprise Head, International Private Wealth Family Business & KPMG Enterprise in the UK Global Chairman, KPMG Enterprise

Tom McGinness Olaf Leurs Co-chair KPMG Enterprise Head of KPMG Enterprise Family Business, EMA & Family Business, Partner Meijburg & Co KPMG Enterprise in the UK KPMG in the Netherlands

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. As always, business families should ensure the succession goals of all family members are understood and respected. Where the younger generation wishes to redirect some of the family’s capital to make investments with social impact, alternative (often) tax-efficient structures such as charitable foundations could be considered to achieve these ends.”

Tom McGinness Co-chair, KPMG Enterprise Family Business Partner, KPMG Enterprise in the UK

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. contentsTable of Foreword 2 What’s new? 6 At a glance: recent changes and potential developments 6 Behind the numbers 8 Culture underpins tax policy choices 9 Granting tax preferences — with strings attached 13 Case studies 14 Case study 1: Family business transfer through inheritance 16 Case study 2: Family business transfer on retirement 20 Case study highlights and takeaways 24 Future outlook: five key developments 28 1. US tax reform will have high impact for (at least) the short term 29 2. Brexit’s impact is uncertain 30 3. Governments are addressing the informal economy 30 4. Business owners are living longer 32 5. Millennials have different aspirations and values 33 It is never too early to start planning 34 The final analysis 35 Contacts 36 Country/region/ jurisdiction summary notes 42

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Family businesses in Belgium should review existing plans with a view to taking advantage of the new ﬂexibility that will soon be allowed in their succession options, but at the same time, take into account the revised What’s position of the tax authorities regarding gifts.”

new? Tom Zwaenepoel At a glance: recent changes and Partner, KPMG in Belgium potential developments Malta introduced a temporary tax incentive to encourage family business transfers to the next The United States’ generation. The relief reduced (to The United Kingdom’s inheritance tax has not tax reform legislation France is considering 1.5 percent) the duty charged on changed substantially in 34 years. The UK’s Office of Tax increased the lifetime simplifying the conditions for the transfer of family business Simplification is reviewing the inheritance tax system to exemption amount to accessing its exemptions for shares to the owners’ make tax filings, payments and other compliance simpler.5 USD11.18 million (for 2018; family businesses transferred1 descendants between 1 April 2017 More broadly, the review is to look at how the UK’s indexed for inflation). The on death or gift. and 30 September 2018. inheritance and gift taxes interact and whether the current change became effective for framework distorts business transfer decisions. transfers of assets occurring in tax years beginning after 31 December 2017 but expires 31 December 2025. In India, the possibility that the A South Africa government government may introduce estate As discussed later in this commission is looking into report, the reform allows duty or adopt a form of inheritance introducing a wealth tax,4 but its tax2 has led several larger family owners to transfer more enactment is uncertain in view of the Thailand introduced a new assets tax-free on death or businesses to consider the use of country’s already onerous capital inheritance tax in August 2016. To curb Belgium is updating trust structures. through lifetime gifts, greatly gains tax and estate duty provisions. potential avoidance of the new tax, the its inheritance laws for the expanding the succession country also added gift tax provisions to first time since they were options of business families. its personal income tax regime. laid down by Napoleon over 200 years ago. While tax rules are not affected, Israel’s government faces public Philippines introduced changes taking effect in pressure to eliminate its tax a tax reform effective from September 2018 will ease exemption for gifts and to impose an 1 January 2018 that simplifies 3 Taiwan’s existing legal requirements inheritance tax. While no changes taxes on donation and inheritance and gift and restrictions. are scheduled, business owners may succession by replacing be advised to make gifts to relatives graduated tax rates for tax changed from a and take advantage of the gift tax lifetime gifts to family flat 10 percent rate to exemption while it is available. members and estate tax with progressive rates of a flat donor’s/estate tax rate 10–20 percent as of of 6 percent. 12 May 2017.

1 “La loi Le Maire pourrait comprendre une reforme des pactes Dutreil-transmission,” L’Agefi, 25 January 2018 http://www.agefi.fr/corporate/actualites/quotidien/20180125/loi-maire-pourrait-comprendre-reforme-pactes-238174. 2 See, for example, “Inheritance tax may be reintroduced in India”, Financial Express, 9 October 2017. 3 See, for example, “Threatened with Estate Tax, Israel’s Rich are Taking Precautions”, Haaretz, 27 March 2015. 6 | Global family business tax monitor

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Family businesses in Belgium should review existing plans with a view to taking advantage of the new ﬂexibility that will soon be allowed in their succession options, but at the same time, take into account the revised position of the tax authorities regarding gifts.”

Tom Zwaenepoel Partner, KPMG in Belgium Malta introduced a temporary tax incentive to encourage family business transfers to the next The United States’ generation. The relief reduced (to The United Kingdom’s inheritance tax has not tax reform legislation France is considering 1.5 percent) the duty charged on changed substantially in 34 years. The UK’s Office of Tax increased the lifetime simplifying the conditions for the transfer of family business Simplification is reviewing the inheritance tax system to exemption amount to accessing its exemptions for shares to the owners’ make tax filings, payments and other compliance simpler.5 USD11.18 million (for 2018; family businesses transferred1 descendants between 1 April 2017 More broadly, the review is to look at how the UK’s indexed for inflation). The on death or gift. and 30 September 2018. inheritance and gift taxes interact and whether the current change became effective for framework distorts business transfer decisions. transfers of assets occurring in tax years beginning after 31 December 2017 but expires 31 December 2025. In India, the possibility that the A South Africa government government may introduce estate As discussed later in this commission is looking into report, the reform allows duty or adopt a form of inheritance introducing a wealth tax,4 but its tax2 has led several larger family owners to transfer more enactment is uncertain in view of the Thailand introduced a new assets tax-free on death or businesses to consider the use of country’s already onerous capital inheritance tax in August 2016. To curb Belgium is updating trust structures. through lifetime gifts, greatly gains tax and estate duty provisions. potential avoidance of the new tax, the its inheritance laws for the expanding the succession country also added gift tax provisions to first time since they were options of business families. its personal income tax regime. laid down by Napoleon over 200 years ago. While tax rules are not affected, Israel’s government faces public Philippines introduced changes taking effect in pressure to eliminate its tax a tax reform effective from September 2018 will ease exemption for gifts and to impose an 1 January 2018 that simplifies 3 Taiwan’s existing legal requirements inheritance tax. While no changes taxes on donation and inheritance and gift and restrictions. are scheduled, business owners may succession by replacing be advised to make gifts to relatives graduated tax rates for tax changed from a and take advantage of the gift tax lifetime gifts to family flat 10 percent rate to exemption while it is available. members and estate tax with progressive rates of a flat donor’s/estate tax rate 10–20 percent as of of 6 percent. 12 May 2017.

4 “Feasibility of a Wealth Tax in South Africa,” The Davis Tax Committee, March 2018. 5 “Chancellor letter to Office of Tax Simplification commissioning inheritance tax review”,Chancellor of the Exchequer, 19 January 2018.

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There is a learning curve to family business succession, with the family members involved in each intergenerational transfer benefiting from the experiences and mistakes of previous transfers. Generally, it’s the first transfer from the founder that poses the most risk. Transfers from the second and third generation tend to be better planned and structured.”

Karmen Yeung Partner, KPMG China

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For business families, the tax treatment variation and change as cultures for transfers across various countries continue to evolve. seems to have limited consistency, For example, after a history as one especially as families become more of the highest taxing jurisdictions for globally mobile. As family members family business transfers, the US has increasingly span multiple locations substantially increased its estate and and jurisdictions, disparity in the tax gift tax concessions for families, albeit treatment of transfers can cause temporarily, as discussed later in this confusion. Why do some countries give report. special tax preferences, while others tax intra-family business transfers the same Meanwhile, the tax system in the as other transactions? United Kingdom (UK) favors transfers through inheritance, reflecting Throughout time, different views have longstanding beliefs in the benefits prevailed on how wealth is best created of businesses passing generationally. and distributed, and tax legislation Family business transfers on death in tends to reflect those views.6 Some the UK are exempt without limit (subject cultures tend to favor the accumulation to conditions). Lifetime gifts are also of capital within families, seeing wealth allowed relief, but it is more complicated preserved and grown through the to obtain. As noted earlier in this report, generations to the benefit of the broader the UK government is reviewing its economy. Other cultures put stock in inheritance and gift tax regimes and entrepreneurialism, prizing self-reliance could perhaps seek to level the playing and the creation of new wealth through field for both types of transfers. new opportunities. German tax policy for succession Dynastic wealth brings stability and centers on the view that private wealth experience, while entrepreneurialism should bear tax and that tax relief brings innovation and change. should be available for transfers of Healthy economies need a mix of active businesses only. In 2014, the both. German constitutional court found the Nevertheless, the results of the two case country’s inheritance tax exemptions studies analyzed in this report suggest were providing disproportionate that the tax policies of most countries benefits to the wealthy and were thus tend to reflect the values of their unconstitutional.7 historical roots. The older cultures of As a result, the German rules were Western Europe and the Middle East changed in 2016 in order to focus on tend to support family transfers of smaller family business transfers, and wealth with special concessions that a special regulation was introduced to allow for reinvestment and growth. By deny relief to larger businesses. Under contrast, newer cultures, like Australia complex new rules, the exemption and the United States (US), have is now denied on transfers over seen the growth and succession of EUR90 million, unless the family can family businesses more recently. These prove it does not have the private countries tend to demand a higher resources to pay the substantial tax that tax take, effectively redistributing that arises. wealth across society more broadly. Karmen Yeung In Belgium, a heavy burden on Of course, these are broad Partner, inheritances traditionally has been seen generalizations. Region by region and KPMG China as bad for business, and Belgian tax country by country, there is considerable

6 OECD (2018), The Role and Design of Net Wealth Taxes in the OECD, OECD Tax Policy Studies, No. 26, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264290303-en. 7 “Germany changes inheritance tax to protect family business,” Financial Times, 22 September 2016.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. In view of the detrimental impact of the taxes in Brazil, a growing chorus of family business associations and others are calling on the government to ease the tax burden. Among other things, it has been suggested that moving estate and gift taxation from the state level to the federal level would help ease some of the complexity arising from differing state tax rates. However, reforming the estate and gift tax regime does not appear to be on the Brazilian government’s list of priorities.”

Valter Shimidu Partner, KPMG Enterprise in Brazil

policy supports transfers both on death To stem the tide, the Netherlands and during lifetime. However, sentiment adopted an exemption in 2001 that has among Belgian voters appears to the potential to greatly reduce taxes on indicate a perceived lack of fairness of business transfers during lifetime or on tax breaks on family wealth transfers.8 death, although not to zero as is the case For now, prevailing sentiments often for Belgium and Germany. support the preservation of wealth Now, however, there is new political within families, and Belgian tax policy pressure in the Netherlands to level the supports transfers on death with playing field between family business reduced inheritance tax rates for family and other transfers. In a recent case, the business transfers and a complete courts struck down a bid to extend the exemption for lifetime transfers. exemption for family business transfers By contrast, the Netherlands is to other business transfers, but the issue a more egalitarian culture that of equitable treatment for different types champions equal treatment for all. of transfers remains on the radar.9 The Taxes on wealth and inheritance are government appears to be investigating well accepted. Before 2001, however, its options and there are concerns taxes on succession were so high that the exemption could be tightened or many family businesses relocated to replaced with a less favorable system of Belgium, Germany or other tax-favorable tax deferral. countries, or were sold.

8 “Belgium tries to fix one of Europe’s most skewed tax systems,”Financial Times, 28 September 2016. 9 ”Uitspraak delen,” https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:HR:2013:1211&showbutton=true&keyword=13%2f01622 ECLI:NL:HR:2013:1211, de Rechtspraak, 22 November 2013.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. As a relatively new country that values the entrepreneurial spirit, Brazil imposes Since the latest rules in Germany have been in a relatively high burden through inheritance and gift taxes, with no relief place for only a short period, there has not yet provided for transfers within families. been a chance to test the exemption in court. A tax As these examples show, cultural exempt transfer to the next generation will remain attitudes can influence how countries treat family business transfers when it the regular case. But the long-term implications comes to tax, and neither culture nor may be detrimental to the country’s largest family tax policy is static. Interestingly, in some businesses, as inheritance taxes are so high, countries like Belgium, which have traditionally supported family business shareholders may be required to sell parts of the transfers, there appear to be requests for business or take on debt to pay the tax.” higher taxation in the name of equitable treatment for all taxpayers. By contrast, some countries like Brazil, which have taxed family business transfers more heavily, are under pressure to ease the burden. Kay Kloepping Partner, KPMG Enterprise in Germany

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. For now, French business families taking part in transfers should be sure they understand the requirements and plan accordingly by maintaining minimum shareholdings and determining the roles of children and other shareholders in management following the transfer, for example. The same is true in Germany, the Netherlands and other countries with strict conditions on tax reliefs for family business.”

Delphine Cabon Director, KPMG in France

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Granting tax preferences — with strings attached Accumulated family wealth may be seen activities that can distort good business as an attractive target for cash-strapped decisions and hamper growth. governments seeking revenues. For example, France’s tax exemptions In the Netherlands, According to KPMG Enterprise, policy for family business transfers on lifetime makers should recognize the benefits it’s important to have or death compare favorably to those of of leaving wealth in the hands of neighboring countries, but strict and a back-up plan for an entrepreneurial families to invest in complex conditions can make it difficult unexpected transfer not profit-producing activities that stimulate for family businesses to take advantage. job creation and innovation to the only in case of death but Among other conditions, at least one benefit of the broader economy. As beneficiary of the transfer or another also if there is a change a result, sound tax policy would treat shareholder who would have signed the transfers on death and during lifetime at in qualifying conditions agreement mentioning engagement least neutrally and at best in ways that to hold the shares, must continue to that requires a quick facilitate transfers during lifetime. run the business for the exemptions to response to preserve In most cases, transferring the business apply — a condition that is difficult to access to the exemption. through a planned, orderly succession meet if the children are not ready to take as the owner retires rather than on death on a management role or simply not Be prepared for change generally produces better outcomes for interested. and have everything the business, the family and the broader The same conditions apply in France in economy. This is not to say that transfers ready to do the transfer the case of transfer of holding shares. through inheritance should not be just as so you can ‘push the Where the business involves a group well supported. Many businesses gain of companies, the parent company button’ if needed. in size, maturity and professionalism must be actively involved in the group’s as they pass down from generations, You may need to react management for the exemption to apply regardless of when and how they are to the transfer of the shares. To prove the quickly, so it’s best to transferred. parent is not a passive holding vehicle, have everything ready to This can be seen in the different reporting processes should be in place implement.” attitudes and approaches to family to document the parent company’s succession in Hong Kong (SAR) and participation in setting strategy. Olaf Leurs China. In Hong Kong (SAR), many Head of KPMG In view of the importance of France’s current family businesses are on Enterprise family business sector, the country’s their third or fourth generation and EMA & Family current government is considering transfers tend to be more structured. Business, simplifying the details of these China’s first family businesses were Meijburg & Co conditions, though the exemption itself not established until after the 1979 KPMG in the will likely remain intact.10 Draft proposals reforms opened the Chinese market to Netherlands could be announced as early as May but private enterprise. Few Chinese family are more likely later in 2018. businesses have been in place for more than two generations, and succession The Netherlands sets a 5-year active- planning is approached more informally, business requirement for its exemption, if at all. which may seem like a smart policy for encouraging the business’s post- A high number of countries featured in transfer continuance. However, this this report do aim to support business creates problems as businesses transfers both during lifetime and on wanting to maintain the exemption death. However, the support often will have to tread carefully when comes with conditions designed to streamlining or rationalizing parts of the ensure the business continues and business or seeking growth through the rules are not abused to avoid tax acquisitions. The need to understand and inappropriately. Sometimes, these appropriately document active versus conditions are complex and onerous, passive business activities causes more imposing restrictions on holdings and complexities.

10 “French PM says tax cuts for wealthy may come in 2018,” Financial Times, 10 July 2017.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. When is the right time to pass the in euros (€) using exchange rates business on to the next generation: current on 1 December 2017. during the owner’s lifetime or on Subnational jurisdictions: Some death? While tax considerations are participating countries have different only one factor in this decision, the internal jurisdictions for tax, with potential costs are fundamental to the different tax rates and treatments decision and to the agreements and applying in different geographical areas. arrangements that would govern the These countries include Argentina, transfer. Belgium, Brazil, Canada, India, For this analysis, KPMG Enterprise Mexico, Pakistan, Spain, Switzerland member firms and KPMG International and the United States. member firms in 65 countries, regions For the US, two states were analyzed: and jurisdictions were asked to the high-tax state of Minnesota, which analyze the tax burden arising from the applies federal and state taxes to the inheritance of the business by a family transfer of a family business, and a member on the death of the owner of low-tax state that applies federal taxes a family-owned business. They also and lower state taxes (e.g. Maine). assessed the tax outcomes where For other countries, regions and the business is transferred to a family jurisdictions with these variations, the member on the owner’s retirement. report shows a representative example Exchange rates: For comparison for the specified area. purposes, all amounts are denominated

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Case study 1 Figure 1a: Country/region/jurisdiction comparison of tax treatment pre- and post-application of exemptions and Family business transfer reliefs on a family business transfer on inheritance Germany through inheritance This ﬁgure shows an overview of tax levied across the 2,300,000 Elise Larksen owned her family 65 countries, regions and jurisdictions surveyed on a family — business transfer through inheritance of EUR10 million, before *Hungary business, Larksen Networks, for over and after applying any available exemptions and reliefs. *Switzerland 10 years. She invested EUR1 million to establish the company and has Netherlands Norway worked hard over the years to build it. 3,783,601 32,724 The current balance sheet is shown 270,079 32,724 below. The business is now valued France at EUR10 million on an arm’s-length, 4,217,394 Austria third-party basis (which includes 842,394 95,250 EUR5 million of goodwill). All assets in 63,750 *Guernsey the company are used for the purposes Canada *Russia Finland of the business. 2,250,000 *Sweden 2,109,926 United Kingdom 1,859,700 Elise’s spouse Richard died in 2012 and 4,000,000 339,700 — she had one daughter, Lianne, who is 35 years old. Unfortunately, Elise passed *Isle of Man away in early 2018 and in her will she *Croatia had requested the business be passed Ireland 3,197,700 Taiwan to Lianne, who intends to continue the *Czech Republic business for the next 20 years or so. 227,700 723,366 *Romania 723,366 What is the tax impact of Elise’s death? Jersey US (high tax) 74,738 Larksen Networks balance sheet as 4,592,012 74,738 Greece Cyprus 956,500 Japan at date of transfer: 1,062,514 600,000 Portugal *Slovakia 956,500 3,793,377 Manufacturing facility €3,000,000 1,000,000 — 1,693,119 US (low tax) — (real estate): 4,252,039 *Oman Inventory: €2,000,000 521,460 *Morocco *Israel *Hong Kong (SAR) Trade debtors: €2,000,000 Mexico Spain Vietnam 3,694,263 3,497,177 *Jordan Cash (used in the €1,000,000 *Cayman Islands *China 99,963 business): 200,000 110,769 99,963 Philippines *Barbados 60,000 Total assets: €8,000,000 Colombia Belgium *Poland 100,000 44,979 Share capital: €1,000,000 2,652,000 Malta *India 96,769 300,000 Distributable €4,000,000 500,000 *Indonesia 500,000 *Pakistan reserves: Venezuela *Singapore Bank debt: €3,000,000 1,272,808 Congo Turkey 1,272,808 *Gibraltar 454,748 Thailand Total liabilities: €8,000,000 300,000 *Nigeria 300,000 454,748 371,283 Brazil 371,283 The results for 65 countries, regions 700,000 *Luxembourg *Kuwait Australia and jurisdictions covered in this survey, 700,000 4,372,900 before and after available exemptions, Monaco *UAE — *Uruguay 135,000 are summarized in the following pages 135,000 *Saudi Arabia tax due before exemptions in figures 1a, 1b and 1c. Key highlights South Africa *New Zealand and takeaways from the results are tax due after exemptions *Argentina Tunisia 3,321,660 summarized on page 24. 25,000 3,250,584 >€3 million €1 million–€3 million <€1 million — *Italy *This country/jurisdiction applies no taxes on a family business transfer on inheritance

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Figure 1a: Country/region/jurisdiction comparison of tax treatment pre- and post-application of exemptions and reliefs on a family business transfer on inheritance Germany This ﬁgure shows an overview of tax levied across the 2,300,000 65 countries, regions and jurisdictions surveyed on a family — business transfer through inheritance of EUR10 million, before *Hungary and after applying any available exemptions and reliefs. *Switzerland Netherlands Norway 3,783,601 32,724 270,079 32,724 France 4,217,394 Austria 842,394 95,250 63,750 Canada *Guernsey *Russia Finland 2,250,000 *Sweden 2,109,926 United Kingdom 1,859,700 4,000,000 339,700 — *Isle of Man *Croatia Ireland 3,197,700 Taiwan 227,700 *Czech Republic 723,366 723,366 Jersey *Romania US (high tax) 74,738 4,592,012 74,738 Greece Cyprus 956,500 Japan 1,062,514 600,000 Portugal *Slovakia 956,500 3,793,377 1,000,000 — 1,693,119 US (low tax) — 4,252,039 *Oman 521,460 *Morocco *Israel *Hong Kong (SAR) Mexico Spain Vietnam 3,694,263 3,497,177 *Jordan *Cayman Islands *China 99,963 200,000 110,769 99,963 Philippines *Barbados 60,000 Colombia Belgium *Poland 100,000 44,979 2,652,000 *India 96,769 Malta 300,000 500,000 *Indonesia 500,000 *Pakistan Venezuela *Singapore 1,272,808 Turkey *Gibraltar Congo 1,272,808 300,000 454,748 Thailand *Nigeria 300,000 454,748 371,283 Brazil 371,283 700,000 *Luxembourg *Kuwait Australia 700,000 4,372,900 Monaco *UAE — *Uruguay 135,000 135,000 *Saudi Arabia tax due before exemptions South Africa *New Zealand tax due after exemptions *Argentina Tunisia 3,321,660 25,000 3,250,584 >€3 million €1 million–€3 million <€1 million — *Italy *This country/jurisdiction applies no taxes on a family business transfer on inheritance

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This ﬁgure shows an overview of tax levied across the 65 countries, regions and jurisdictions surveyed on a family business transfer through inheritance of EUR10 million, excluding any available exemptions and reliefs.

US — High tax US — Low tax Mexico Canada Venezuela Americas Brazil Colombia Argentina Barbados Cayman Islands Uruguay France UK Netherlands Spain South Africa Ireland Belgium Germany Finland Portugal Greece Cyprus Malta Turkey Congo Monaco Austria Jersey Norway Tunisia Croatia Czech EMA Gibraltar Guernsey Hungary India Isle of Man Israel Italy Jordan Kuwait Luxembourg Morocco Nigeria Oman Pakistan Poland Romania Russia Saudi Arabia Slovakia Sweden Switzerland United Arab Emirates Australia Japan Taiwan Thailand Vietnam Philippines ASPAC China Hong Kong (SAR) >€3 million Indonesia €1 million–€3 million New Zealand <€1 million Singapore Country/region/ 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 Tax due in euros jurisdiction Source: Global Family Business Tax Monitor, KPMG Enterprise, 2018

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This ﬁgure shows an overview of the ﬁnal tax result across the 65 countries, regions and jurisdictions on the same transfer after available exemptions and reliefs are applied.

Canada Venezuela US — High tax Brazil US — Low tax Americas Mexico Colombia Argentina Barbados Cayman Islands Uruguay South Africa Greece France Malta Turkey Finland Belgium Congo Netherlands Ireland Monaco Spain Jersey Austria Norway UK Germany Portugal Cyprus Tunisia Croatia Czech EMA Gibraltar Guernsey Hungary India Isle of Man Israel Italy Jordan Kuwait Luxembourg Morocco Nigeria Oman Pakistan Poland Romania Russia Saudi Arabia Slovakia Sweden Switzerland United Arab Emirates Japan Taiwan Thailand Vietnam Philippines Australia ASPAC China >€3 million Hong Kong (SAR) Indonesia €1 million–€3 million New Zealand <€1 million Singapore Country/region/ 0 1,000,000 2,000,000 3,000,000 4,000,000 Tax due in euros jurisdiction Source: Global Family Business Tax Monitor, KPMG, 2018

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Case study 2 Figure 2a: Country/region/jurisdiction comparison of tax treatment pre- and post-application of exemptions and Family business transfer reliefs on a family business transfer on retirement on retirement This ﬁgure shows an overview of tax levied across the 65 countries, regions and jurisdictions surveyed on a family business Elise Larksen has owned her family Germany business, Larksen Networks, for over transfer on retirement of EUR10 million, before and after applying any available exemptions and reliefs. 2,300,000 10 years. She invested EUR1 million to — establish the company and has worked hard over the years to build it. The current *Switzerland balance sheet is shown below. The *Hungary business is now valued at EUR10 million Netherlands 3,786,602 on an arm’s-length, third-party basis 273,080 (which includes EUR5 million of goodwill). All assets in the company are used for the France *Norway purposes of the business. 4,217,394 421,197 In 2017, Elise, who is getting older, Austria wished to retire. She decided to gift *Guernsey 95,250 Larkson Networks to her daughter, 63,750 Lianne, who is 35 years old. Lianne Canada United Kingdom *Russia 1,800,000 Finland intends to continue the business for at 2,250,000 *Sweden least the next 20 years or so. The gift is 2,109,926 — 1,672,100 312,100 not related to any employment of Lianne *Isle of Man in the business.

What is the tax impact of Elise gifting Ireland *Croatia the business to Lianne in 2018, 3,296,710 Barbados 326,710 Taiwan 349,265 *Czech Republic 882,919 349,265 Larksen Networks balance sheet as *Romania *Hong Kong (SAR) 882,919 at date of transfer: US (high tax) Manufacturing facility €3,000,000 3,954,504 *Jersey Greece Cyprus (real estate): 192,262 956,500 600,000 Japan Portugal Inventory: €2,000,000 Gibraltar *Slovakia 956,500 — 4,429,913 103,015 1,000,000 1,494,166 Trade debtors: €2,000,000 US (low tax) 103,015 — 3,954,504 Turkey Cash (used in the €1,000,000 192,262 Spain Morocco *Poland 710,161 business): 4,646,057 150,000 710,161 Mexico 150,000 Vietnam Total assets: €8,000,000 3,494,263 110,769 *Jordan *China 99,963 Share capital: €1,000,000 — Belgium 1,994,317 *Cayman Islands 99,963 Philippines Distributable €4,000,000 300,000 1,994,317 *India 60,000 reserves: Venezuela — 59,750 2,767,437 Malta Pakistan Bank debt: €3,000,000 750 *Indonesia 2,767,437 *Nigeria 500,000 Total liabilities: €8,000,000 500,000 750 Colombia Luxembourg Brazil 100,000 Singapore 180,000 Israel 10,000 presuming that Elise is still alive for at 700,000 97,880 2,965,374 180,000 10,000 least 10 more years? 700,000 — Monaco The results for the 65 countries, regions Uruguay 135,000 *Oman Thailand Australia and jurisdictions in this survey, before 4,372,900 240,000 135,000 Congo 474,257 and after available exemptions, are *Kuwait 2,257,899 240,000 300,000 474,257 summarized in the following pages in *Tunisia 300,000 Figures 2a, 2b and 2c. Key highlights *UAE *New Zealand and takeaways from the results are tax due before exemptions *Argentina *Italy summarized on page 24. *Saudi Arabia tax due after exemptions South Africa 3,321,198 >€3 million €1 million–€3 million <€1 million 3,319,536 *This country/jurisdiction applies no taxes on a family business transfer on retirement

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Figure 2a: Country/region/jurisdiction comparison of tax treatment pre- and post-application of exemptions and reliefs on a family business transfer on retirement

This ﬁgure shows an overview of tax levied across the 65 countries, regions and jurisdictions surveyed on a family business transfer on retirement of EUR10 million, before and after applying Germany any available exemptions and reliefs. 2,300,000 — *Switzerland *Hungary Netherlands 3,786,602 273,080

France *Norway 4,217,394 421,197 Austria *Guernsey 95,250 63,750 Canada United Kingdom *Russia 1,800,000 Finland 2,250,000 *Sweden 2,109,926 — 1,672,100 312,100 *Isle of Man

Ireland *Croatia 3,296,710 Barbados 326,710 Taiwan 349,265 *Czech Republic 882,919 349,265 *Romania *Hong Kong (SAR) 882,919 US (high tax) 3,954,504 *Jersey Greece Cyprus 192,262 956,500 600,000 Japan Portugal Gibraltar *Slovakia 956,500 — 4,429,913 103,015 1,000,000 1,494,166 US (low tax) 103,015 — 3,954,504 Turkey 192,262 Spain Morocco *Poland 710,161 4,646,057 150,000 710,161 Mexico 150,000 Vietnam 3,494,263 110,769 *Jordan *China 99,963 — Belgium 1,994,317 *Cayman Islands 99,963 Philippines 300,000 1,994,317 *India 60,000 Venezuela — 59,750 2,767,437 Malta Pakistan 750 *Indonesia 2,767,437 *Nigeria 500,000 500,000 750 Colombia Luxembourg Brazil 100,000 Singapore 180,000 Israel 10,000 700,000 97,880 2,965,374 180,000 10,000 700,000 — Monaco Uruguay 135,000 *Oman Thailand Australia 135,000 474,257 4,372,900 240,000 Congo 2,257,899 240,000 *Kuwait 474,257 *Tunisia 300,000 300,000 *UAE tax due before exemptions *Italy *New Zealand *Argentina *Saudi Arabia tax due after exemptions South Africa 3,321,198 >€3 million €1 million–€3 million <€1 million 3,319,536 *This country/jurisdiction applies no taxes on a family business transfer on retirement

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This ﬁgure shows an overview of tax levied across the 65 countries, regions and jurisdictions surveyed on a family business transfer on retirement of EUR10 million, excluding any available exemptions and reliefs.

US — High tax US — Low tax Mexico Venezuela Canada Brazil Americas Barbados Uruguay Colombia Argentina Cayman Islands Spain France Netherlands South Africa Ireland Israel Germany Jordan UK Finland Portugal Greece Turkey Cyprus Malta Belgium Congo Luxembourg Morocco Monaco Gibraltar Austria EMA Pakistan Croatia Czech Republic Guernsey Hungary India Isle of Man Italy Jersey Kuwait Nigeria Norway Oman Poland Romania Russia Saudi Arabia Slovakia Sweden Switzerland Tunisia United Arab Emirates Japan Australia Taiwan Thailand Vietnam Philippines ASPAC Singapore >€3 million Hong Kong (SAR) China €1 million–€3 million Indonesia <€1 million New Zealand Country/region/ 0 2,000,000 4,000,000 6,000,000 Tax due in euros jurisdiction Source: Global Family Business Tax Monitor, KPMG, 2018

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This ﬁgure shows an overview of the ﬁnal tax result across the 65 countries, regions and jurisdictions on the same retirement transfer after available exemptions and reliefs are applied.

Venezuela Canada Brazil Barbados Uruguay Americas US — High tax US — Low tax Colombia Mexico Argentina Cayman Islands South Africa Jordan Greece Turkey Malta France Ireland Finland Congo Netherlands Luxembourg Morocco Monaco Spain Gibraltar Austria Israel Germany UK Portugal Cyprus Belgium EMA Pakistan Croatia Czech Republic Guernsey Hungary India Isle of Man Italy Jersey Kuwait Nigeria Norway Oman Poland Romania Russia Saudi Arabia Slovakia Sweden Switzerland Tunisia United Arab Emirates Australia Japan Taiwan Thailand Vietnam Philippines ASPAC Singapore >€3 million Hong Kong (SAR) China €1 million–€3 million Indonesia <€1 million New Zealand Country/region/ 0 500,000 1,500,000 2,500,000 3,500,000 Tax due in euros jurisdiction

Source: Global Family Business Tax Monitor, KPMG, 2018

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The types of taxes applied across the countries, regions and jurisdictions vary greatly. In addition to inheritance and gift taxes, respondents also identified these taxes arising on transfers Western economies tend to impose during lifetime and following death: higher taxes on family business Personal income tax transfers during lifetime and through inheritance than emerging economies Real estate transfer tax (e.g. Indonesia and Colombia), but the Capital transfer tax availability of generous exemptions in Wealth tax these economies tends to put levels of taxation more at par. As discussed Stamp duty and transfer taxes earlier, this depends on exemption Capital gains tax conditions being met — if not, the tax Estate tax bill is generally higher.

The exemptions offered by Western economies can require complex upfront structuring and compliance with certain rules, reinforcing the need for advice to maximize the exemptions’ potential benefits. These conditions may set requirements for holding the shares for an amount of time before the transfer and for continuing the business for an amount of time after the transfer.

Countries and jurisdictions that do not levy any specific inheritance, gift tax or other charges at the national level include: Argentina Oman Cayman Islands New Zealand China Nigeria Guernsey Russia Isle of Man Saudi Arabia Indonesia Slovakia Kuwait United Arab Emirates

Countries and jurisdictions that do not levy any specific inheritance or gift tax at the national level but may impose other charges (e.g. stamp The highest taxes on inheritance taxes, capital gains tax) include: (before application of exemptions) Australia Norway in this report are imposed by: Austria Pakistan US (high and low tax states) Barbados Portugal Australia Canada Singapore France Cyprus Tunisia UK Hong Kong Malta

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. After any exemptions, the highest taxes on inheritance in this report are imposed by: South Africa Japan Canada Venezuela

The analysis looks at the case study The highest taxes on lifetime gifts (before results at a high level. Details of a application of exemptions) in this report country and region’s rules may change are imposed by: the results in specific situations — Japan France sometimes dramatically — so each country and region’s exemptions and Australia Spain requirements should be examined in detail. For example: Colombia offers no exemptions After any exemptions, the highest on lifetime transfers or transfers taxes on lifetime gifts in this report are on death, but the amount of tax imposed by: cost may be misleading. Income South Africa Australia tax applies at 10 percent to family business transfers, but the tax is Venezuela Canada applied to the base cost of share capital transferred and not the value of the business itself, which is typically significantly higher. Germany offers a generous exemption for family transfers of business In many countries, the after-tax outcome of assets, but no exemption is allowed transfers during lifetime and on death is similar, for transfers worth more than but in some countries, the taxes on one type EUR90 million, as discussed earlier in of transfer can be materially higher than the this report. other. These differences can significantly affect an owner’s decision on when to transfer the Canada allows a lifetime capital gains family business. In the UK, Ireland and US, for exemption on shares of some qualifying example, there is an automatic uplift in the base active businesses. For 2018, the cost of assets on death. The inheritor is treated exemption can be used to shelter up to as though they had acquired the asset at its CAD848,000 in capital gains. But the market value on the date of death. This benefit results do not demonstrate how careful is not factored into this report but may produce planning can change the picture. Since positive outcome for families. the lifetime national gain exemption applies per person, its benefits can be multiplied by using the exemption to shelter the gains of two, three or even more individuals. Multiplying the exemption must be done with professional advice, however; among other things, ownership of the shares must actually transfer, which might not be a viable choice, depending on the family member.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Tables 1 and 2 compare the tax implications on inheritance and retirement (after exemptions) for countries, regions and jurisdictions with significantly higher taxes on inheritance transfers (table 1) and retirement transfers (table 2).

Comparing the tax implications on inheritance and retirement after exemptions

Table 1: Countries with higher taxes on inheritance transfers

Inheritance Retirement after Inheritance after Difference exemptions exemptions

USA — €192,262 €1,062,514 €870,252 High tax

France €421,197 €842,394 €421,197

USA — €192,262 €521,460 €329,198 Low tax

Belgium — €300,000 €300,000

Mexico — €200,000 €200,000

Japan €1,494,166 €1,693,119 €198,953

Jersey — €74,738 €74,738

Norway — €36,974 €36,974

Finland €312,100 €339,700 €27,600

With a full exemption for transfers on death and only a partial exemption for lifetime transfers, Australia offers one example of a system that clearly favors succession on death. The prohibitive tax cost of lifetime transfers emerged as one of the most important issues raised following a 2012 Senate investigation into family businesses in Australia.11 To date, however, the government has not addressed the imbalance, and succession planning in Australia remains geared toward inheritance for major assets.”

William Noye Partner, KPMG Enterprise Australia

11 Parliamentary Joint Committee on Corporations and Financial Services, Family Businesses in Australia: different and significant: why they shouldn’t be overlooked, March 2013.

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Retirement Retirement after Inheritance after Difference exemptions exemptions

Australia €2,257,899 — €2,257,899

Jordan €1,994,317 — €1,994,317

Venezuela €2,767,437 €1,272,808 €1,494,629

Turkey €710,161 €454,748 €255,413

Barbados €349,265 — €349,265

Uruguay €240,000 — €240,000

Luxembourg €180,000 — €180,000

Taiwan €882,919 €723,366 €159,554*

Morocco €150,000 — €150,000

Gibraltar €103,015 — €103,015

Thailand €474,257 €371,283 €102,974

Ireland €326,710 €227,700 €99,010

South Africa €3,319,536 €3,250,584 €68,952

Philippines €59,750 €44,979 €14,771

Singapore €10,000 — €10,000

*Calculation may differ due to rounding

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US business families should consider making transfers of wealth during life in order to help minimize their transfer tax liability at death. Doing so may keep future appreciation from being subject to transfer tax. And if transfers are made in the near term, families may be able to take advantage of the temporarily enhanced gift and generation- skipping transfer tax exemptions that are currently available through 2025. For 2018, this exemption amount is USD11,180,000 for an individual or USD22,360,000 for a married couple.”

William Jackson Partner, KPMG Private Markets Group in the US

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. In gathering insights from KPMG Enterprise advisers and KPMG International member firms worldwide, five developments emerged that are likely to have a profound influence on business families around the world as they develop and review their succession plans:

1 3 Millennials5 US tax reform Governments are have will have high addressing the different impact for informal economy. aspirations (at least) the and values. short term. 2 4 Brexit’s Business impact is owners uncertain. are living longer.

1. US tax reform will have continues to be a wide discrepancy between high-tax states such as high impact for (at least) Minnesota, which impose their own the short term. inheritance and/or estate taxes, and low-tax states such as Maine, where For business families in the only federal taxes on death apply. The United States, the recent tax reforms high-tax states tend to impose higher have dramatically improved the tax relief taxes on their residents in general, available on family business transfers. however, and reductions in taxes on The lifetime exemption amount has death in the near term are unlikely in increased to USD11.18 million (for 2018; view of current budget restraints. indexed for inflation), allowing owners to transfer more assets tax-free on death Family businesses in Canada may also or through lifetime gifts. feel the impact. Family businesses already suffer one of the highest tax The increased tax benefits are in burdens on family business succession effect for tax years beginning after globally. In announcing its 2018 federal 31 December 2017, but they will sunset budget, Canada’s government said after 31 December 2025. After that, the it will analyze the US tax reforms in continued availability of these benefits is detail to assess any potential impacts uncertain, as these and other aspects of on Canada.12 The statement is broadly US tax reforms will expire unless further worded, however, and it remains to be legislation is enacted to extend them. seen whether this review will ultimately The US federal changes do not affect result in Canadian reforms to level the taxes at the state level. For transfers playing field. on death, the case studies show there

12 Department of Finance Canada, Equality + Growth: A Strong Middle Class (27 February 2018) at page 296.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 2. Br exit’s impact is 3. Governments are uncertain addressing the As the UK and the European Union informal economy. In the post-Brexit world, (EU) are still working out how Brexit In many countries, such as Colombia will unfold, the implications for family it will be more important and Nigeria, the shadow economy businesses in the UK are unknown. The than ever for the UK is widespread and many businesses, biggest impacts are expected for family including family businesses, operate government to encourage businesses that employ EU nationals outside of formal business structures. in key roles and for businesses that family enterprises and The size of the informal economy conduct trade with the EU. UK-based creates fiscal pressure, often causing entrepreneurialism. This family businesses should think through legitimate businesses to shoulder potential talent management issues means setting policies to higher tax burdens. drive business success that could arise due to changes in the immigration status of employees. Apart from multinationals in the country, and wealth creation and Family businesses should also review Nigeria’s corporate sector is primarily establishing conditions the terms of any commercial contracts controlled by family businesses, many with parties in the EU and make of them operating informally. The formal that attract businesses, contingency plans to minimize any books and records, bank accounts entrepreneurs and people business disruption once Brexit’s final and governance may hamper their to the UK.” terms are known. profitability and prospects for growth. Post-Brexit, certain reliefs currently Colombia took steps to bring informal available under, for example, Belgian tax businesses into the legal economy law for family business transfers within with its 2016 tax reform, offering tax Greg Limb the EU or European Economic Area, relief and social security benefits to Head, International may not be available on transfers to UK those registering for tax identification. Private Wealth recipients. However, stronger action may KPMG Enterprise in still be needed to bring shadow the UK economy businesses onside: more compelling incentives, more technical and technological resources for tax administration and more enforcement.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Mexico has taken an interesting approach to encouraging tax compliance among family businesses. While inheritance tax is due for transfers upon death and lifetime transfers respectively, the transfer is fully exempt where it is declared to the authorities and where the recipient fully complies in declaring their other income.”

Celin Zorrilla Partner, KPMG in Mexico

Tax evasion and elusion constitutes a serious problem, which might be caused by administrative burdens and high tax rates; this burden could demotivate family businesses participating in the legal economy. In order to attenuate this situation, more efficient and simplified rules as well as established tax structures should be introduced.”

Jesus Canal Head of Family Business, KPMG in Colombia

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Governments have a role To encourage family businesses business until a later age and require and others to move into the formal living expenses over longer timespans. to play in creating tax economy — and potentially raise Ireland has made recent tax retirement policies that encourage much needed revenue — Nigeria’s tax relief changes to incentivize lifetime the orderly transfer of authority, like many other jurisdictions, transfers between the ages of 55 and 65. recently ran a tax amnesty program. For the next generation, however, gaining business assets during For a 9-month period, Nigerian family control over the business can be delayed. businesses and other taxpayers could lifetime, rather than on The next generation may feel much come forward to declare previously differently about taking the reins of the death. One option to take unreported assets and income without family business at age 60 (which may be penalty or prosecution.13 Now that this a step further could their current option) rather than around the amnesty has ended, the Nigerian be to create incentives for age 45, changing their career aspirations tax authority is expected to step up and desire to stay with the business as a legacy family businesses enforcement for businesses and other result. To maintain their engagement, the taxpayers that continue to flout the law.14 to use their capital in next generation need to have meaningful starting new businesses. Families wishing to move their business roles, be rewarded and feel valued. This into the formal economy should take can be done, for example, by training If governments see action now and seek professional advice and gradually transferring operational the advantages of on their options for coming forward. management responsibilities to the next providing tax relief for a generation, while the older generation 4. Business o wners are moves into a less hands-on and more longstanding business, living longer ambassadorial role. why wouldn’t they Increasing longevity has the potential Dealing with these new challenges extend similar breaks to to disrupt business succession plans, requires careful planning on how the sale of one business as owners seek to remain active in the assets and control of the business can for the purposes of starting another with the reinvested proceeds?”

Beverly Johnson Partner, KPMG Enterprise in Canada

13 “Nigeria to Target Tax Defaulters in Bid to Spur Economy,” Bloomberg, 26 January 2018. 14 See note 13.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. be passed to the next generation in a tend to think more globally, their values Opening the business to timely fashion while ensuring the current appear to be more socially conscious, generation has enough resources to fund and their goals tend to be more investors and partners can longer retirements. Alternative strategies philanthropic.15 As with all generational improve the business with may encourage diversification, resulting shifts, rather than accepting a traditional new ideas, approaches in the next generation branching into role in the family business, millennials new ventures. These approaches can may have other ideas. For example, they and technologies. Rather add to the family’s wealth while the may wish to take the family business in than viewing this as giving current generation continues running different, socially responsible directions. the family business operations. Such Alternatively, they may want to cash up part of the business, ‘intrapreneurial’ strategies can be done in the value in the family business and families can approach by separating some of the wealth from redeploy it in new ventures or divert it to this as an opportunity to the business in order to invest in a new benevolent causes. venture, while ensuring the wealth of the realize business growth, If the next generation is not interested in original business will continue to grow. running the business, business families thereby baking a bigger 5. Millennials have may try to bring in partners or sell the ‘cake’ for the family and its business, while retaining a portion of different aspirations the shares. Otherwise, the business will partners.” and values likely wind down. Millennials are altering the picture of family business succession. Compared to previous generations, millennials may Tayo Ogungbenro Partner, KPMG in Nigeria

15 See, for example, “Meet the millennials running Asia’s family businesses,” CNBC, 29 June 2017; “Millennials and the Family Business: When New Values Meet Old,” Legacy Counsel (not dated); and “Millennials in the workforce: Do family businesses need to worry?,” grbj.com, 2 March 2018.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. For business families, some succession Conduct regular health checks issues are specific to distinct regions or Review business arrangements and cultures. For example, China’s one child holdings to ensure all conditions receiving policy has limited the succession options concessions will be met. As conditions of family businesses in the country, often change — in family relationships, especially where the child wants to business environments and tax pursue other options.16 Family businesses legislation — review your succession plan can face the opposite problem in regularly and update it accordingly. countries like Nigeria, where polygamy Monitor the value of assets is a common practice and competition Monitor the values of the company’s among heirs can often become intense.17 business versus passive assets and But wherever you are located, KPMG restructure holdings if needed to preserve Enterprise family business advisers have access to exemptions or other tax identified some common planning points preferences. Consider steps to compress that all business families should consider. the value of the assets that will comprise the family business transfer, for example, Start early through planning and gifting to children, Whether it makes sense to transfer the so taxes on the transfer will be calculated business during lifetime or on death, the based on lower values. earlier the planning starts, the smoother the transition will ultimately be. This Review the terms of wills includes involving the next generation Where relevant, ensure that wills and early as well as ensuring that the other testamentary documents are succession goals of everyone involved drafted. Be sure the terms of the owner are understood and agreed. and other family members are drafted to adequately implement the succession Seek professional advice plan and provide flexibility for heirs. Family business succession is highly complex, and missteps can be costly. Consider family trusts and similar A professional adviser can help you vehicles understand the exemptions and other Family trusts, foundations and/or similar tax reliefs that will be available on the entities are popular business succession transfer. Many of these benefits are not vehicles in many countries, regions and automatic, and a professional adviser can jurisdictions. In many cases, trusts can help you make the arrangements needed be used to transition equity ownership to meet complex conditions and comply and effective control to the next with the rules — to ensure tax benefits generation during the owner’s lifetime. on the transfer are optimized. Although there can be a one-time tax charge on transferring assets into the Communication trust, the equity can be passed to the When planning for the transfer of a family next generation tax-efficiently, while business, regular, open communication future growth accrues in the trust. between the generations involved helps ensure that the visions and expectations The final analysis of each family member are aligned. In the final analysis, whatever decisions Develop a governance structure your business family makes, tax should Clarify and confirm your family’s not necessarily be the deciding factor. objectives from a legal viewpoint Succession plans should be aligned and establish succession plans and with the family’s values and purpose. ownership structures that facilitate A sound business rationale should meeting those goals. Establish a underpin all decisions about the family structure for governance that will guide business’s future. Early and informed and safeguard the family business’s planning is the best way to ensure your operations during and after the transfer. business and your family will prosper for generations to come.

16 “One-child policy and family firms in China,”Journal of Corporate Finance, January 2015. 17 “Family Owned Business (FOB) Succession and Sustainability: Evaluation of some Selected Theories Applicable to FOB Succession Research in Nigeria,” Prudent Research Journal of Business and Management Economics, March 2017.

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Argentina Brazil Channel Islands Rodolfo Canese Méndez Valter Shimidu John Riva Partner, Partner, Partner, KPMG in Argentina KPMG in Brazil KPMG in the Channel Islands T: +54 11 4316 5869 T: +55 11 3940 3269 T: +44 0 1534 608401 E: [email protected] E: [email protected] E: [email protected]

Australia Marcus Vinicius Jason Laity Partner, Partner, William Noye KPMG in Brazil KPMG in the Channel Islands Partner, T: +55 11 3940 3126 T: +44 0 1534 608427 KPMG Enterprise Australia E: [email protected] E: [email protected] T: +61 7 3233 3253 E: [email protected] Canada Paul Beale Senior Manager, Nathan Fenner Beverly Johnson KPMG in the Channel Islands Partner, Partner, T: +44 0 1481 755798 KPMG Enterprise Australia National Leader Family Business E: [email protected] T: +61 7 3233 9437 KPMG Enterprise in Canada E: [email protected] T: +1 306 934 6223 China E: [email protected] Austria Karmen Yeung Dino Infanti Partner, Eugen Strimitzer National Leader Enterprise Tax, KPMG China Partner, KPMG Enterprise in Canada T: +852 2143 8753 KPMG in Austria T: +1 604 673 4437 E: [email protected] T: +43 2236 24540 4250 E: [email protected] E: [email protected] Colombia Cayman Islands Barbados Jesus Canal Jama Johnston Head of Family Business and Louisa Lewis-Ward Senior Manager, Enterprise Partner, KPMG in the Cayman Islands KPMG in Colombia KPMG in Barbados T: +1 345 815 2658 T: +57 1 6188000 T: +1 246 434 3941 E: [email protected] E: [email protected] E: [email protected] Yuri Williams Maria Consuelo Torres Belgium Director, Partner, KPMG in the Cayman Islands KPMG in Colombia Patrick de Schutter T: +1 345 914 4446 T: +57 1 6188000 Partner, E: [email protected] E: [email protected] KPMG in Belgium T: +32 2 708 49 28 E: [email protected]

Tom Zwaenepoel Partner, KPMG in Belgium T: +32 2 708 38 61 E: [email protected]

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Croatia Finland Hong Kong (SAR) Goran Horvat Kirsi Adamsson Karmen Yeung Partner, Partner, Partner, KPMG in Croatia KPMG in Finland KPMG China T: +385 1 5390 146 T: +358 20 760 30 60 T: +852 2143 8753 E: [email protected] E: [email protected] E: [email protected]

Maja Maksimovic France Murray Sarelius Director, Partner, KPMG in Croatia Delphine Cabon KPMG China T: +385 1 5390 147 Director, T: +852 3927 5671 E: [email protected] KPMG in France E: [email protected] T: +33 1 55 68 90 65 Cyprus E: [email protected] Hungary George Markides Germany Gabor Beer Board Member, Partner, KPMG in Cyprus Kay Kloepping KPMG in Hungary T: +357 22 209000 Partner, T: +36 1 887 7329 E: [email protected] KPMG Enterprise in Germany E: [email protected] T: +49 521 1475 7505 Costas Markides E: [email protected] India Board Member, KPMG in Cyprus Dr. Vera‑Carina Elter Kirti Shah T: +357 22 209000 Head of Family Business, Executive Director, E: [email protected] KPMG Enterprise in Germany KPMG in India T: +49 21 1475 7505 T: +91 223 0901717 Czech Republic E: [email protected] E: [email protected] Ladislav Malusek Gibraltar Indonesia Partner, KPMG in Czech Republic Darren Anton Abraham Pierre T: +42 022 212 3521 Director, Partner, E: [email protected] KPMG in Gibraltar KPMG in Indonesia T: + 350 200 48600 T: +62 21 570 4888 Democratic Republic E: [email protected] E: [email protected] of the Congo Greece Jacob Zwaan Louison Kiyombo Partner, Angela Iliadis Partner, KPMG in Indonesia Partner, KPMG in the Democratic T: +62 21 570 4888 KPMG in Greece Republic of Congo E: [email protected] T: +30 210 60 62 116 T: +243 99 00 100 20 E: [email protected] E: [email protected] Aneza Stavrou Senior Manager, KPMG in Greece T: +30 210 60 62 393 E: [email protected]

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Ireland Italy Kuwait Tim Lynch Silvia Rimoldi Zubair Patel Partner, Partner, Partner, KPMG Enterprise in Ireland KPMG in Italy KPMG in Kuwait T: +353 1 700 4032 T: +39 011 8395144 T: +965 22287531 E: [email protected] E: [email protected] E: [email protected]

Jacinta Shinnick Alessandra Tronconi Naveen Bohra Director, Partner, Senior Manager, KPMG Enterprise in Ireland KPMG in Italy KPMG in Kuwait T: +353 1 700 4164 T: +39 051 4392725 T: +965 22287546 E: [email protected] E: [email protected] E: [email protected]

Isle of Man Japan Luxembourg Gregory Jones Tatsuya Endoh Louis Thomas Partner, Partner, Partner, KPMG in Isle of Man KPMG in Japan KPMG in Luxembourg T: +44 162 468 1045 T: +81 36 2298120 T: +352 22 51 51 5527 E: [email protected] E: [email protected] E: [email protected]

Israel Masanori Moroi Frederic Scholtus Senior Manager, Associate Partner, Jonathan Lavender KPMG in Japan KPMG in Luxembourg Co-chair, T: +81 36 2298033 T: +352 22 51 51 5333 KPMG Enterprise Family Business & E: [email protected] E: [email protected] Global Chairman, KPMG Enterprise Jordan Malta T: +972 3 684 8716 Anthony Pace E: [email protected] Khaled Tuffaha Partner, Director, KPMG in Malta Yaniv Yesharim KPMG in Jordan T: +356 2563 1137 Partner, T: +962 6 5650700 E: [email protected] KPMG Enterprise in Israel E: [email protected] T: + 972 3 6848846 E: [email protected] Amin Husein Mexico Head of Tax and Legal, Tax, Celin Zorilla Tal Lazar KPMG in Jordan Partner, Manager, T: +962 6 5650700 KPMG in Mexico KPMG Enterprise in Israel E: [email protected] T: +5 255 5246 8300 T: + 972 3 6848841 E: [email protected] E: [email protected] Octavio Rabago Partner, KPMG in Mexico T: +5 244 9300 5205 E: [email protected]

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Monaco New Zealand Pakistan Stéphane Garino Jane Fletcher Kamran Iqbal Butt Partner, Director, Partner, KPMG in Monaco KPMG Enterprise in New Zealand KPMG in Pakistan T: +377 97 77 77 00 T: +64 481 64702 T: +92 300 841 4200 E: [email protected] E: [email protected] E: [email protected] Bettina Ragazzoni Gavin Holley Muhammad Atiq Ur Rehman Partner, Partner, Director, KPMG in Monaco KPMG Enterprise in New Zealand KPMG in Pakistan T: +377 97 77 77 14 T: +64 481 64705 T: +92 332 439 9975 E: [email protected] E: [email protected] E: [email protected] Morocco Nigeria Philippines Fessal Kohen Partner, Tayo Ogungbenro Emmanuel P. Bonoan KPMG in Morocco Partner, Vice Chairman and T: +212 537 633 702 KPMG in Nigeria Chief Operating Officer, E: [email protected] T: +234 1 271 8941 KPMG in the Philippines E: [email protected] T: +6 32 885 7000 x 8200 Aziz El Khattabi E: [email protected] Partner, Wole Obayomi KPMG in Morocco Partner, Jerome H. Garcia T: +212 537 633 702 KPMG in Nigeria Principal, E: [email protected] T: +234 1 271 8932 KPMG in the Philippines E: [email protected] T: +6 32 885 7000 x 8208 Netherlands E: [email protected] Norway Olaf Leurs Head of KPMG Enterprise Tonje Christin Norrvall Poland EMA & Family Business, Meijburg & Co Partner, Andrzej Bernatek KPMG in the Netherlands KPMG in Norway Partner, T: +31 88 909 3414 T: +47 40 63 92 23 KPMG in Poland E: [email protected] E: [email protected] T: +48 225 28 11 96 E: [email protected] Maarten Merkus Oman Partner, Meijburg & Co KPMG in the Netherlands Ashok Hariharan Portugal Partner, T: +31 88 909 1337 Hugo Carvalho E: [email protected] KPMG in Oman T: +968 2474 9231 Partner, E: [email protected] KPMG in Portugal T: +351 2 2010 2306 Meenakshi Sundaram E: [email protected] Director, KPMG in Oman Sandra Aguiar T: +968 2474 9215 Director, E: [email protected] KPMG in Portugal T: +351 2 1011 0026 E: [email protected]

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Romania Slovakia Taiwan

René Schöb Zuzana Blazejova Pederson C.C. Chen Partner, Executive Director, Head of Family Office, KPMG in Romania KPMG in Slovakia KPMG in Taiwan T: +40 372 377800 T: +421 259 984331 T: +886281016666 x 01962 E: [email protected] E: [email protected] E: [email protected]

Russia South Africa Sherry Chang Partner, Donat Podnyek Creagh Sudding KPMG in Taiwan Partner, Associate Director, T: +886281016666 x 04590 KPMG in Russia KPMG Enterprise in South Africa E: [email protected] T: +7 495 937 44 44 x14214 T: +27 82 719 1995 E: [email protected] E: [email protected] Thailand

Saudi Arabia Spain Sukit Vongthavaravat Partner, Qamar Uz Zaman Xavier Aixela Marti KPMG in Thailand Senior Manager, Senior Manager, T: +66 2 677 2000 KPMG in Saudi Arabia KPMG in Spain E: [email protected] T: +966 12 698 9595 T: +34 932 542 750 E: [email protected] E: [email protected] Benjamas Kullakattimas Head of Tax & Legal, Kashif Jahangiri Sweden KPMG in Thailand Partner, Marten Sundholm T: +66 2 677 2000 KPMG in Saudi Arabia Partner, E: [email protected] T: +966 12 698 9595 KPMG in Sweden E: [email protected] T: +46 8 723 9696 Tunisia E: [email protected] Singapore Dhia Bouzayen Partner, Jonathan Ho Switzerland KPMG in Tunisia Head of Enterprise, Frank Lampert T: +216 71 194 344 KPMG in Singapore Partner, E: [email protected] T: +65 6411 8336 KPMG in Switzerland E: [email protected] T: +41 58 249 49 84 E: [email protected] Alan Lau Partner, Michael Müller KPMG in Singapore Director, T: +65 6213 2027 KPMG in Switzerland E: [email protected] T: +41 58 249 49 66 E: [email protected]

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Tu rke y United States Vietnam Abdulkadir Kahraman William Jackson Jane Bermejo Head of Tax, Partner, Associate Director, KPMG in Turkey KPMG in the US KPMG in Vietnam T: +902 12 31 66000 T: +1 214 840 6040 T: +84 283 821 9266 E: [email protected] E: [email protected] E: [email protected]

Murat Kılıç Tracy Thomas Stone Minh Tam Nguyen Senior Manager, Principal, Washington National Tax Associate Director, KPMG in Turkey KPMG in the US KPMG in Vietnam T: +902 12 31 66000 T: +1 202 533 4186 T: +84 283 821 9266, ext. 8721 E: [email protected] E: [email protected] E: [email protected]

United Arab Emirates Uruguay Sean Bailey Gustavo Melgendler Partner, Partner, KPMG in the United Arab Emirates KPMG in Uruguay T: +97 14 356 9898 T: +5982 902 4546 E: [email protected] E: [email protected]

Ravi Shingari Luis Aisenberg Partner, Director, KPMG in the United Arab Emirates KPMG in Uruguay T: +97 14 424 8948 T: +5982 902 4546 E: [email protected] E: [email protected]

United Kingdom Venezuela Greg Limb Marlene Casciano Head, International Private Wealth Partner, KPMG Enterprise in the UK KPMG in Venezuela T: +44 20 7694 5401 T: +58 212 277 79 70 E: [email protected] E: [email protected]

Tom McGinness Carlos Adrianza Co-chair KPMG Enterprise Head of Tax, Family Business KPMG in Venezuela Partner, T: +58 212 277 79 59 KPMG Enterprise in the UK E: [email protected] T: +44 20 7694 5453 E: [email protected]

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Argentina Barbados

No tax applicable in most provinces Minimal tax due — There is no inheritance or gift tax in Argentina, except in — Barbados has no inheritance tax or gift tax. the province of Buenos Aires. — Stamp duty is payable on the value of property transferred — If inheritance tax and gift tax rates vary by province and through lifetime gifts and on death. exemption thresholds apply. — Property transfer tax is payable on lifetime transfers; transfers via testamentary disposition are exempt. Australia Belgium Full exemption on death; partial exemption on lifetime transfers Reduced tax rates and partial exemptions available on — No inheritance, gift, or estate taxes are imposed. inheritance; full exemption available on lifetime transfers — Transfer of an asset through inheritance on death is — New inheritance legislation with effect from generally exempted from income tax; however, income 1 September 2018 may affect the succession of family tax may be imposed where the asset passes on death to a businesses. tax exempt entity or a person/entity that is not a resident — Inheritance tax and gift tax rates depend on whether the of Australia for income tax purposes. donor/deceased is domiciled in Flemish, Walloon or Brussels — Lifetime gifts are subject to income tax. A partial region. Our comments and analysis cover the Flemish region. exemption is generally available in respect of non- — A lifetime gift of shares in a family business is exempt depreciating capital assets provided that the donor held from gift tax, regardless of the recipient. the asset for at least 12 months before the gift. — On death, transfers of family-owned business shares to — State-based stamp duties/transfer duties generally do children, spouses or co-habitors benefit from a reduced not apply to asset transfers through inheritance. Lifetime inheritance tax rate of 3 percent (compared to 7 percent for transfers of some asset classes are subject to state-based transfers to non-family members). The inheritance tax rates stamp duty/transfer duty. for family business transfers are lower than the rates for other asset transfers. Austria — To qualify for the family business rates, the donor/deceased and their family must fully own more than 50 percent of the Minimal tax due shares (30 percent in some cases) when the transfer occurs. — Inheritance tax and gift tax were abolished in 2008. — Additionally, the company must carry on an industrial, artisanal or agricultural activity, perform a real economic activity, have — Lifetime gifts are subject to a reporting requirement (with its place of effective management in the European Economic exemptions for gifts to any individual with a cumulative Area, and continue to meet these requirements (and not fair market value of EUR15,000 over 5 years and to close decrease its capital) for 3 years after the transfer. relatives up to a fair market value of EUR50,000 per year). — Real estate transfer tax (RETT) applies to lifetime gifts Brazil and transfers on death of directly held land and, in certain cases, shares in a company holding land. — As of 1 January 2016, RETT is chargeable on the fair No exemptions available market value of such transfers, with transfers between — Lifetime transfers and transfers on death are taxed under close relatives benefiting from gradually increasing rates state law, rather than federal law. Our comments and of up to 3.5 percent. analysis cover the state of Sao Pãulo. — Inheritance tax and gift tax are charged respectively to transfers on death and during lifetime. — If the asset has increased in value since the date of gift/ transfer on death, capital gains tax is due on the increase in value. 42 | Global family business tax monitor

Partial exemptions available No tax applicable — Canada does not impose inheritance tax or gift tax. — Croatia imposes inheritance and gift tax on transfers by — Canada taxes the ‘deemed gain’ that accrues from individuals or legal entities of cash, shares in a joint stock the time of acquisition until the property is gifted or company or movables (where the market value exceeds transferred on death. HRK50,000) and that property is inherited, received as a gift, otherwise received or transferred without consideration. — A lifetime enhanced capital gains exemption of CAD848,000 (indexed for inflation) is available for — Exemptions are available for immediate relatives in vertical dispositions and deemed dispositions of qualified small line (e.g. spouses and children). business corporation shares. — Croatia does not impose inheritance and gift tax on shares — To qualify for this exemption, there are two tests that must in a limited company. be met: i) at the date of the transaction more than 90 percent of Cyprus the fair market value of the company’s assets must be used in an active business or trade Full exemptions available ii) for the 24 months prior to the transaction, more than — Cyprus has no inheritance or gift tax. 50 percent of the company’s assets must have been used in an active business or trade. — Capital gains tax at 20 percent is imposed on the seller on sales of immovable property and sales of private company Cayman Islands shares involving immovable property located in Cyprus. — Gifts of Cyprus-located immovable property from parents to their children are exempt from capital gains tax. No tax applicable — The Cayman Islands have no inheritance or gift tax. Czech Republic — No other tax applies in this scenario. Full exemptions available China — The Czech Republic abolished its inheritance tax and gift tax in 2014. No tax applicable — Lifetime gifts and gifts on death are treated as income and — China has no inheritance or gift tax. subject to income tax. — No other tax applies in this scenario. — Gifts on death are income tax-exempt, regardless of the recipient. Colombia — Lifetime gifts are subject to income tax at 15 percent but exempt for close relatives. Partial exemptions available Democratic Republic of — Income tax applies on transfers on death at the rate of the Congo 10 percent of the base cost of the share capital, with adjustments to the shares’ acquisition value as allowed by statute (e.g. accounting for inflation adjustment). Minimal tax due — Income tax applies on gifts at the rate of 10 percent of — The Democratic Republic of the Congo has no inheritance the base cost of the share capital, also with any allowable tax or gift tax. adjustments. — Real estate transfer tax applies to lifetime transfers and transfers on death.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Finland — Small businesses can apply simplified exemption rules. — For large business transfers, the exemption is reduced on a straight-line basis for transfer values between EUR26 million Partial exemptions available for lifetime transfers and and EUR90 million, and eliminated for transfers valued transfers on death over EUR90 million. Optionally, the tax due is reduced to — Inheritance tax and gift tax apply, with exemptions. 50 percent of the ‘available wealth’ of the successor/donee, — Inheritance or gift tax rates depend on the value of the defined as all wealth except ‘exempted business assets’. estate/gift and the closeness of the relationship between — If no exemption applies, transfers on death and lifetime the deceased/donor and the beneficiary/donee. transfers between parents and children are subject to — Inheritance tax and gift tax rates are progressive. For gift tax and inheritance tax at graduated rates of up to inheritance tax, a maximum rate of 19 percent applies for 30 percent, depending on the value transferred. transfers to near relatives with values exceeding EUR1 million. For gift tax, a maximum rate of 17 percent applies for transfers Gibraltar to near relatives with values exceeding EUR1 million.

— The exemptions are only available where the company’s Minimal tax due profits are taxed in Finland as business income and the recipient is a director of the business. — Gibraltar does not impose inheritance tax or gift tax. — Where the exemptions do not apply, the transfer is subject to — Lifetime gifts of real estate are subject to stamp duty. gift tax or inheritance tax on its full market value (calculated according to the methods of the Finnish tax authorities). Greece

France No exemptions but reduced tax rates and tax-free bracket available Partial exemptions available — Inheritance tax and gift tax are charged respectively to — Inheritance tax and gift tax apply to transfers on death and transfers on death and during lifetime. lifetime transfers respectively. — Tax rates for both inheritance tax and gift tax depend on — A 75 percent exemption is allowed for transfers on death and the proximity of the relationship between the deceased/ lifetime transfers of business shares and business assets donor and the beneficiary/donee and the value of the (regardless of the donor and recipient), as long as the shares estate/gift received. (20 percent of shares or 34 percent if non-listed company) — There is a small tax-free bracket for ‘first degree’ relatives were held for 2 years before the transfer (an agreement (i.e. spouses, co-habitors, children, grandchildren and mentioning engagement to securities conservation must be parents) and the tax rates for this class of beneficiaries/ signed) and continue to be held for 4 years after the transfer. donees are reduced as compared to more distant relatives — At least one beneficiary or another shareholder who signed and non-related parties. the agreement above must run the business for 3 years after — Specific rules govern the calculation of business values for the transfer. transfers on death or lifetime gifts. — For lifetime transfers, donors under age 70 benefit from an — The figures reflect the assumption that none of the lifetime additional 50 percent exemption. donations/inheritance tax relief has been used previously. — If shares in a holding company are transferred, the holding company should be a ‘managing holding company’ Guernsey that actively participates in group strategy, controls its subsidiaries and can provide services to the group. No tax applicable Germany — Guernsey does not impose inheritance tax or gift tax. — No other tax applies in this scenario. Full exemptions available Hong Kong (SAR) — Inheritance tax and gift tax apply to transfers on death and lifetime transfers respectively. — Exemptions of up to 100 percent are allowed for ‘favorable Minimal tax due business assets’, with several exceptions. — Hong Kong does not impose inheritance tax or gift tax. — A 100 percent/85 percent exemption is allowed for — On lifetime gifts of Hong Kong stock, stamp duty may be transfers on death and lifetime transfers of business shares imposed. (regardless of the donor and recipient), subject to conditions.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Hungary — Typically clients seek specific advice to ensure that all opportunities are maximized and all of the conditions of the gift/inheritance tax and capital gains tax reliefs are met. Full exemptions available — Inheritance tax and gift tax apply to transfers on death Isle of Man and lifetime transfers respectively. — Exemptions are allowed for direct descendants. No tax applicable India — The Isle of Man has no inheritance tax or gift tax. — No other tax applies in this scenario.

Full exemption on inheritance; partial exemption on lifetime transfers Israel — Transfers on death are not subject to inheritance tax. No tax on death; full exemption available on lifetime — Wealth tax was repealed as of the financial year transfers 2015–2016. — Israel has no inheritance tax. — India does not impose gift tax on donors if the gift is given to qualifying relatives. However, gifts are taxed as income — No tax will apply on gifts to relatives and in some cases in the hands of other recipients who are not qualifying on gifts to another individual. Both cases exclude foreign relatives if the value of gifts exceed INR50,000. residents. — Stamp duty applies to any instruments of transfer (e.g. immovable property, securities other than Italy transferred in electronic form). Generally, there is no stamp duty exemption on transfers of property among Full exemptions available blood relatives unless specifically exempted by a particular state. — Inheritance tax and gift tax were reintroduced in 2006. — Transfers on death and lifetime gifts of company shares to Indonesia a spouse or direct descendant are exempt, as long as the recipient continues or controls the business for at least 5 years and a declaration is issued in this regard. No tax applicable — In other cases, inheritance tax or gift tax of 4 percent applies — Indonesia has no inheritance tax or gift tax. on the value of the business exceeding EUR1 million. — No other tax applies in this scenario. Inheritance/gift tax rates increase to up to 8 percent where the beneficiary is not a spouse or direct descendant. Ireland — Transfers of real estate are subject to real estate transfer tax at 3 percent unless specific exemptions apply (including the family exemption noted above). Partial exemptions available on lifetime transfers and transfers on death Japan — Inheritance tax and gift tax applies to transfers on death and lifetime transfers. Where the shares qualify for business property relief, 90 percent of the value Partial exemptions available transferred is ignored for gift and inheritance tax. — Inheritance tax and gift tax apply to transfers on death and — The first EUR310,000 (during lifetime or on death) from a lifetime transfers respectively. child’s parents is free of gift and inheritance tax. — In some cases, partial exemptions may be allowed. — Lifetime transfers are also subject to real estate transfer — The value of assets subject to these taxes is determined tax (stamp duty) and capital gains tax. based on evaluations rulings issued by the National Tax — The transferor may be exempt from capital gains tax if the Agency. transfer meets the conditions for retirement relief which include, among others, that transferor be at least age 55. Kuwait To the extent retirement relief does not fully exempt the gain (deemed or actual), the balance is subject to tax at 33 percent. No tax applicable — Where retirement relief does not apply, entrepreneurs’ — Kuwait has no inheritance tax or gift tax. relief may allow a reduced capital gains tax rate of — No other tax applies in this scenario. 10 percent on disposals of qualifying assets. Qualifying gains are subject to a lifetime limit of EUR1 million, with any excess taxed at 33 percent. Global family business tax monitor | 45

Minimal tax due Partial exemptions available — Jersey has no inheritance tax or gift tax. — While inheritance tax and gift tax are due for transfers on — Probate fees are payable on transfers on death. death and lifetime transfers respectively, the transfer is fully exempt where the transfer is declared to the authorities and Jordan the recipient fully complies in declaring their other income. — Certain states impose an additional ‘capital transfer tax’ on lifetime transfers and transfers on death. The figures Full exemptions available on inheritance; limited shown in this analysis assume residence in a state where exemptions available on lifetime gifts this tax applies. — Jordan has no inheritance tax or gift tax. — Capital gains tax is imposed where the recipient of a transfer — Lifetime gifts are subject to income tax on their market on death later sells the shares, with the gain calculated based value. Each individual is allowed an annual exemption at on the deceased’s original acquisition value and date. various levels depending on their marital status, spouse’s income and tax residency. Monaco

Luxembourg Minimal tax due — Inheritance tax and gift tax applies to transfers on death Full exemptions available on inheritance and lifetime transfers respectively. — Inheritance tax on transfers on death and gift tax on — Exemptions from these taxes are allowed for direct lifetime transfers are charged at progressive rates based descendants. on the relationship between donor and recipient, with a — Real estate transferred on death or within lifetime might surcharge based on the value of the transferred assets. be subject to stamp duty of 4.5 percent. — Bequests to direct descendants are free from inheritance tax to the extent that the gift value does not exceed the amount Morocco that would have been received had the estate been intestate. — For lifetime gifts, gift tax rates range from 1.8 percent Partial exemptions available to 2.4 percent for gifts to direct descendants and — Inheritance tax applies to transfers on death and lifetime ascendants. gifts through other taxes and charges (i.e. capital gains and registrations fees). Malta — Lifetime gifts to descendants and ascendants are exempt from inheritance tax. Transfers on death under some Partial exemptions available formalities to right holders (“ayants droits”) is exempt from inheritance tax as long as the business activities of — Malta does not impose inheritance tax or gift tax. the deceased person are continued after his death. — Malta imposes income tax on the donor on a ‘deemed capital — Lifetime gifts to direct descendants and ascendants are gain’ on a lifetime gift but gifts are exempt when made to the subject to a registration fee at 1.5 percent. Transfer on death spouse, direct descendant or ascendant, or their spouse. is subject to registration fees at 1 percent on inventory Where the donor has no descendants, lifetime gifts to established by a Public Notary further to the death. siblings and their descendants qualify for exemption. — Duty on documents and transfers (for transfers made Netherlands during lifetime and on death) is payable by the recipient at 2 percent or 5 percent. The 5 percent rate applies if immoveable property is being transferred (or if the shares Partial exemptions available being transferred are in a company in which 75 percent — Inheritance tax and gift tax exemptions apply to transfers of or more of the assets excluding all current assets other enterprises on death and lifetime transfers respectively. The than immovable property are either immovable property or exemptions only apply to the value of an active business. rights over immovable property). — Business transfers that qualify are 100 percent exempt from — Up to 30 September 2018, a new tax incentive encourages inheritance tax or gift tax on values up to EUR1,071,987 family business transfers to next generation by temporarily and 83 percent exempt on any excess, subject to complex reducing the duty charged on transfers of family business conditions. For example, together with the active business shares to descendants to 1.5 percent. condition, the business must be continued for at least 5 years. — Personal income tax also applies on both lifetime gifts and transfers on death but is deferred to the next generation where the transfer qualifies for the business transfer exemption.

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No tax applicable Full exemptions available — New Zealand has no inheritance tax or gift tax. — Poland imposes both inheritance tax and gift tax. — No other tax applies in this scenario. — Transfers during lifetime and on death to spouses, — On a lifetime gift, issues may arise with imputation credits descendants and ascendants are exempt from inheritance due to a continuity breach. tax or gift tax if declared to the respective tax ofﬁce within 6 months. Nigeria — If the recipient of a lifetime gift takes on the company’s full debt (compared to the standard practice of the donor/ recipient sharing joint and several liability for the No tax applicable company’s debts), a civil law transactions tax of 2 percent — Nigeria has no inheritance tax or gift tax. or 1 percent is generally due on the value of the debt. — No other tax applies in this situation. Portugal Norway Full exemptions available

Partial exemptions available — Portugal abolished inheritance tax and gift tax in 2004. — Norway does not impose inheritance tax or gift tax. — A base stamp duty of 10 percent is charged on transfers on death and free of charge lifetime transfers. For onerous — An annual wealth tax is imposed on the owner of shares transfers or donations of immovable property (including as at 31 December each year, with each resident able such property held by a company), an additional stamp to claim a basic exemption amount. The analysis in this duty charge of 0.8 percent apply on the property’s value. publication includes this tax as a cost arising on transfers on death and lifetime gifts. — Provided the recipients are spouses, descendants and ascendants, transfers on death and free of charge — The analysis uses the wealth tax rate and exemption lifetime transfers are exempt from the base stamp duty. amount for income year 2018. Where the asset transferred is immovable property — The value used to determine the amount of wealth tax (including such property held by a company), the due is the value of the Norwegian private (not listed on the additional stamp duty is imposed on onerous transfers stock exchange) shares as at 1 January (i.e. the start of the and donations. income year). Romania Oman No tax applicable No tax applicable — Romania has no inheritance tax or gift tax. — Oman has no inheritance tax or gift tax. — No other tax applies in this scenario. — No other tax applies in this scenario. Russia Pakistan No tax applicable Minimal tax due — Russia has no inheritance tax or gift tax for transfers on — Pakistan does not impose inheritance tax or gift tax. death and lifetime transfers. — Stamp duty applies on the issued value of the shares. — No other tax applies in this scenario. Philippines Saudi Arabia

Partial exemptions available No tax applicable — Inheritance tax and gift tax apply to transfers on death and — Saudi Arabia has no inheritance tax or gift tax. lifetime transfers respectively. — No other tax applies in this scenario. — Documentary stamp tax also applies to these transfers.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. Singapore — A 95 percent reduction for gift tax and a complete exemption to personal income tax are available where the ‘family business lifetime gift exemption’ conditions are Minimal tax due met. To qualify for the exemption: — Singapore has no inheritance tax, gift tax or wealth tax. — The donor must be over age 65 and no longer work in — Lifetime gifts of shares are subject to 0.2 percent stamp the management of the business duty, calculated based on the higher of the consideration — The business must be exempt from wealth tax (which paid or the net asset value of the shares. includes a minimum shareholding provision) and — Stamp duty does not apply on death. continue to be exempt for 5 to 10 years (depending on the autonomous region) Slovakia — Any acts that might significantly diminish the shares’ value during those 5 to 10 years are prohibited. — Advice should be sought as to whether an autonomous No tax applicable region within Spain has altered these provisions. — Slovakia abolished its inheritance and gift taxes in 2004. — No other tax applies in this scenario. Sweden — Where the gift or transfer is not a true gift but connected to an entrepreneurial or dependent activity of the No tax applicable individuals, the transfer may be reclassified as income and taxed accordingly. — Sweden has no inheritance tax or gift tax. — No other tax applies in this scenario. South Africa Switzerland Partial exemptions available — Transfers on death are subject to estate duty and personal Full exemptions apply income tax (automatic partial exemption applies). — Inheritance tax and gift tax are governed by the respective — Lifetime transfers are subject to donation tax and personal cantons in Switzerland. The majority of the cantons fully income tax (automatic partial exemption applies). exempt lifetime transfers and transfers on death between parents and children. — As of 1 March 2018, donations tax and estate duty tax rates increased from 20 percent to 25 percent for donations/ — While the respective rules differ significantly between dutiable estate amount exceeding ZAR30 million. cantons, we have analyzed the scenario on the assumption it occurred in Zurich. — An additional 0.25 percent securities transfer tax is payable by the company on the transfer. — Please note that the cantons of Appenzell Innerrhoden, Lucerne, Neuchâtel, Solothurn and Vaud levy inheritance Spain tax on transfers to children. — Specific advice should always be sought in the relevant canton. Partial exemptions available — For transfers on death, inheritance tax is due. A low, Taiwan general reduction is allowed for descendants and ascendants receiving the family business share or assets. To qualify for the reduction: Partial exemptions available — A minimum shareholding provision is required (5 percent — On 12 May 2017, the estate tax and gift tax rates were individually, or 20 percent jointly with family Group) changed from a single 10 percent rate to progressive rates ranging from 10 percent to 20 percent. — Managing duties are required — Estates of more than 100 million new Taiwan dollars (TWD) — The remuneration for such managing duties should are subject to 20 percent estate tax. represent more than 50 percent of the total annual employment, professional or economic activity income. — Gifts of more than TWD50 million are subject to 20 percent gift tax. — There is also a substantial reduction for transfers of family business assets on death, subject to a 5-year holding period for the recipient and a prohibition against acts during that Thailand period that could significantly diminish the shares’ value. — For lifetime transfers, gift tax (recipient’s liability) and personal Partial exemption available income tax (donor liability) are due. Personal income tax does — Thailand introduced the Inheritance Tax Act in August 2016. not apply if cash, (rather than assets), is gifted.

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© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. — In order to counter possible avoidance of the new — Specific advice should be sought as the reliefs carry Inheritance Tax, a gift tax was also introduced under complex conditions. Personal Income Tax in the Thai Revenue Code. — Gift tax is part of Personal Income Tax and the taxpayer United States should opt to pay at 5 percent as a final tax, otherwise it will be taxed at the taxpayer's marginal tax rate. High-tax state (Minnesota) Tunisia Partial exemptions available for transfers on death and lifetime transfers — Residents of a high-tax state such as Minnesota are Minimal tax due subject to both state taxes and federal taxes. — Tunisia has no inheritance tax or gift tax. — For transfers made within 3 years of death, Minnesota — Registration duty ranging between 2.5 percent and imposes an estate tax. 35 percent (depending on the family relations) plus 1 percent — Minnesota does not impose gift tax on lifetime transfers. for registration in the real estate agency (only for immovable But at least one other high-tax state, Connecticut, does property) is imposed on moveable and immovable property, impose a gift tax. subject to exemption where certain conditions are met. — Each individual is entitled to federal and state exemptions Tu rke y for lifetime transfers and transfers on death. — Specific advice should be sought from the relevant state. Low-tax state (Maine) Partial exemptions available Partial exemptions available for transfers on death and — Inheritance tax and gift tax apply to transfers on death and lifetime transfers lifetime transfers respectively. — Residents of low-tax states are generally subject to federal — Automatic exemptions apply to both types of transfer. tax only, although some low-tax states also impose low United Arab Emirates levels of estate tax. — This analysis assumes residence in a low-tax state that imposes both state taxes and federal taxes. No tax applicable — Each individual is entitled to federal and state exemptions — The United Arab Emirates has no inheritance tax or gift tax. for lifetime transfers and transfers on death. — No other tax applies in this scenario. — Specific advice should be sought from the relevant state. United Kingdom Uruguay

Full exemption on death; partial exemption or full deferral No exemptions available on lifetime transfers — Uruguay has no inheritance tax. — Inheritance tax applies to transfers on death. — Personal income tax applies to lifetime transfers. — Transfers of shares held by the donor for 2 years and qualifying for business property relief are exempt. The Venezuela level of cash in the company may restrict the exemption. Additionally, each individual has an exempt allowance for use on death or during their lifetime (for lifetime gifts, the No exemptions available allowance is on a 7-year rolling basis). — Lifetime transfers and transfers on death are subject to — For lifetime transfers to individuals, inheritance tax does inheritance tax. not apply if the donor survives for 7 years following the — Lifetime transfers and transfers on death of real estate are transfer. However, the donor is deemed to receive market also subject to real estate transfer tax. value for a gift and is subject to capital gains tax. — Capital gains tax on lifetime transfers can either be fully Vietnam deferred (with the recipient taking on the donor’s base cost, subject to conditions) or reduced to 10 percent under entrepreneurs’ relief (subject to a maximum lifetime gain No exemptions are available of 10 million British pounds (GBP)), with each individual — Vietnam has no inheritance tax or gift tax. given an annual allowance of GBP11, 300. — Personal income tax is imposed on transfers in lifetime — Lifetime gifts of shares to individuals who work in the and death. same business may be taxed as income (at a maximum — There are no personal income tax exemptions for transfers rate of 45 percent). Gifts between family members due to of shares or businesses. family relations (and not employment) are exempt. Global family business tax monitor | 49

Passion, it’s what drives entrepreneurs, family businesses looking to an exit, KPMG Enterprise advisers understand and fast-growing companies alike. It’s also what inspires what is important to you and can help you navigate your KPMG Enterprise advisers to help you drive success. challenges — no matter the size or stage of your business. You know KPMG, you might not know KPMG Enterprise. You gain access to KPMG’s global resources through a single KPMG Enterprise advisers in member firms around the point of contact — a trusted adviser to your company. It’s a world are dedicated to working with businesses like yours. local touch with a global reach. Whether you’re an entrepreneur looking to get started, an innovative, fast-growing company or an established company

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As with your family, your business doesn’t stand still — it KPMG Enterprise coordinates with a global network evolves. Family businesses are unique and KPMG Enterprise dedicated to offering relevant information and advice to Family Business advisers understand the dynamics of a family-owned companies. We understand that the nature of successful family business and work with you to provide a family business is inherently different from a non-family tailored advice and experienced guidance to help you business and requires an approach that considers the family succeed. To support the unique needs of family businesses, component. KPMG Enterprise International Private Wealth and Family Office Network

Working with you for your family’s future entrepreneurs, families and family offices like yours. Together, they share and provide insights ranging from wealth and You’ve worked hard to establish your wealth and build a bright tax planning, risk and security, technology and innovation, future for your family. But with numerous opportunities and transaction support, succession planning and governance, and challenges for growing and preserving your wealth, it can be legal services. difficult to find the right mix of trusted advisers who can provide concrete and relevant insights that speak to the complexities of Using our IPW Network, you need only go to one place to draw achieving your unique goals — both for your business and for upon KPMG Enterprise’s deep industry knowledge and broad your family. base of local and global experience. Our IPW Network advisers will work collaboratively to provide you with clear, practical and The KPMG Enterprise International Private Wealth and Family tailored advice that can help achieve the future you envision. Office Network (IPW Network) connects a multidisciplinary Your success is our legacy. group of advisers, located across our 154 member firms, who work collaboratively with ultra-high-net-worth individuals,

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: Global family business tax monitor Publication number: 135329-G. Publication date: May 2018