Legacy Tax in Germany

Inheritance taxMartin Strobel, Lawyer

Why simple if it works complicated, too?

The recently adopted new law on legacy or inheritance tax in Germany is the result of a ruling by the German Supreme Court. The privileges provide in the existing legacy tax law for family owned companies according to the judgement of the Court were much too broad and needed to be tightened.

The outcome is a complicated law that will be highly appreciated by tax lawyers and tax Consultants!

So far heirs of companies with up to 20 employees and which existed for more than seven years were exempt from the legacy tax. 90% of the companies in Germany fall under this threshold. Under the new law the existing tax exemption remains applicable for companies with up to three employees and an existence of 7 years. From 4 employees on upward a quite complicated system starts. The sum of salaries comes into play and the sometimes tricky question whether a company is a family owned or run business is now an important issue. These are only a few examples of the changes provided for in the new legacy tax law.

German annotators agree: The new law might perhaps satisfy the requirement of the ruling of the Supreme Court but is far from being suitable for practical life. They recommend a total revision and it is quite probable that such total revision will be initiated via parliament in the future. Beside complexity also insecurity reigns.

A few weeks ago the introduction of a nation-wide legacy tax has been rejected by voters in Switzerland (with a huge majority). For family owned or run companies it might well be worth to investigate the tax situation in details before investing abroad!

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