Perspectives from ISB

German politicians have agreed to changes in the tax rules for people who inherit companies. Under the new compromise thrashed out by a parliamentary mediation committee, most German company heirs will still be freed from inheritance tax if they keep their business running for at least seven years, and protect jobs and wages. But the criteria for eligibility will be tightened.

 As per the new changes, heirs to a company worth more than €90m will no longer receive tax breaks, while those inheriting a company worth more than €26m will see their exemptions reduced. Companies would be valued at a maximum of 13.75 times their annual profit, up from 12.5 times in a previous version of the new law, but down from the 18 times currently used.

 The ramifications of this law are huge as about ninety per cent of businesses in Germany are family-owned and, between them, they provide about sixty per cent of jobs with social insurance. If accepted by both houses of Germany’s parliament, it will also end a dispute that has split Angela Merkel’s ruling coalition, pitting centre-left politicians concerned about tax breaks and inequality against conservatives keen to protect jobs and smooth business succession in the vast undergrowth of family-owned companies that are crucial to the German economy.


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