New report shows significant variations in generational transfer costs across 57 nations
The success of many business families hinges on how well they prepare for the transfer of company assets and family wealth from one generation to the next. According to the KPMG Private Enterprise Global Family Business Tax Monitor, business families with footprints in several jurisdictions should keep an eye out for any prospective new taxes or tax increases and to think about adopting preventative measures.
The research, which compares the wildly divergent tax obligations throughout jurisdictions on the transfer of family wealth through gifting made during the owners' lifetimes (even at retirement) and through inheritance, has been a go-to resource for family company tax planning for nearly a decade.
Several of the 57 jurisdictions analysed by the research have tailored their tax laws to consider how a successful family business sector contributes to a thriving economy. Some countries do not provide specific tax breaks for intergenerational family company transfers, which raises tax expenses and probably makes it harder for the family to compete with business families in jurisdictions with more favourable tax laws.
According to a survey by KPMG Private Enterprise, South Korea, France, the US, and the UK have the highest tax rates in the world for the inheritance of a family firm worth at least EUR10 million. This is true even after adjusting for any tax advantages.
Following exemptions, South Africa, followed by Canada and Japan, is the country that consumes the most portion of family business heirlooms worth EUR10 million. South Korea, followed by South Africa and the US, is the country with the highest tax rates on family business inheritances exceeding EUR100 million after exemptions.
Venezuela has the highest taxes in the world before exemptions for family business transfers made during the owner's lifetime (gifts) worth EUR10 million, with Spain, South Korea, and France trailing closely behind. Following exemptions, Venezuela has the highest tax rates on gifting of company assets, followed by South Africa and Japan. These are comparable for family companies valued at EUR100 million both before and after exemptions.
“Location can make a world of difference! Tax-efficient transfers between generations can leave wealth in the hands of entrepreneurial families to invest in profit-producing activities — and that can help stimulate job creation and innovation for future generations,” said Tom McGuiness, Global Leader, Family Business, KPMG Private Enterprise, KPMG International.
The research highlights three new trends: branching out, expanding, and giving back. It also offers insight into what business families view as their top priorities and concerns. The key themes include an increase in business families and the globalization of their assets, a growth in the significance of governance, a renewed focus on the management of family wealth, and the idea of giving back with charitable activities taking up more time.
“Amid rising geopolitical tension and unparalleled economic uncertainty, the leading business families that we work with are diversifying globally and putting more focus on the sustainability of their businesses, their wealth and their communities,” McGuiness added. “By doing so, they can position their families for sustainable success down the generations. As a result, we are seeing more business families around the world that are focused on branching out, building up and giving back.”