The upper house of the German parliament, the Bundesrat (Federal Council) approved a bill to tighten eligibility criteria for inheritance tax incentives for family businesses.
These changes mean that the tax exemption will be abolished inheritance in excess of EUR 90 million (USD 98.7 million). In total, the exemption from inheritance tax will be applied in most cases, but only if the company has been working for at least seven years, and retains the same level of employment.
Companies in which five employees are working, or less, will be automatically exempt from inheritance tax without any limitation, as compared to 20 employees in accordance with the existing rules.
The new law will be applied retrospectively (ex-post), with the July 1, 2016.
Changes in the rules of inheritance tax in Germany, was caused by the decision of the Constitutional Court in 2014, stating that the existing rules violate the principle of fiscal equality.
Inheritance tax benefited thousands of family firms, which employ more than 50 percent of the German workforce. However, they also talk about the consolidation of inequality and the accumulation of wealth among a relatively small number of families.
Some argue that the reforms do not reach the Constitutional Court’s decision, and may be subject to appeal.