Succession


Succession roughly refers to a situation, where the ownership of a business changes within the family or to close relatives. If this isn’t the case in your situation, you shouldn’t read any further even if the buyer is considerably younger than the seller. Age difference doesn’t matter, but relation does.

Succession is a special case in changes of ownership. The biggest difference compared to transactions between non-relatives is that remarkable tax benefits can be achieved in well-managed successions. Successions more often than not include lower selling prices, donations and different variations of these.

There is not just one correct way to execute a succession. Planning should start early, even years before the succession. Tax implications can be planned before the succession for instance by restructuring the business organization, changing partnership agreements, distribution of dividends, demergers, directed share issues and acquiring own shares. These take time and expert help is without a doubt priceless.

Taxes for the seller

In a business sale, the seller generally pays tax for the proceeds of the sale. However, a succession is completely tax-free for the seller if executed as follows:

The proceeds of selling a business are tax-free for the seller if:
  1. the seller sells at least a 10 % of the shares in a limited liability company or a partnership and
  2. the seller has owned these shares for at least 10 years and
  3. the buyer is either alone or together with their spouse the seller’s child or other direct descendant or the seller’s sibling or stepsibling. The child can also be the child of a spouse or the seller’s or their spouse’s adopted child or foster child. Cohabitants have the same status as married spouses if they’ve lived together during the tax year and have been married previously or have or have had a child together. Proceeds of sales to other relatives, such as parents or children of siblings, are not tax-free.


All aforementioned conditions must be met in order to make it possible for the sale to be tax-free. The exemption from taxes does not apply to private entrepreneurs. When private entrepreneurs sell their businesses, it is the last transaction of that business, which is taxed as a business’ profits normally would.  In order for the proceeds to be tax-free, the business must first be changed to a partnership (limited or general) or a limited liability company. After this, ten years need to pass before condition 2. is met. Although tax-free proceeds aren’t applicable to successions of private entrepreneurs, income spreading can lead to tax concessions if a sale is made.

If the seller is a founding shareholder of a limited liability company, the time starts from the signing of the charter. If a limited liability company’s shares are bought, ownership is considered to start when a contract of sale for the share transaction is signed. If a partnership is turned into a limited liability company, ownership is considered to start when the seller becomes the owner of the partnership’s shares. In addition to the time the seller has owned the business, the time of ownership of a person, who has given the seller the shares as a gift or as inheritance, is also counted in favor of the seller.

If there is more than one seller, the proceeds are tax-free if both sellers sell their shares of at least 10 % of the limited liability company separately. The proceeds aren’t tax-free if two sellers sell 5 % shares, although they together form 10 % of the whole company’s shares.  The aforementioned also applies to partnership shares.

If the succession happens through inheritance, it is possible to apply for payment time extensions on inheritance tax. In succession situations the tax authority has often accepted applications for the right to further deductions of the business’ losses. Normally the right to deduct losses is lost, if half of the business’ ownership changes. This should be considered in time.

The buyer’s taxes

The succession can be completely tax-free for the buyer or it can cause inheritance, gift or capital gains taxes.

The buyer is not required to pay gift tax if

  1. the selling price is over 50 % of the sold shares’ fair value, if the buyer is a close relative (see The seller’s taxes) and over 75 %, if the buyer isn’t a close relative and
  2. tax reliefs have been requested in writing from the local tax office before paying inheritance or gift tax.


If the business is being sold for too little in relation to its fair value, the buyer is required to pay gift tax. When calculating inheritance of gift tax, business assets are valued at 40 % of the taxable value and inheritance or gift tax is then calculated from this value, if

  1. the taxable inheritance or gift includes at least 10 % of the business’ shares and
  2. the taxpayer maintains business operations and
  3. takes part in the limited liability company’s activities and decision making and
  4. the relative share of the inheritance or gift tax paid for the business or part of it exceeds 850 euros and
  5. the application for relief is sent to the tax office before paying the tax and
  6. the business has active business operations and
  7. business assets have been used in business operations immediately before selling (if business operations have been interrupted before selling due to force majeure, relief rules might still be applicable).


If the buyer sells shares before five years have passed from acquiring them, this will be expensive for them.  The buyer would actually be required to pay the original seller’s unpaid taxes with 20 % interest in addition to their own capital gains taxes. The original seller is not required to pay any taxes even in this case.

In the aforementioned case, the buyer’s capital gains are calculated by deducting from the acquisition expenditure the taxable proceeds, which the person who the shares were bought from wasn’t required to pay tax for. For instance a father buys shares for 100 000 euros and sells them to his son in ten years for 150 000 euros. The proceeds are 50 000, but due to tax reliefs, the father is not taxed at all. If the son should sell the shares in four years’ time for 200 000 euros, he will be required to pay not only his own capital gains tax, but also his father’s with 20 % interest. The capital gains tax percentage with interest is 20.16 % for the father and 22.4 % for the son. Now the son must pay 21 280 euros in taxes, when the sum would have been only 11 200 euros a year later.

A situation which is similar to selling is voluntary dissolving of a limited liability company, and the tax implications correspond to that. Assets transferred as inheritance don’t cause loss of reliefs. When executed correctly, mergers, demergers or share turnover are not considered as conveyances in taxation, which means they won’t trigger the aforementioned sanctions.