The donation of a business: a tool for tax benefits

The donation of a business, especially the shares of a limited liability company (LLC), represents a strategic way to transfer a business to children or other family members while the parent is still alive. This type of transfer, known as generational transition, avoids waiting for the inheritance to be opened after death and offers significant tax benefits.
In this article, we will examine the fiscal aspects and the incentives related to business donations.

The context of the business donation

In the typical scenario of a donation, the entrepreneur decides to transfer their business to their children to ensure the continuity of the entrepreneurial activity. The donation of a business is crucial for asset protection and generational transition, so much so that the tax legislator has provided specific tax benefits to encourage this practice.

The procedure for donating a business

A business donation is a gift act where one party (the donor) transfers the business to another party (the donee) free of charge. This contract, which is finalized with the consent of both parties in the presence of a notary, results in a reduction of assets for the donor without any compensation.
In practice, many entrepreneurs choose to donate their business to their children, achieving savings on inheritance taxes. The donation allows the owner to transfer ownership of the business while still alive, ensuring that the donee retains control over the continuity of the business. Additionally, until the donor’s death, the consent of legitimate heirs is not required for the donation, nor is their potential renunciation of their legitimate share necessary.

Bureaucratic aspects

The donation of a business must be formalized through a contract or a private deed, documented in the Business Register, and requiring a public deed to be legally valid. The presence of witnesses is necessary during the notarial deed.
The donation may include the transfer of physical assets, knowledge, and, in some cases, employees. However, there are specific regulations for transferring a business, including donations, that require the activity and assets to be transferred free of charge, without the possibility of requesting payment later.

Tax and contract management

It is essential to manage the bureaucracy to ensure the transfer of the business’s existing contracts, such as those with suppliers and employees. The transfer of a large business is particularly delicate because each contract must be transferred to the new owner. For this reason, it is advisable to consult experts or professionals who can also handle the fiscal aspects of the donated business. Among these professionals is Agenzia delle Successioni, which is well-organized in this regard.
The owner can establish agreements with the new business owner, such as continuing the activity, as long as such conditions are legal and accepted by the donee. It is crucial to ensure the continuity of active contracts, especially in the presence of employees.

Tax benefits and taxability

If the donee is not an entrepreneur (either an individual or a non-commercial entity), there is no taxable item for direct taxes. However, if the beneficiary is an entrepreneur, the income or assets acquired as a gift are considered extraordinary income. In this case, the beneficiary entrepreneur must tax an amount equal to the fiscally recognized value of the business from the donor.
When the donee is a commercial company (partnership or corporation), the extraordinary income becomes taxable. This implies that donating a sole proprietorship business to a commercial company is not advisable, given the certainty that the extraordinary income will be taxable for direct taxes.

The donation of a business is an effective tool for generational transition and offers significant tax benefits. However, correct bureaucratic and fiscal management is essential to ensure the continuity of the business and compliance with applicable regulations. Consulting experienced professionals, such as those at Agenzia delle Successioni, is always advisable to navigate this important transition.