Are you considering selling your business? It’s essential to determine the most suitable method of business transfer. Depending on your objectives, the transfer can be structured, and the tax implications can be assessed accordingly. This article focuses on the tax aspects involved in the transfer of a business operated through a legal entity.
Comparison Share Deal and Asset Deal
The sale of a corporation and its business can broadly be structured in two ways: through a share deal (if there is a legal entity) or through an asset deal. In a share deal, the legal entity is transferred in its entirety, meaning all rights and obligations are transferred to the purchasing party. In an asset deal, selected or all assets and liabilities of the corporation are transferred, providing the flexibility to transfer only parts of a business. A share deal is always done through the intervention of a notary. In an asset deal, the intervention of a notary is not required, unless real estate or other assets requiring a notarized deed are transferred.
Tax aspects of a Share Deal
- In a share deal, all rights and obligations, including all tax claims, are transferred to the buyer. This poses a risk for the purchasing party as potential (tax) claims related to the past might emerge that are not immediately evident from the balance sheet.
- In a holding structure, the purchase price in a share deal falls under the participation exemption. Thus, for corporate income tax purposes, the sale of the shares does not result in additional taxation.
- If the shares are held privately, the disposal of the equity interest will be subject to income tax. This is the substantial interest tax in box 2.
- If goodwill is paid for the acquisition, the buyer cannot depreciate it.
- The transfer of shares is exempt for turnover tax purposes.
- If there is a share deal in a real estate corporation, real estate transfer tax may be due.
Tax aspects of an Asset Deal
- Potential claims related to the past do not transfer to the buyer in an asset deal, reducing the risk of unexpected (tax) liabilities for the buying party.
- The sale of assets may result in book gains, which are subject to income or corporate tax for the seller.
- Any goodwill paid on the transfer is taxable for the seller. The buyer can depreciate the paid goodwill.
- The sale of (selected) assets is generally not exempt from turnover tax. The sale may be subject to VAT, but in the transfer of assets and liabilities that can be seen as a transfer of a business, there is often ultimately no VAT due.
- Transfer of real estate may be subject to real estate transfer tax.
What aspects determine the choice?
Various factors determine whether a share deal or an asset deal is more favorable. If the aim is to take over specific licenses or permits, a share deal is the most obvious option for a business transfer. If a buyer is only interested in certain assets of the corporation, an asset deal will be the preferred option.
To minimize the risk of acquiring (hidden) tax claims, the buyer might also opt for an asset deal over a share deal. Of course, there are more factors and circumstances that can influence the decision. To offer a better understanding of the historic (tax) position of your business in an asset deal or share deal, conducting a Due Diligence is recommended.
Would you like to assess the possibilities and consequences of your business transfer? Please contact us, and one of our experienced advisors will be happy to assist you.
