The sale of a business generally entails a tax charge. However, the nature of this taxation can vary depending on how the company's shares are held. In this article, we take a look at the different tax situations that can arise when selling a business.
Use XV's business transfer tax simulator: click here
Disposal of company shares held personally
When company shares are held personally, the capital gain realized on disposal is subject to tax. The tax rate depends on the length of time the shares have been held. If the shares have been held for more than two years, the capital gain is taxed at a flat rate of 30%. On the other hand, if the shares have been held for less than two years, the tax rate is 35%. It is important to note that exemptions from capital gains tax exist for certain situations (e.g., in the event of retirement or the sale of a small business).
It is also possible to benefit from a tax deferral if the proceeds of the sale are reinvested in a new company. However, to benefit from this deferral, the shares must have been held for at least 2 years prior to the sale, and the proceeds reinvested in a new company within a maximum of 2 years of the sale. If these conditions are met, the capital gain realized on the sale is exempt from income tax.
Getting started with a XVAL consultant: request a quote
Disposal of company shares held in the name of the company
If the company's shares are held on behalf of the corporation, the capital gain realized on disposal is subject to corporation tax (IS). The corporate income tax rate is 25%. However, it is possible to benefit from a reduced rate of corporation tax depending on the length of time the company's shares have been held. If the shares have been held for at least two years, the corporate income tax rate is reduced to 15%. On the other hand, if the shares have been held for less than two years, the tax rate is 25%.
It is important to note that these different rates may be subject to change depending on current tax legislation. In addition, tax exemptions may be available in certain cases (e.g., in the event of the sale of a family business).
In conclusion, the sale of a business can entail significant tax liabilities. It is therefore advisable to enlist the help of tax professionals to prepare the sale and optimize the tax situation.
Use XV's business transfer tax simulator: click here
Would you like to have your business appraised for tax purposes? XVAL's valuation experts can work with you within 3 days to value your business:
