What is the tax on the sale of a business?

The decision to sell a business is one of the most important steps for an entrepreneur. This process involves not only legal and business aspects, but also tax obligations. It is advisable to find out in advance what taxes apply when selling a business, in order to prepare well for the transaction and avoid unpleasant surprises. In this article we explain what taxes apply when selling a business and what the amount depends on.

What affects the amount of tax when selling a business?

Tax on the sale of a business depends primarily on the legal form of the business, the structure of the transaction and what assets are sold. In the case of sole proprietorships, taxation will be different than in the case of corporations or partnerships. It is also crucial whether the entire company as a business is sold, or only its individual components, such as real estate, equipment or brand rights.

Additionally, it is important whether the sale takes place within the private assets of the entrepreneur or within the company structure. The sale of business assets falls within the scope of business activity, which also affects the type and amount of taxation.

Sale of a sole proprietorship

In the case of a sole proprietorship, the sale of a business is usually treated as the sale of assets. This includes such items as real estate, machinery, cars, intellectual property rights, inventory or equipment. In this case, the sale is taxed according to the general rules, depending on the type of asset sold.

If the asset sold is subject to VAT (such as machinery or equipment), the entrepreneur must add VAT to the sales price. On the other hand, in the case of the sale of real estate, it is crucial whether the property was used in business and for how long. If a reasonable period of time has elapsed since its acquisition (usually five years), the sale may be exempt from VAT and income tax.

Income from the sale of business assets is subject to personal income tax (PIT). Depending on the form of taxation of the entrepreneur’s business, the rate may be 12%, 32% (general rules), 19% (flat tax) or be settled by a lump sum on registered income.

Sale of shares in a company

In the case of limited liability companies, such as a limited liability company or joint-stock company, the sale of a company most often involves the sale of shares. The income obtained from such a transaction is subject to personal income tax (PIT) at 19%. It is worth noting that the taxable amount is the difference between the sale price of the shares and their initial value (the cost of acquiring or taking up the shares).

If the seller is a legal entity, the income from the sale of shares is subject to corporate income tax (CIT). The CIT rate is 19%, but can be 9% for small taxpayers or start-ups.

An important aspect of the sale of shares is the possibility of taking advantage of various tax breaks, such as the start-up tax credit or tax exemption preferences, if certain conditions are met.

Selling the business as a whole

If an entrepreneur decides to sell the entire enterprise, the transaction is treated as the sale of an organized part of the company’s assets. In this case, it is necessary to specify exactly what is included in the business – such as real estate, movable property, intellectual property rights, contracts or customer bases.

The sale of a business may be subject to VAT, but in many cases the transaction is exempt from it if the conditions for the sale of an organized part of a business (OCP) are met. The income received from the sale of a business is subject to income tax, the rate of which depends on the legal form of the company and the tax situation of the seller.

How to prepare for the transaction?

Before selling a business, it is worth consulting a tax advisor, who will help optimize the taxation of the entire transaction. It is also crucial to prepare appropriate documentation, including records of assets, sales contracts and financial documents. You should also analyze whether it is possible to take advantage of tax benefits, such as VAT exemptions or investor preferences.

It is also worth considering splitting the transaction into stages, such as selling shares and assets separately, which may result in a more favorable tax settlement. Each case requires an individual approach and analysis.

Summary

Tax on the sale of a business depends on a number of factors, such as the legal form of the business, the type of transaction and the assets included in the sale. In the case of a sole proprietorship, it is crucial how the assets are accounted for, while in the case of companies, the income from the sale of shares is taxed. Regardless of the form of the sale, it is worthwhile to ensure proper preparation and consultation with a tax expert to optimize transaction costs and avoid unnecessary complications. Selling a company is a complex process that requires careful planning and consideration of all legal and tax aspects.