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 which taxes apply to the sale of a business in order to prepare well for the transaction and avoid unpleasant surprises. In this article, we explain which taxes apply to the sale of a business and what the amount depends on.

What affects the tax rate on the sale of a business?

The 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 being sold. In the case of sole proprietorships, taxation will be different than in the case of companies or partnerships. It is also crucial whether the entire company is sold as a business or only its individual components, such as real estate, equipment or brand rights.

In addition, 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 the business, which also has an impact on the type and amount of taxation.

Sale of a sole proprietorship

In the case of a sole trader, the sale of a business is usually treated as a sale of assets. This includes items such 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 being sold is subject to VAT (e.g. machinery or equipment), the entrepreneur must add VAT to the sale price. In the case of the sale of real estate, on the other hand, it is crucial whether the real estate has been used for business activities 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 activity, the rate may be 12%, 32% (general rules), 19% (flat tax) or 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 base 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 person, the income from the sale of shares is subject to corporate income tax (CIT). The CIT rate is 19 per cent, but may be 9 per cent for small taxpayers or start-ups.

An important aspect of the sale of shares is the possibility to benefit from various tax reliefs, such as the start-up allowance or tax exemption preferences, if certain conditions are met.

Sale of the business as a whole

If an entrepreneur decides to sell the entire business, the transaction is treated as a sale of an organised part of the company’s assets. In such a case, it is necessary to specify exactly what is included in the business – e.g. 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 VAT if the conditions for the sale of an organised part of a business (OCP) are met. The income obtained 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 company, it is worth consulting a tax adviser who will help optimise the taxation of the entire transaction. It is also crucial to prepare appropriate documentation, including asset registers, sale agreements and financial documents. It should also be analysed whether it is possible to take advantage of tax benefits, such as VAT exemptions or investor preferences.

It is also worth considering dividing the transaction into stages, e.g. selling shares and assets separately, which may result in a more favourable 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 sale, it is worth taking care of proper preparation and consultation with a tax expert to optimise transaction costs and avoid unnecessary complications. The sale of a company is a complex process that requires careful planning and consideration of all legal and tax aspects.