Taxation of business transfers in Luxembourg, Belgium and France
Are you a partner or shareholder in a company and wondering about the possible tax implications of selling your business? AKCEAN can support you throughout the entire transfer process, so that you can approach it with peace of mind. We anticipate tax issues and work with tax specialists who analyze the specifics of each transaction and its tax implications. Type of ownership The way in which a company’s shares are held, whether directly or indirectly via a holding company, gives rise to different tax treatment at the time of sale. Tax, when applicable, is determined on the capital gain corresponding to the difference between the sale price and the amount of the initial investment (acquisition or subscription price). Completion costs, i.e. the fees paid to the various advisors involved in the transaction, can generally be deducted from this capital gain. Taxable capital gain = realization price – cumulated acquisition or contribution price – realization costs The following are some of the tax provisions that apply in Luxembourg, Belgium and France to the sale of securities issued by a normally taxable capital company. Companies benefiting from a total exemption, transparency or translucent tax regime are not covered (e.g. civil companies, general partnerships and limited partnerships). This information is provided for information purposes only, is not exhaustive, and does not constitute advice or recommendations of a legal nature for which AKCEAN, its directors or employees may be held liable. In order to determine the rules applicable to your particular situation, the services of a qualified professional (lawyer or tax advisor) are strongly recommended. LUXEMBOURG Transfer of shareholding by an individual shareholder For Luxembourg tax residents, taxation on the sale of securities (shares, stocks, etc.) depends essentially on the length of time the securities have been held and the level of participation in the company’s capital: The shareholding has been held for more than 6 months and represents more than 10% of the company’s capital (at any time during the 5 years prior to the year of sale): the applicable tax rate is half of the overall rate (i.e., a maximum rate of 22.89% from €220,788), plus a 1.4% contribution to long-term care insurance. The maximum tax rate is therefore 24.29%. A ten-year allowance of €50,000 (doubled for spouses and partners taxed collectively) may be applied. However, this allowance is reduced by the amount of allowances granted over the previous 10 years for the sale of other companies or real estate. The shareholding has been held for more than 6 months and represents less than 10% of the company’s capital: the capital gain is tax-exempt. The shareholding has been held for less than 6 months: the capital gain constitutes a speculative profit, taxable from €500 and subject to the ordinary overall rate (maximum rate of 45.78% from €220,788) plus the 1.4% contribution to the long-term care insurance scheme, i.e. maximum taxation of 47.18%. Disposal of an interest held by a holding company: application of the parent-subsidiary regime The parent-subsidiary regime is the transposition of a European directive on the tax regime applicable to parent companies and their subsidiaries. It applies to most Luxembourg holding companies holding interests in companies normally subject to income tax in Luxembourg, the European Union (in a corporate form included in the list annexed to the Parent-Subsidiary Directive) or in countries with comparable taxation systems. Capital gains realized on the sale of eligible holdings held by a Luxembourg holding company are exempt if the following conditions are met: Level of holding: at least 10% of the subsidiary’s share capital OR Acquisition price of at least €6,000,000. Minimum holding period: 12 months. If these conditions do not apply, the capital gain is taxed in accordance with standard local income tax conditions, including the contribution to the Employment Fund and the local business tax (24.94% in Luxembourg City for the standard corporate tax regime). It should be noted that, prior to their disposal, the value of eligible holdings is eligible for wealth tax exemption, which is not the case for the cash flow generated by the disposal proceeds (unless reinvested in tax-exempt holdings). Management of the cash flow from the sale proceeds will depend on the manager’s objectives and personal tax level. This involves a trade-off between professional income paid by the structure, subject to non-liberal withholding tax on salaries and social security contributions, and dividends subject to the 15% non-liberal withholding tax. This income will then be taxed at the income tax rate if the taxpayer is required to file a tax return. For dividends paid by a Luxembourg or EU company, the half-base is applicable (50% allowance on the taxable dividend) and the 15% withholding tax will be deducted from the balance of tax payable.) The maximum tax rate on dividends is therefore 23.59% (i.e. half the overall maximum rate of 47.18%, including the contribution to long-term care insurance). Also noteworthy is the exemption of €1,500 from the first tranche of income from movable property (or €3,000 for a married or partnered couple filing jointly) BELGIUM Transfer of a shareholding by an individual shareholdere and tax exemption Capital gains realized by an individual shareholder are taxable when they result from abnormal or speculative transactions. By way of exception, transactions relating to the normal management of private assets consisting of real estate, portfolio securities and movable property are tax-exempt in Belgium. It is important to verify the condition of normal management of private assets, in view of the increasing number of controls in this area. In the case of earn-outs or mechanisms involving future capital gains, the tax authorities may consider the earn-out or subsequent capital gains as professional income, subject to personal income tax. Belgian holding company – Exemption from corporate income tax on capital gains on shares The parent-subsidiary regime allows for the exemption of capital gains when the transferred company is subject to a normal tax regime and the following conditions are met: Level of holding: at least 10% of the subsidiary’s share capital OR Purchase
