Liquidation becoming more expensive

The government's new tax measures include an increase in the withholding tax levied on liquidation bonuses. However, a transitional scheme is foreseen. BB3 summarises the changes for you.

Withholding tax increases to 25%

Until now, withholding tax of 10% was owed on a liquidation bonus or a liquidation dividend. What for years was taboo, is now reality: withholding tax on a liquidation dividend increases to 25%, the same rate as regular dividends. This tax increase, however, comes into effect only in October 2014. Thus, liquidations before 1 October 2014 are still taxed at 10%.

Avoiding the rate increase

The law also foresees a so-called transitional measure until this date. Since 1 July, the possibility exists to fully or partially distribute taxed reserves that existed on 31 March 2013 subject to withholding tax of only 10%.

However, an important condition is attached to this: these paid out net amounts must be immediately used to increase the company's capital. Moreover, this capital must remain in the company for at least 4 years (for SMEs) or 8 years (for large companies), on pain of a higher withholding tax rate. After this period, this capital is considered ‘fiscal’ capital. This means that from this moment, the capital can be distributed tax-free via a capital reduction or liquidation, so that the final tax remains at 10%.

This capital increase is not a simple accounting transaction in which reserves are transferred to capital. The Explanatory Memorandum makes frequent mention of a 'dividend'. Hence the capital increase must occur in the legally required form: via notarial deed and by depositing the amount of the capital increase into a frozen bank account or via a contribution in kind.

Despite the legal formalities and the limitations concerning dividends distributed in the year of the capital increase, it is expected that many companies will make use of this transitional scheme.

For early birds

In principle, you have until 1 October 2014 to make use of of this transitional measure. This scheme applies only to contributions made in the financial year closed before 1 October 2014. Consequently, companies whose financial year coincides with the calendar year, have only until 31 December 2013. The bottom line: be sure to start the needed preparations on time.