Liquidation of the Company: Fiscal Aspects
The dissolution and liquidation of a company are not fiscally neutral, this is why it can have important consequences for the partners of the company.
What is the liquidation of a company?
Liquidation is the process that a debt-laden company initiates in order to liquidate its operations and dispose of its assets to pay these debts and other liabilities. A business is wound up if it is determined that it cannot continue as a going concern.
This can be for a variety of reasons, such as insolvency (usually the main reason), unwillingness to continue in business, etc.
When a business is insolvent, the liquidator sells the assets of the business to pay off all debts. The surplus after payment to creditors is distributed to the shareholders of the business.
Types of liquidation
The three main types of liquidation are these:
- Voluntary liquidation: This type of liquidation is not forced into insolvency but is voluntarily decided by the owners/members of the company. This means that the company remains solvent and can make payments to creditors.
- Voluntary liquidation by creditors: occurs when the director(s) realise that the company will not make payments to creditors. Shareholders are asked to vote, and if 75% of the members agree, the company is liquidated.
- Compulsory liquidation: a court orders the company to stop trading and close down if the company cannot pay its debts.
Fiscal aspects of the liquidation of a company
The following are the main fiscal aspects to be taken into account at the time of the liquidation of the company:
- If the real value of the assets to be awarded to the partners is higher than their book value, said higher value must be declared as the transfer value of the asset and the corresponding benefit that will be part of the result of the closing year determined.
- If partners are awarded assets, the corresponding VAT should be applied if applicable.
- In any case, it will be necessary to forecast the payment of Corporation Tax for the year that is being closed, since this will reduce the liquidation fee to be assigned to the partners, as well as provisioning the expenses derived from the liquidation of the company, since they will reduce their final accounting result and, therefore, the corporate tax payable.
- Company tax must be paid for the fiscal year that ends with the liquidation of the company within the legally established period (25 days after the 6 months from the closing date of the fiscal year, which in this case would be the approval date of the liquidation balance).
- Likewise, it will be necessary to present a tax declaration in the same period as indicated but counting from the inscription of the liquidation in the Mercantile Registry.
- When there is a liquidation quota to distribute among the partners, 1% of the quota received by each member in respect of corporate operations tax must be paid to the relevant
Finally, indicate that currently, the AEAT has established a process this year of review of inactive companies that are being withdrawn from the census, of the Mercantile Registry if the updating of their tax obligations is not proven.
In conclusion, liquidation is the process of winding up and completely closing down a company’s operations. Once the liquidation process is completed, the company ceases to exist in the eyes of the law. If you have doubts about the tax consequences of the dissolution of your company, contact our tax advisors without obligation and we will inform you about everything.