When a sole proprietorship is turned into a company, it is possible to sell the goodwill (e.g. the customer base) that has been built up in the sole proprietorship to the company (by means of a ‘quasi-contribution of capital’). This is only advisable if it enables the taxable party to withdraw money from the company in a tax-efficient manner.
If the price of the goodwill does not exceed the sum of the taxable results of the last four taxable periods, the realised gain will as a rule be taxed at 33% (plus municipal tax). The goodwill can be written off for tax purposes in the company.
However, a sale of goodwill will not always benefit the taxable party.
This is the case, for example, if the company is entitled to the reduced corporate income tax rate of 20.4% (tax year 2019), in which case dividends can be paid at reduced corporate income tax rates by applying the ‘VVPR bis’ regime or liquidation reserve.
If the company is entitled to both the 20.40% rate and the reduced withholding tax of 15%, the total taxation will ultimately amount to 32.34%. This is lower than the personal income tax assessment, where municipal tax and any social security contributions are payable in addition to the 33% rate.
The example above, from which any social security contributions due on realised gains have been excluded, shows a tax saving of EUR 2,970 if goodwill is not sold to the company.
In addition, this avoids the risk that, if the goodwill is sold through a ‘quasi-contribution’, the tax authorities will reclassify this as a contribution in kind, which would mean that part of the distributed profits could no longer benefit from the VVPR bis regime.
Before selling goodwill to your company, you should therefore identify all the tax consequences so that you can check that the transaction does actually bring you a tax benefit...