Taxation on liquidation a company

Company taxation

When the assets of a company in liquidation are transferred to its participant, the transferred assets are subject to income tax of 5% or 15% tax rate. 5% income tax rate applies if the average number of employees of the company in liquidation does not exceed 10 employees and the income for the tax period does not exceed EUR 300,000 (there are exceptions), if the company does not meet these conditions, 15% income tax rate shall apply.

Not all the assets transferred to the participant of the company are taxed, but only the income from the increase in the value of the assets, i. y. the difference between the fair market price of that asset at the date of transfer and its acquisition price.

If an asset that has been subject to depreciation or amortization is transferred, the acquisition price of the asset is reduced by the amount of the depreciation or amortization.

For example: Company X is in liquidation. The purchase price of her car, which is handed over to the participant, is EUR 35000. Prior to the liquidation of company X, a depreciation amount of EUR 25000 was calculated. At the date of the transfer, the real market price of the property was EUR 15000. Consequently, the increase in the value of the assets of company X in liquidation amounts to EUR 5000 (15000 – (35000 – 25000). Income tax will be payable on this amount.

Taxation of the participant

Upon transfer of the assets of the company in liquidation to its participant, the participant will pay the following taxes:

When the participant is a legal entity, the transferred assets are subject to income tax of 5% or 15% tax rate.

5% income tax rate applies if the average number of employees of the company in liquidation does not exceed 10 employees and the income for the tax period does not exceed EUR 300,000 (there are exceptions), if the company does not meet these conditions, 15% income tax rate shall apply.

When the participant is a natural person, the transferred assets are subject to personal income tax.

The 15% personal income tax rate is applied if the amount of increase in the value of assets received does not exceed 120 VDU (average salary) and the 20% tax rate is applied from the amount exceeding 120 VDU. The average salary in 2022 for the calculation of personal income tax is EUR 1504,10.

Please note that when calculating whether the amount of income did not exceed 120 VDU, not only the income from the increase in the value of the received assets is taken into account, but all other income received by the resident during the year, except income from employment, dividends and individual activities.

Not all the assets received by the participant are taxed, but only the income from the increase in the value of the assets, i. y. the difference between the fair market price of the received assets on the date of transfer and the acquisition price of the shares held by the participant of UAB or the contribution not withdrawn by the participant of IĮ, MB.

For example: a participant of UAB X owns shares of UAB X purchased for EUR 5,000. UAB X is being liquidated and its car is being handed over to the participant. At the date of the transfer, the real market price of the car was EUR 15000. Consequently, the increase in the value of the assets received by the participant is EUR 10000 (15000 – 5000). From this amount, the participant will pay income or personal income tax.

Important to know

The company in liquidation must reimburse the VAT on the purchase of the transferred assets, which has been included in the VAT deduction. Refundable VAT is calculated on the basis of the amount of depreciation or amortization of the asset.