Tax-Free Business Transformation

Businesses have the option of converting a personally operated business into a company by using the rules on tax-free business conversion. In such a conversion, the tax that would normally arise from a taxable sale is deferred, and instead the tax liability is transferred to the acquisition cost of the shares in the newly established company. This means that the tax liability continues to follow the capital owner and the company. However, a tax-free business conversion can only be carried out if certain conditions are met:

• The conversion must be completed no later than 6 months after the end of the previous income year
• The first day of the financial year must be the day after the end of the previous income year
• The first financial year must run for 12 months
• If there are several businesses, it is possible to choose to convert only one or more of them – however, there are disadvantages to this!
• The conversion must include all of the business’s assets and liabilities, including all mixed-use assets (however, there is an option regarding mixed-use cars or a mixed-use property)
• The tax acquisition cost of the shares must not be negative before offsetting the account for retained profits, unless all businesses are converted and the business scheme is applied for the income year prior to the conversion
• The capital contribution account must not be negative, i.e. it must be settled by a cash contribution prior to carrying out the conversion, or alternatively it may be considered to exit the business scheme for the income year prior to the conversion
• The conversion must be made into a newly established company, or alternatively a shelf company that has not previously had any activity
• The consideration for the contribution of the business must consist solely of shares in the company.

Please note that all of the above conditions must be met, otherwise the conversion will become taxable!

After a business conversion, the company will operate as an ordinary company, which opens up opportunities for, for example, distribution of dividends, sale of the company’s activities, shares, restructurings, succession planning, and similar.

A new company cannot be established without the business owner obtaining a valuation report, which must be signed by at least one approved auditor.

SkatteInform can help ensure that the above conditions can be met, and in addition we can provide a valuation report.

Disclaimer

As the above is for guidance only, we do not accept liability for dispositions that may be made on the basis of the above without prior individual advice. We do not accept liability for errors and omissions.