What is discontinuation profit?

Many e-commerce entrepreneurs operate their online business or sales account in a Limited Liability Company (the "VOF") or a sole proprietorship. A business sale can then only be conducted through the transfer of the assets (plus sometimes liabilities), simply because these business forms have no shares and are not transferable in a similar way (read more about the ways of transfer). As a seller, you are therefore left "stuck" with the sole proprietorship or VOF after the sale of your online business. Sometimes it is reused for a new activity. It is also possible that you completely or partially stop your business and then in many cases the so-called 'discontinuation profit' will have to be remitted to the tax authorities. In this article, we will explain the context of this tax in more detail.

What is discontinuation profit?

Discontinuation profit is the difference between the fiscal book value of your company and the actual value at the time of transfer or termination of your company. This discontintuation profit generally consists of the components 'hidden reserves', 'tax reserves' and 'goodwill'. In a business sale, you have been able to receive this hidden value in cash, but no tax has yet been paid on it and this must still be done: the discontinuation profit is part of your income in the year of discontinuation and you will pay income tax on it.

How do I minimize the discontinuation profit tax?

There are several ways to reduce or defer remittance on discontinuation profits:

• Discontinuation deductions. First, you can probably take advantage of the discontinuation deduction on a business termination: this is a small amount of the discontinuation profit of €3,630 which is untaxed.
• A second deduction can be realized if you use part of the discontinuation profit to pay annuity premiums. You are then entitled to an additional annuity premium deduction. The amount of the deduction depends on your age and the situation at the time of termination.
• There are also some "special situations" in which no or no full tax settlement is required:
  • You die.
  • You get divorced or your partner dies.
  • You transfer the company to a private limited company (the so-called 'silent contribution').
  • You transfer the business to an employee or co-entrepreneur.
  • You continue with a new or existing business.

Please note: do not simply assume that a scheme applies to you. Have yourself well informed by a bookkeeper or accountant about the application in your own situation.

The reinvestment reserve

Are you discontinuing your current business but continuing with a new (or existing) business? You may then be able to use the discontinued profit untaxed by using the reinvestment reserve. Of course, there are conditions attached to this as well, but it pays to at least review the information: after all, the tax on your discontinuation profit can be as high as 52%....