Sales of an enterprise and taxes - a compendium of knowledge

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The sale of individual corporate assets is a common phenomenon in business transactions. Sometimes, however, there is a situation where the sales contract covers the entire enterprise. Owners may decide to take this step for various reasons. Before deciding to sell the entire company, it is worth considering what tax consequences such an activity will have. In the article below, we will discuss what the sale of an enterprise looks like on tax grounds.

Definition of an enterprise

Considerations should begin with presenting the definition of an enterprise. We will not find an explanation for this concept in any tax act, so you should refer to the provisions of the Civil Code. Pursuant to the provisions contained therein, an enterprise is an organized group of intangible and tangible assets intended for business activities.

It includes in particular:

  1. designation individualising the enterprise or its separate parts (name of the enterprise);
  2. ownership of real estate or movable property, including equipment, materials, goods and products as well as other rights in rem to real estate or movable property;
  3. rights arising from rental and lease agreements for real estate or movable property and rights to use real estate or movable property arising from other legal relationships;
  4. receivables, securities rights and cash;
  5. concessions, licenses and permits;
  6. patents and other industrial property rights;
  7. proprietary copyrights and property related rights;
  8. business secrets;
  9. books and documents related to running a business.

Naturally, it should be pointed out that this is an exemplary catalog and the enterprise itself may also include other tangible and intangible assets. It is also worth emphasizing that the provisions of the Civil Code stipulate that a legal action relating to an enterprise covers everything that is part of the enterprise, unless otherwise provided for in the content of the legal action or specific provisions.

In addition, in order to effectively divest the enterprise, it is necessary to maintain the appropriate form provided for by law. The contract of sale of the enterprise must be made in writing with signatures certified by a notary. If the enterprise includes real estate, then such a contract should take the form of a notarial deed drawn up before a notary public.

Sale of the enterprise in the light of VAT

The act of selling an enterprise or an organized part of an enterprise is not subject to VAT at all. Such an event was completely excluded from the provisions of this law. This means that there will be no need to pay the output tax, there will be no right to deduct input tax, and the sale will not be documented with an invoice.

Sale of the enterprise in the light of PCC

Pursuant to the provisions of the Act on tax on civil law transactions, civil law transactions are not subject to tax if at least one of the parties is taxed with value added tax or exempt from tax on goods and services.

It follows from the above that if a given activity is subject to VAT, the collection of tax on civil law transactions is excluded. As already indicated, the sale of an enterprise is completely exempt from the provisions of the Value Added Tax Act, so it is subject to PCC tax under general rules. As a result, the sold enterprise sells property and property rights, therefore the tax rate will be 2% for real estate and movables and 1% for other property rights - making up this enterprise. The buyer will be responsible for paying the tax.

Sale of the enterprise in the light of PIT

The act on personal income tax does not distinguish the income from the sale of the enterprise as a separate source of income. Therefore, such an activity should be classified as the sale of individual components of the company's assets, which results in the generation of income as part of non-agricultural economic activity. The value of income is the sum of the individual elements of the enterprise sold.

As it is commonly known, income is subject to taxation, which is the result of reducing the obtained income by tax costs. Also in this case, we will be dealing with the category of tax costs. It will be the non-depreciated part of the initial value of fixed assets and the expenditure for the purchase of equipment, commercial goods or materials.

Example 1.

In the course of business activity, the taxpayer purchased machinery and equipment, which were then classified as fixed assets. These items were subject to depreciation, the sum of which amounts to PLN 200,000. Due to the difficult family situation, the taxpayer decided to sell the entire enterprise. After the valuation, it was established that the sum of the value of all the company's assets is PLN 350,000. According to the register of fixed assets, the non-depreciated value is PLN 50,000. The taxable income is therefore PLN 300,000 (350,000-50,000).

Example 2.

The taxpayer decided to sell his company for PLN 100,000. In his activity, he did not use any fixed assets subject to depreciation. The company's warehouse contains only commercial goods and equipment with a total value of PLN 70,000. This means that the taxable income from such sale will amount to PLN 30,000 (100,000 -70,000).