If you want to convert your eenmanszaak (sole proprietorship, hereafter EZ) into a BV (a limited company), there may be issues that you have not thought about before. There are three ways to contribute an EZ to a BV: by means of an asset-liability transaction, a smooth contribution or a silent contribution. This article is about the second option.
Smooth contribution
If the EZ still has a decent value, such as accrued reserves, goodwill or real estate, or if you have not yet or not fully made use of the investment deduction or if a fiscal old-age reserve (FOR) has been built up, the discontinuation profit can increase and the tax consequences can become significant. To limit the tax on the discontinuation profit, you can opt for a smooth contribution. In that case, all mentioned items of value are included in the discontinuation profit and the value of the goodwill is determined, and a discontinuation profit annuity can be concluded. The amount of this varies, but you can then make use of a tax advantage in the form of annuity premium deduction. This is only possible if you intend to sell the BV within three years of incorporation. You then spread the tax on the discontinuation profit over a longer period.
The disadvantage of the smooth contribution is that you eventually still pay tax on the discontinuation profit. However, you do not have to deal with the tax authorities in one go because you can spread it over a number of years. In addition, you must close the BV within three years and you will have to incur additional costs. You have to hire an accountant to prepare the contribution balance and a notary to prepare a contribution deed.
If you do not intend to dissolve the BV within three years, the smooth contribution is not a sensible option. If you want to convert your EZ into a BV and if you can assign significant value to your EZ, because of the goodwill, the reserves, the FOR or real estate, it is wise to consider the silent contribution.
In a next article I will talk about the silent input. In a previous article I described the asset-liability transaction .