Capital reduction means that a BV or NV repays to the shareholder part of what has been paid up on the shares in its capital. This repayment is possible in various ways. For example, it is possible that:
- the company repurchases shares in its own capital;
- issued shares are cancelled;
- the nominal value per share is reduced (share cancellation);
- share premium is repaid directly.
A capital reduction has tax consequences in many cases. Sometimes because the repayment is directly taxed and sometimes because the acquisition price of the shares changes.
The repayment of share premium to a natural person (i.e. not a legal entity) holding a substantial interest is taxed if it is done directly or as part of a purchase price. However, if the paid-up share premium, on which there is no tax claim, is first converted into shares, untaxed repayment is possible. This is done by stamping the shares and thus changing the nominal value per share.
This seems cumbersome but does save Box 2 tax.
In all cases of capital reduction, an approving resolution of the company's board is required. If the board suspects or should suspect that the company cannot continue to pay its debts (due in the future) as a result of the repayment, it must refuse approval. This is known as the distribution test. If the board fails to apply that test or does not apply it properly, it is liable for damages.
For information on capital reduction, cancellation and the distribution test, please contact us. We will be happy to help you.
pkooijman@kooijmanautar.nl
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