Converting a sole proprietorship, vof or partnership into a BV, can be noisy or silent. The reason for this difference is that, for tax purposes, the conversion is seen as discontinuing the sole proprietorship and starting something new. Ceasing in the tax sense, means that in principle, the cessation profit has to be settled. This profit is the difference between the book value and the fair value, plus goodwill.
With no-change conversion, settlements must be made. This means income tax has to be paid on the cessation profit. However, it is possible to negotiate an annuity with the BV. This means less tax has to be paid at the time of the discontinuation. Income tax will then have to be paid on the annuity payments in due course.
An advantage of a closed conversion is that it is no problem to let additional shareholders join or leave the BV. Another advantage is that the BV continues with new book values and can write off previously existing hidden reserves and goodwill. As a result, less tax has to be paid in the first few years.
Retroactive effect is permitted to a limited extent, provided the intention to convert has been registered with the tax authorities within three months of the date to which retroactive effect is to be applied.
For more information on reclusive or silent conversion, please contact us. We will be happy to help.
