Termination of activity of sole proprietorships / partnerships - Tax impact
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The termination of activity of a company consists in stopping its economic activity.
For a partnership, the termination of activity will entail its dissolution / liquidation.
The termination of activity:
- for a sole proprietorship can be compared to a business transfer, as the company's assets are transferred to the entrepreneur's private wealth;
- for a partnership can also be compared to a business transfer of a sole proprietorship because of the transparency of the transaction.
Once the taxable profit has been determined (operational profit and profit from the termination/transfer of the business), the partners/entrepreneur must pay personal income tax.
Who is concerned
In the event of a termination of activity of a sole proprietorship or a liquidation of a partnership, the tax on profits from the transfer/termination must be paid by:
- the entrepreneur in the case of a sole proprietorship;
- the partners in the case of a partnership.
Unlike a permanent termination of business activity, a temporary termination of business activities does not generate any taxation.
Example: a business operator who is forced to temporarily stop his business activity during a period of convalescence.
Prerequisites
Preliminary steps
The trader (natural person) who stops his activity must report the termination of activity to the bodies & administrations where he is registered.
A company that stops its business activity or whose manager/director leaves the company must also report the termination of activity to the bodies & administrations where it is registered and proceed with the dissolution of the company.
How to proceed
Calculating the taxable profit
The definite termination of activity of a sole proprietorship/partnership is subject to the same tax scheme as in the case of a transfer/transmission of a sole proprietorship.
The business operator is taxed on:
- operating profit or current profit, i.e.:
- profits realised between the close of the last financial year and the day of the business transfer;
- profits that have not yet been taxed due to the reinvestment of capital gains mechanism;
- capital gain or profit from the transfer/termination, i.e. the transfer price of the business including the revaluation of invested net assets.
Taxation
The taxation of operating profits is through taxation by assessment
Operating profits are subject to personal income tax.
Capital gain is taxed at half the global rate by the Luxembourg Inland Revenue (ACD).
Who to contact
Luxembourg Inland Revenue (ACD)
-
Luxembourg Inland Revenue (ACD)
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please consult the above website to find the competent department.
Registration Duties, Estates and VAT Authority (AED)
-
Registration Duties, Estates and VAT Authority (AED) Registration Duties, Estates and VAT Authority (AED)
- Address:
-
1-3, avenue Guillaume
L-1651
Luxembourg
Luxembourg
B.P. 31, L-2010 Luxembourg
- Phone:
- (+352) 247 80 800
- Fax:
- (+352) 247 90 400
- Email address:
- info@aed.public.lu
- Website:
- https://pfi.public.lu
