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If you stop your business as an entrepreneur in the Netherlands, you may have to pay cessation profit. But what is cessation profit and how do you arrange this as fiscally advantageous as possible?
Cessation profit is the difference between the book value and the actual value of the business at the time of cessation or transfer. Thus, there is only cessation profit when you cease your business. Often, when you stop your business and liquidate it, there is money left over after the sale of all assets.
The cessation profit usually consists of:
Hidden reserves are the differences in fair value and the tax book value of the assets on the balance sheet. This can occur when you have assets on which you have depreciated in recent years and the depreciation amounts to more than the actual depreciation in fair value. Then the tax value is lower than the actual value and thus a hidden reserve arises.
You may build up fiscal reserves tax-free in your business for possible future expenses. Fiscal reserves include the retirement reserve, reinvestment reserve and equalisation reserve. You can take these out of profits for tax purposes before paying income tax on them. This ensures that there is still an item on the balance sheet that has not yet been taxed. At cessation, the tax authorities still want to tax this profit that has not yet been taxed; the reserves may only be used during the period that the company exists, so these items must be included in the cessation profit.
If there is a takeover of the business, the cessation profit must also be settled. In many cases, however, the acquiring party pays more for the company than it is actually worth, for example, for the name or location of the company. This surplus value is called goodwill and must also be included in the cessation profit.
If you have made an investment in the past five years and have received an investment deduction for it, this must be corrected when you cease trading. Suppose you cease operations after three years, then two years of investment deduction must be corrected. This is called the disinvestment addition. This disinvestment addition must be added to the cessation profit.
By adding up the value of the above items, we know how much the cessation profit amounts to. But how is it taxed and are there any deductions you are entitled to as an entrepreneur when you strike?
As an entrepreneur, you are entitled to a cessation deduction when you discontinue your entire business. The cessation deduction is equal to the cessation profit up to an amount of €3,630. You can use this amount once per person, so if you have already discontinued a business and used the cessation deduction, you cannot apply it again. When your cessation profit is below €3,630 you cannot deduct this entire amount. In that case, you may still apply the unused amount of the cessation deduction at the next cessation.
When the Dutch company is not terminated but you are reselling it and it is continued by the buyer, there is a possibility to convert the cessation profit into an annuity. By converting the cessation profit into an annuity, no or less tax has to be paid at the moment of cessation since there is less or no profit, although it will be taxed later when you pay out the annuity.
However, there is a limit to how much of the cessation profit you may convert into an annuity. To find out how much cessation profit you may convert into an annuity, two amounts must be considered:
You can't convert more than the cessation profit into an annuity, so if you're not at the maximum annuity below, you can convert the entire cessation profit into an annuity, but no more.
| Situation | Additional annuity premium deduction |
| - Transfer by an entrepreneur aged 62 or older - Transfer by a disabled entrepreneur - Cessation of business due to death | € 559.483 |
| - Transfer by an entrepreneur with an age between 52 and 62 years - Transfer by a business owner if the annuity payment starts immediately | €279.752 |
| Remaining cases | € 139.885 |
If, after the cessation deduction and the possible conversion to an annuity, there is still cessation profit left, then this amount is regarded as cessation profit and added to the annual profit together with the profit realized before the cessation. Subsequently, this total annual profit is taxed according to the rate in box 1 of the income tax.
There are a number of exceptional situations regarding the cessation profit. In these cases, you do not have to settle the tax bill at cessation if you use the carry forward facility. These exceptional situations are the following:
Are you planning to convert your business or cease and seek help with doing so? Then contact us. We will be happy to guide you and together ensure a smooth and fiscally advantageous transition.
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