“Many entrepreneurs do not realize how much tax they actually have to pay after a business sale,” says Michiel Bod of BDO.

The tax aspects of selling your tech company can quickly become complicated and also determine the ultimate success of your Dream Exit. In this article we explore the world of tax planning and the consequences of selling a tech company, with insights from Michiel Bod of BDO Accountants and Advisors, combined with the practical experience of Martijn van der Hoeden.

Understanding the Basics: Stock Trades vs. Asset Trades

Choosing between a stock transaction and an asset transaction can have a huge impact on tax outcomes. What are the differences?

  • Share transaction: this involves selling the company's shares, resulting in the new owner taking over both the assets and liabilities. This is often more beneficial for the seller due to the easier transfer and potentially lower tax burden.
  • Asset-liability transaction: only the assets (and some liabilities) are transferred. This can be advantageous for sellers who want to retain certain business units or realize specific tax benefits.

Michiel Bod explains: “Each choice has its own tax implications, including differences in taxation of profits and the ability to manage deferred tax liabilities.”

Good tax planning is therefore essential to maximize the net proceeds of a maximize business sales.

Michiel has two important rules:

  1. Start tax planning early, well in advance of the sales process. For example, it is often undesirable or even impossible to make all kinds of changes to, for example, the company structure during negotiations. So think carefully about how you want to approach this.
  1. Get the right advice. Hire a tax advisor who specializes in mergers and acquisitions within the tech sector. Don't try to (re)invent the wheel yourself or find out the latest tips and tricks. A good tax advisor knows what is going on now and what the consequences may be for your specific situation.

“Each choice has its own tax implications, including differences in taxation of profits and the ability to manage deferred tax liabilities.”

The impact of transaction structures on your future

Martijn van der Hoeden shares his experience with Microsoft, who showed interest in purchasing only the software component of his company. It sounded nice, of course, but if he did that, he would be left with a company without software (and therefore without own IP) but with the associated obligations (staff!). So pay close attention as soon as you receive a proposal. Michiel emphasizes both perspectives:

  • Seller's Perspective: gain on sale while retaining the operating entity can lead to significant tax implications, especially if the business is breaking even or incurring losses, as 'sudden' gains can drastically change the tax consequence.
  • Buyer's Perspective: from the buyer's perspective, acquiring assets offers depreciation benefits, which can be financially beneficial. 

Michiel adds: “With asset transactions you often have to deal with direct tax obligations, while with share transactions the profit related to goodwill does not have to be taxed immediately, which ensures a smoother tax result.”

Tax vmaximizing judgments: some tips

Effective tax strategies can significantly impact net proceeds at (or after) a sale. Two scenarios where understanding the nuances of tax laws can lead to more favorable outcomes:

  • Taking advantage of losses: business owners can use historical losses to offset gains realized on sales, thereby reducing the overall tax burden.
  • Future tax planning: entrepreneurs should consider how the transaction structure may affect their future tax liabilities, especially in relation to participation exemptions and capital gains taxes.

Conclusion: Navigate complexity with expert advice

You can hear more insights from Martijn and Matthijs and the very latest Dutch tech news in the latest episode of Tech M&A Insider.

Selling a tech company is not just about negotiating the best price, but also about understanding the complex tax implications of the deal.

As Martijn succinctly states: “Whether you are dealing with a share deal or an asset deal, the tax differences can really mean the difference between an exit and a Dream Exit.”

Listen to the episode:

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