Part 1 of 2 The sale of a business is usually an emotional process, and both buyer and seller are very much involved in clinching the deal at the right price, thereby sometimes ignoring the potential taxation issues arising from the proposed transaction. This article is aimed at highlighting some of the Income Tax matters that the buyer and seller should consider before finalising the transaction. There are two generally used methods of acquiring a business and we will deal with each of such below: 1. Sale of shares/members’ interest Selling shares in a company or the members’ interest in a close corporation will constitute a receipt of a capital nature and will therefore not be subject to Income Tax. The main risk associated with purchasing shares or members’ interest is that you will also purchase the history of the company or close corporation and its associated risks. A proper due diligence investigation should be carried out on the entity to be acquired in order to ensure that the company does not have any undisclosed liabilities. Stamp duty is payable on the value of the shares sold. Such stamp duty is usually payable by the purchaser. 2. Sale of assets/liabilities Selling the assets and liabilities of a business to another person/ entity will result in recoupments for Income Tax purposes. The difference between the selling price and the tax value of the assets will be subject to Income Tax in the hands of the seller. The buyer of the assets will however again be granted wear and tear allowances on the assets to be acquired, thus providing future tax deductions to the buyer. We advise that professional advice should be obtained before the negotiation phase of the sale of a business takes place in order to limit the tax risks associated with the transaction. Please contact Gerald Riedel at PricewaterhouseCoopers (+264 61 284 1012) if you have any question on the Income Tax or VAT implications of the sale of a business. Copyright ÃƒÆ’Ã†’Ãƒâ€ ‘ÃƒÆ’ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒ…ÃƒÆ’Ã†”Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â© 2006 Price-waterhouseCoopers. All rights reserved. PricewaterhouseCoo-pers refers to the individual member firms of the worldwide PricewaterhouseCoopers organization.
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