Tax Considerations for Buyers of Businesses

Tax Law in Ireland is comprehensive and complex. The following article outlines some of the taxes involved in the purchase of a business and is not deemed to be comprehensive in nature nor should it be accepted as fact or advice. Tax Law in Ireland regularly changes and you should consult a suitable advisor prior to purchasing your business. No two transactions are the same and consequently the tax implications will not be the same.

It is advisable for any prospective business buyer to read the section Seller Tax Considerations as this will provide an overview of the taxes involved in the selling of a business and maybe useful in the negotiation process.

The tax implications will depend on the transaction structure which for the most part will fall into two categories:

1. Share Purchase
2. Asset Purchase

Both of these can be bought by an individual in his/her own right or by utilising a Special Purpose Vehicle or Company. Generally speaking a Seller of a business would prefer to sell the business as a Share Sale whilst a buyer would prefer an Asset Sale. The difference between both is that a Share Sale is the sale of the company together with all assets and liabilities both known and unknown whilst an asset sale is the sale of specific business assets e.g.

• Trade Debtors
• Inventory
• Plant & Machinery
• Leasehold
• Licences
• Goodwill
• Patents

The main reason a seller would want to sell shares is that it avoids Double Taxation of the sale proceeds i.e the company sells assets which attract capital tax and the subsequent charge to Capital Gains Tax or Income Tax for the shareholders depending on how the proceeds are distributed. They are other reasons for a Seller preference in the sale of shares which are beyond the scope of this article.
The main tax involved in the purchase of shares in a Company is Stamp Duty which is currently 1% whilst the taxes involved in Asset Sales can be as high as 6%.

Asset Sales don’t normally attract VAT once both parties are VAT registered.