Chapter 4: Asset deal or share deal — structure, tax and VAT

A business can be transferred in two fundamental ways: either you sell the assets — the business itself, with its name, customers, equipment, stock, domains and agreements — or you sell the shares in the company that owns the business. The choice has a major impact on tax, on which risks the buyer takes over and on how complicated the transfer becomes in practice.

Asset sale

In an asset sale, the owner (a sole proprietorship or a company) sells the assets that make up the business. The buyer typically places them in their own company. It is the only option if you run the business in your own name (as a sole proprietorship or a general partnership, I/S), and it is very common when selling webshops, restaurants, shops and smaller trade businesses.

• The buyer chooses what is included. Debt, disputes and unknown liabilities generally remain in the seller’s company.
• Agreements must be transferred one by one. Customer, supplier, lease and licence agreements often require the other party’s consent.
• Employees transfer with the business under the Danish Transfer of Undertakings Act (virksomhedsoverdragelsesloven) when a business or part of one is transferred — see chapter 11.
• The buyer can often write off the acquired goodwill and assets for tax purposes, which makes asset deals attractive to buyers.
• The seller is taxed on the gain on the assets — e.g. goodwill, equipment and stock. If the sale is made from a company, the proceeds remain in the company afterwards.

Use Sitavo’s purchase agreement for an asset sale as a starting point — among other things, it includes an asset list and provisions on the takeover date, stock and employees. If you sell through Sitavo, you can choose “Use Sitavo’s agreements” in the listing. The purchase agreement, asset list and transfer declaration are then filled in with the deal’s details when the deal starts, at no charge to either of you.

Share sale

In a share sale, the owner sells the company itself. The company carries on unchanged with the same CVR number, agreements, employees, assets and liabilities — only the owner changes. It is simple in practice because agreements generally continue, but the buyer also takes over all historical risks.

• Everything comes with it — including what isn’t in the accounts. That is why the buyer typically requires more thorough due diligence and more warranties.
• Agreements continue, unless they contain change of control provisions giving the other party the right to terminate on a change of ownership.
• The seller is taxed on the capital gain on the shares. If the shares are owned by a holding company, the gain may, under certain conditions, be tax-free for the holding company.
• The buyer cannot write off the purchase price of the shares, but takes over the company’s existing tax values.
• The register of shareholders, the public register and the Danish Business Authority must be updated after the deal.

For a share deal you can use Sitavo’s purchase agreement for a share sale. The deal package on Sitavo also has a company variant with a share purchase agreement, asset list and transfer declaration — see Listing packages and add-ons. Due diligence and warranties are more extensive in share deals, so always have a lawyer review the agreement.

Comparison

Holding company

Many company owners hold their shares through a holding company. This can make it possible to sell the operating company without the gain being taxed immediately — the money stays in the holding company and can be reinvested. Tax is only paid when the money is distributed to you personally. However, the rules come with conditions on, among other things, ownership share, holding period and tax avoidance.

If you own the shares personally, it may be possible to restructure into a holding structure before the sale is completed — for example through a tax-free exchange of shares. Such restructurings typically come with requirements and conditions, may require permission from the Danish Tax Agency (Skattestyrelsen) and must be planned well in advance. If it is done too close to the sale, or without the conditions being met, the benefit may be lost. This is a classic task for your accountant.

Taxation of the seller — the key concepts

• Capital gain: The difference between the sale price and the acquisition cost for tax purposes. It is taxed under different rules depending on whether assets or shares are sold, and whether the seller is an individual or a company.
• Goodwill: The part of the price that cannot be attributed to specific physical assets. In an asset sale, a gain on goodwill is taxable.
• Recaptured depreciation: If equipment or machinery is sold for more than its written-down value for tax purposes, tax may be payable on the difference.
• Allocation of the purchase price: In an asset sale, the purchase price must be allocated to the individual assets. The allocation must be at market value and affects both the seller’s and the buyer’s tax — agree it in the purchase agreement.
• Rollover relief (genanbringelse): For real property used for business purposes, there are in some cases rules allowing the gain to be reinvested in a new business property, thereby deferring tax. Ask your accountant whether the rules can be used in your situation.
• The business tax scheme (virksomhedsskatteordningen): If you run a personally owned business under the business tax scheme, the sale has implications for retained profits and the account for retained profits. This requires a separate calculation.
• Succession: For transfers to family members or employees, there are special rules (including on succession) that can defer taxation.

VAT on the transfer

In a share sale there is no VAT on the purchase price, as the transaction involves shares. In an asset sale, the starting point is that the sale of assets is subject to VAT. However, if an entire business or an independent part of it is transferred as a going concern, the transfer can generally take place without VAT, provided the buyer continues the same type of business and is, or becomes, VAT-registered. Whether the conditions are met depends on the specific circumstances — for example whether the buyer actually takes over a functioning business or merely individual assets.

• State in the purchase agreement how the parties assess the VAT position, and who bears the risk if the Danish Tax Agency takes a different view.
• Be aware of special rules for real property, capital goods and adjustment obligations.
• Clarify the VAT treatment of the stock and of any prepayments from customers.
• For digital businesses selling abroad: clarify how OSS registration and foreign VAT will be handled after the takeover.

Which structure should you choose?

There is no single right answer. Sellers with a holding company often prefer a share sale, while buyers often prefer an asset purchase. Many small digital businesses, shops and restaurants are sold as assets, because the business is less complex and the buyer doesn’t want to take over a company with an unknown history. The final structure is often a matter for negotiation, with the price reflecting who gets the tax advantage.

• I know how the business is owned today (personally, ApS, A/S, holding company).
• My accountant has calculated the after-tax proceeds for an asset sale and a share sale.
• Any restructuring has been planned well ahead of the sale.
• I know which agreements require consent on transfer.
• The VAT on the transfer has been assessed.
• I have chosen which structure I will propose in the sales material.