Are you planning to close your business and you don't know what to expect in the liquidation of your company? We have prepared an overview of the most frequently asked questions about the process and the legal and tax implications of the liquidation process.
When does the liquidation process start?
Liquidation is the process initiated based on the resolution of shareholders (or the court) to terminate the company's business. However, the liquidation process itself does not begin until the first liquidator is entered in the Commercial Register. This moment triggers further steps and processes in the liquidation of the company (e.g. filing of tax returns, obligation to disclose the entry into liquidation, etc.).
Who can be a liquidator?
In the past, there have been various unfair practices when persons (mostly foreigners) with a fictitious or hard to reach contact address have been appointed as liquidators in order to avoid payment of the company's liabilities. Therefore now, only a person registered in the list of bankrupt administrators, or a person registered in the register of natural persons, i.e. a natural person with a registered residence in Slovakia, may be appointed as a liquidator.
What are the powers and duties of the liquidator?
The liquidator has similar rights and duties as the statutory body of the company, except for the power to convene a general meeting. The liquidator is therefore responsible, for example, for bookkeeping, the process of terminating contractual relations in the liquidation process, the recovery of the company's debts as well as the fulfilment of its obligations. The same duties are imposed on the liquidator from the perspective of bankruptcy law.
What is the impact of missing the deadline for claiming receivables in liquidation?
The liquidator is obliged to publish a notice with call for creditors to claim their receivables from the company immediately after the company enters into the liquidation process. Compared to bankruptcy law, missing this deadline does not have a material impact on the enforcement of the claimed receivables including due date, the order of the creditor's claim.
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Can the liquidation process be terminated at any time?
The minimum duration of the liquidation is 6 months, provided that the creditor's liabilities have been settled. This means that even if the company has no creditor's liabilities, or if creditors are satisfied within an earlier period, the liquidator could not terminate the liquidation before the expiry of this 6-months period. If there are tax arrears or a tax inspection, this process is extended for at least further 6 months.
What if assets are discovered after the liquidation has been completed?
In practice, there may be a situation where the company's assets are discovered after the company has been erased from the Commercial Register, i.e. it ceases to exist. The Commercial Code therefore recognizes the institute of additional liquidation, i.e. the process of revival of the company, which allows for the additional settlement of the discovered assets. In the case of an additional liquidation, the company is re-registered in the Commercial Register and the general rules for liquidation apply accordingly to the liquidation of the additional assets.
What are the consequences of the liquidation of a company or cooperative on tax period?
The tax period of a company or cooperative which has entered into liquidation ends on the day preceding its entry into liquidation.
The following tax period begins on the date of the company's entry into liquidation and ends on the date of the termination of the liquidation. If the liquidation is not completed by 31 December of the second year following the year in which the taxpayer entered into liquidation, or if the taxpayer in liquidation is declared bankrupt, special time limits apply.
Where an additional liquidation has been ordered, the tax period shall begin on the date on which the registration of the company or cooperative in the Commercial Register is renewed and shall end on the date on which the taxpayer is removed from the Commercial Register because the additional liquidation has been terminated.
What are the consequences of the liquidation on the tax base?
The tax base of the taxpayer in the tax period in which the taxpayer is liquidated must be adjusted for the balances of reserves, provisions and value adjustments, deferred income, deferred revenue, deferred expenses and deferred costs, except for those that are provably related to the period of liquidation or bankruptcy.
At the same time, the right to carry forward tax losses cease to exist as of the date of entry into liquidation or bankruptcy.
What is the deadline to file corporate income tax return?
A company or cooperative that has entered into liquidation must file a corporate income tax return within three months following the entry into liquidation. The filing deadline can only be extended by 3 months and only upon written request, which must be approved by the tax authorities.
What is the tax regime of the liquidation balance paid to partners or members of a cooperative?
In case of Slovak legal entities or legal entities being tax residents in a cooperating state for tax purposes, that receive the liquidation balance from the liquidation of a Slovak tax resident company or cooperative, the said income is not subject to tax. However, if it provided to non-cooperating states, it would be subject to 35% tax, unless the relevant double taxation treaty provides otherwise. Similarly, if the liquidation balance is received by the Slovak tax residents from a non-cooperating country, it would be subject to 35% tax in Slovakia.
If the liquidation balance is received by the individuals being Slovak tax residents, it is subject to 7% personal income tax if the said income relates to the liquidation of a company or cooperative with tax residency in Slovakia commenced after 1 January 2017. In case of liquidation balance from cooperating states, the 7% income tax rate would also apply, but in case of income received from non-cooperating states, the 35% income tax rate would apply.
In case of liquidation of limited partnerships and general partnerships, the liquidation balance is in general subject to income tax even for partners who are legal entities (other than limited partners) and is also subject to health insurance at the rate of 14% for individuals (or 7% in case of health disability).
Do you consider liquidation of your company? In cooperation with our tax advisors and accountants, we will be happy to assist you throughout the administratively demanding process.
Should you wish more information on how we can help your business or to arrange a meeting for personal presentation of our services, please contact us.