Insights
TAX & BUSINESS
Withdrawal of Items from Business Assets
Withdrawals of assets initially acquired and used for business purposes can have tax consequences.
A withdrawal occurs when an asset originally acquired for the business sector – for example a machine, a vehicle or a property – is no longer used in the business but is used privately. Withdrawals are therefore all value outflows not caused by business activity, e.g. cash, goods, produce and other current assets, services, fixed assets or the non‑business use of such assets.
The ongoing profit of a business is not reduced by withdrawals and not increased by contributions. However, each withdrawal of assets reduces the business assets. When assets are transferred to private assets, the withdrawal must be carried out at the fair market value (which usually corresponds to the current replacement cost). The resulting gain (difference between book value and market value) is fully subject to income tax for the withdrawer.
Withdrawal of Land
A special rule applies to the withdrawal of land: since 1 July 2023 the withdrawal also applies to buildings (previously only to land) always at the book value at the time of withdrawal, if the withdrawn property would be subject to the special tax rate of 30% in the event of a sale. The book value then represents the acquisition cost for further tax treatment, such as depreciation. By removing the withdrawal tax, particularly on buildings, an economically sensible non‑business use is enabled and the use of vacant business premises is encouraged.
In the course of the Tax Amendment Act 2024 the tax treatment of withdrawals from partnerships was newly regulated. In the withdrawal process a distinction is made between external and internal quotas, splitting the transfer into a sale and a withdrawal. To the extent that the asset is no longer attributable to the other partners after the withdrawal by one partner, the other partners experience a taxable sale.
Example
In a partnership A holds 60% and B holds 40%. A now withdraws a property from the partnership’s business assets into his private assets; after the withdrawal the property belongs to A 100%. A’s internal quota is 60% (his share in the partnership) and the external quota is 40%. Regarding the internal quota, no hidden reserves are disclosed here, because, as mentioned above, a property is withdrawn at book value and therefore does not trigger withdrawal taxation. Regarding the external quota, however, the withdrawal constitutes a taxable sale.
Tip
Withdrawals from business assets usually lead to the taxable disclosure of hidden reserves and thus to a financial burden for the withdrawer. There are, however, certain exceptions to this principle and, moreover, possibilities to optimise any potential tax liability. Early advice is therefore advisable.
The ongoing profit of a business is not reduced by withdrawals and not increased by contributions. However, each withdrawal of assets reduces the business assets. When assets are transferred to private assets, the withdrawal must be carried out at the fair market value (which usually corresponds to the current replacement cost). The resulting gain (difference between book value and market value) is fully subject to income tax for the withdrawer.
Withdrawal of Land
A special rule applies to the withdrawal of land: since 1 July 2023 the withdrawal also applies to buildings (previously only to land) always at the book value at the time of withdrawal, if the withdrawn property would be subject to the special tax rate of 30% in the event of a sale. The book value then represents the acquisition cost for further tax treatment, such as depreciation. By removing the withdrawal tax, particularly on buildings, an economically sensible non‑business use is enabled and the use of vacant business premises is encouraged.
In the course of the Tax Amendment Act 2024 the tax treatment of withdrawals from partnerships was newly regulated. In the withdrawal process a distinction is made between external and internal quotas, splitting the transfer into a sale and a withdrawal. To the extent that the asset is no longer attributable to the other partners after the withdrawal by one partner, the other partners experience a taxable sale.
Example
In a partnership A holds 60% and B holds 40%. A now withdraws a property from the partnership’s business assets into his private assets; after the withdrawal the property belongs to A 100%. A’s internal quota is 60% (his share in the partnership) and the external quota is 40%. Regarding the internal quota, no hidden reserves are disclosed here, because, as mentioned above, a property is withdrawn at book value and therefore does not trigger withdrawal taxation. Regarding the external quota, however, the withdrawal constitutes a taxable sale.
Tip
Withdrawals from business assets usually lead to the taxable disclosure of hidden reserves and thus to a financial burden for the withdrawer. There are, however, certain exceptions to this principle and, moreover, possibilities to optimise any potential tax liability. Early advice is therefore advisable.