Have you started the process of closing your company and are wondering what happens to the money left on the account? The remaining funds on the business account represent the company’s assets. However, this money cannot simply be transferred to the owner’s private account without following the legal procedure and settling all tax obligations.

Below are the key rules and steps on how to legally handle the remaining funds during the liquidation process of a d.o.o. (LLC) or j.d.o.o. (Simple LLC).

First Priority: Settling All Obligations

Before a single cent can be paid out to the owners, the company must fully clear its business debts. The liquidator is primarily obliged to settle:

  • All obligations toward employees (salaries, severance pay).
  • All debts toward creditors and suppliers.
  • All liabilities toward the state (taxes, contributions).

Only after all debts have been settled can the remaining money (along with any potential profit) be distributed to the owners (shareholders) proportionally to their shares in the share capital.

How Are the Remaining Funds Taxed?

The remaining funds are distributed to the owners either as a return of capital or as a payout of profit (retained or liquidation profit). Any payout of the remaining funds that exceeds the amount of the paid-in share capital is subject to capital income tax at a rate of 12%.

The exact procedure and tax burden depend on when and how the money is withdrawn:

  1. Profit Payout Before Closing (The Most Common Method)

The remaining money is treated as company profit. Before transferring it to the owner’s account, the company must complete three steps:

  • Settle all obligations toward the state and suppliers.
  • Pay corporate income tax (profit tax) at a rate of 10% (for revenues up to €1,000,000.00) or 18% (for revenues above that threshold).
  • Issue a formal decision on profit distribution and pay capital income tax on the net amount at a rate of 12%.
  1. Payout Upon Completion of Liquidation

If the money is not paid out as profit during the liquidation process itself, but the final remaining amount on the account is distributed to the founders after the company is deleted from the court register, the rules are similar. This amount is legally considered a share in profit (dividend) and is also taxed at a rate of 12%.

What Does the Income Tax Act Say?

The aforementioned procedure is clearly defined by two key articles of the Income Tax Act:

  • Article 67 (Capital Income Based on Capital Gains): Paragraph 2 explicitly defines that receipts from the alienation of financial assets also include the proportional share of the liquidation asset in the event of company liquidation. The tax base is the difference between the received amount (liquidation surplus) and the acquisition value of the shares (paid-in share capital).
  • Article 70 (Assessment of Capital Income Tax): Paragraph 3 stipulates that capital income tax based on capital gains (which includes the aforementioned liquidation surplus) is calculated, withheld, and paid at a rate of 12%.

Conclusion

Closing a company and distributing the remaining assets / funds require strict compliance with tax and accounting regulations. To avoid unintentional mistakes and potential penalties, it is crucial to accurately determine the tax base before any payout. For the safe execution of the entire process and the preparation of the final financial statements (GFI), we recommend timely consultation with your accounting service.

Author: Admin