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Extracting profits from owner-managed business: Selling assets

Selling assets to your business could be an efficient, quick and comparatively easy way of extracting cash from your company. However, before doing that, you need to learn what types of assets you could sell, at what price, and how to protect yourself from common pitfalls which may give rise to tax liability.

In principle, you could sell any type of asset (tangible or intangible) to your company provided that you have full ownership of what you sell and the Memorandum of Association of your business covers such objective. Yacht boat, motor vehicles, computer hardware, software, furniture, logos, trademarks, antiques, real estate and shares are some examples among the many. After you have concluded the sale, you will receive a cash payment and the asset will become the property of your business.

Perhaps one of the most important elements of this strategy, and often scrutinised by the tax authorities, is the determination of the selling price. As a general guideline, the selling price could be determined by referring to the price of an asset of the same or similar type and condition. In most cases you should be able to determine a reasonable price by yourself; however, in cases you are unsure, your safest bet is to ask an accountant for a valuation.

When you sell an asset you will realise a gain or a loss depending on whether the selling price is above or below what you have initially paid. The Cyprus tax legislation does not impose capital gain tax, except if the gain derives from the disposal of immovable property situated in Cyprus or shares in a company, which invests in real estate situated in Cyprus. Capital gain tax on immovable property is currently 20%.

Irrespective of what the future use of the asset is, you should always remember that using business assets for your personal benefit will result in tax liability and possibly social insurance if you are an employee. The tax liability will be calculated based on the use of the assets and taxed at your marginal rate as benefit-in-kind.

Finally, you have to be particularly careful when selling saloon cars and real estate to your business as the tax implications may affect you or your business in the future. In the case of selling saloon car, capital allowance and running expenditure (fuel, insurance, maintenance, road tax etc.) whether the car is used for business or personal benefit are disallowed when computing corporate tax. The effect of that will be an increased tax base and higher corporate income tax. On the other hand, before selling real estate to your business, carefully consider the alternative or renting the premises to your business instead, as this may a more efficient way of receiving additional income.
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Quantia Advisors Ltd is a firm of Certified Public Accountants approved and registered to carry on accounting and audit work in Cyprus. Details about our statutory audit and general practice accreditations can be viewed at the Institute of Certified Public Accountants of Cyprus (ICPAC) under reference E264/A/2013 and E264/G/2013, respectively.

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