Buyer Beware: Don’t Pay Twice for the Business
Without notification of the transfer of the business, the buyer risks being held liable for the seller’s outstanding tax and social security debts.
- The transfer of a business is not immediately enforceable against the tax and social security authorities without proper notification.
- Buyers may become jointly liable for the seller’s tax and social security debts if the correct procedure isn’t followed.
- Tax and social security clearance certificates can eliminate this liability.
- Timing is critical: certificates must be valid at the time of notification.
Key takeaways
Context
In order to make a transfer of a business (“handelszaak”/“fonds de commerce”) opposable against the tax and social security authorities, one should notify the transfer. After such a notification, the law provides for a temporary non-opposability of the transfer, during which the transaction is not enforceable against the tax authorities. The buyer may also be held jointly liable, albeit only to a limited extent, for the seller’s outstanding tax and social security debts. Fortunately, a proper notification and clearance procedure can exempt the buyer from this liability.
Temporary non-opposability of asset transfer
In the event of a sale of a business, the Belgian tax and social security authorities are granted extensive rights concerning the seller’s outstanding tax and social security debts. The legislation provides that the transfer of the business only becomes enforceable against the tax and social security authorities after a one-month waiting period. This period begins on the 1st of the month following the month in which the transfer has been notified to the tax and social security authorities.
During this waiting period, the transfer is deemed non-opposable to the tax authorities, meaning it has no legal effect in their regard. Throughout this period, the transferred assets are still considered part of the seller’s estate. As a result, the tax and social security authorities may take protective or enforcement measures, such as seizure, against these assets to recover the seller’s tax and/or social security debts.
Joint liability for buyer
Additionally, the buyer becomes jointly liable for the seller’s tax and social security debts. However, this liability is limited in principle to the amount of the purchase price paid by the seller to the buyer, ensuring that the buyer cannot be held responsible for the seller’s entire tax burden.
In business transfers, timing and documentation are key: one missed certificate could cost you the price of the deal twice.
Avoiding risk and liability: tax and social security clearance certificates
This deferred enforceability and joint liability can be avoided by submitting specific tax and social security clearance certificates along with the notification of the transfer. These certificates, issued by the competent authorities, confirm that on the date of the request: (i) the seller has no outstanding taxes/social security debts or withholdings, (ii) no audit has been announced or is ongoing, and (iii) no request for information has been sent. If any of these conditions are not met, the certificate will be refused.
In the Flemish Region, four certificates must be obtained: (i) a certificate for inter alia income tax and VAT debts, (ii) a certificate for social security debts, (iii) a certificate for self-employed social contributions, and (iv) a certificate for Flemish regional tax debts. It is also advisable to request certificates for social security debts in the name of the (remunerated) individual directors – physical persons, since a company is jointly liable for its directors' social security contributions.
It is advisable for the buyer to make the delivery of these certificates a condition precedent to the completion of the transfer.
Once the application has been submitted, the competent authority has 30 days to either issue or refuse the certificate. The certificates are only valid for 30 days and must hence be issued within 30 days prior to the notification of the transfer.
The notification of the transfer to all competent authorities, accompanied by the relevant certificates, ensures (i) the immediate enforceability of the business transfer and ensures (ii) there is no joint liability for the seller’s tax and social security debts. This is the only secure way to eliminate the risk of effectively paying the purchase price twice.
Action Points
- Verify whether the seller has any outstanding tax or social security debts.
- Ensure the seller applies for all required tax and social security clearance certificates in a timely manner.
- Make the issuance of valid certificates a condition precedent in the purchase agreement.
- Coordinate the timing of certificate issuance and notification to avoid expiration.
- Notify all competent authorities with the certificates attached.
- Engage EY Law professionals to manage the notification and compliance process.
- Contact your EY Law contact person in case of questions.
