Selling the Business: Preparation, Deal Structure and Exit Tax

Overview

The tax cost of leaving a business is not settled on the day the sale agreement is signed; it is settled years before. The general mechanics of capital gains — the moment of disposal, the rates, the identification of lots — are covered in the separate review of capital gains tax; what follows is only the deal layer, which that topic does not reach: the choice between selling shares and selling assets, the exemption conditions for a corporate seller, the blocking periods that follow pre-sale restructuring, deferred consideration, escrow and the fate of the team's share options.

This layer has its own logic: its own forms and elections with their own deadlines, its own periods within which any movement of shares costs money, and its own mistakes, none of which arise on the sale of a securities portfolio. The frame compares the United Kingdom, Germany, France, the United States, the Netherlands, Luxembourg, Switzerland, Singapore and Cyprus. Cross-border structures require the seller, the assets and the later distribution of proceeds to be tested separately.

Why the seller's and the buyer's interests are opposed

In a share deal the shareholding itself is sold: the seller takes a capital gain at a preferential rate or under an exemption, while the buyer inherits the company's entire history together with its tax and legal risks and gets no step-up in the base cost of the assets. An asset deal reverses this: the buyer brings the assets onto its balance sheet at the purchase price and writes them down, while the seller pays tax at company level and then again when the proceeds are distributed to the shareholder.

The United States offers a fork that Europe does not have: under IRC §338(h)(10) a sale of stock may be taxed as a sale of assets. The election is made jointly — by the buyer and the seller's common parent, or by all the shareholders of an S corporation; the form is due no later than the fifteenth day of the ninth month after the acquisition date (Instructions for Form 8023, rev. October 2023). The parallel §336(e) mechanism operates in configurations where there is no corporate buyer. Economically this is a negotiation about price: the step-up costs the buyer money in future deductions, and the difference between the seller's tax outcome under the two scenarios has to be reflected in the price (a gross-up), otherwise the election simply shifts the burden onto the seller for nothing.

The Form 8023 deadline is the fifteenth day of the ninth month after the acquisition date, and the signature is joint. The agreement to make the election is fixed in the SPA before completion: afterwards the seller has no leverage to make the buyer sign the form, and without a joint signature the election does not exist.

Participation exemptions on a share sale: what has to be in place in advance

Where the seller is not an individual but a holding company, the question of the rate gives way to the question of exemption. The UK Substantial Shareholding Exemption requires a holding of at least 10% of the ordinary share capital, with a corresponding entitlement to profits available for distribution and to assets on a winding up (TCGA 1992 Sch 7AC para 8(1)), held continuously throughout a twelve-month period beginning not more than six years before the day of disposal (para 7). The six-year window is an important detail: entitlement to the exemption does not evaporate the moment part of the holding is sold.

Germany takes a different route. Under §8b(2) KStG a qualifying gain on shares is exempt with no minimum participation threshold, but §8b(3) sentence 1 treats 5% of the amount as non-deductible expenses; 0.75% is only the corporate-income-tax component in 2026 (5% × the 15% rate), before the solidarity surcharge and applicable trade tax. It is not the total effective burden. The Dutch, Luxembourg and Cypriot regimes are compared below; the review of holding structures covers the wider substance questions. Interposing a holding shortly before signing is not a shortcut: test both tax on the initial transfer into it and the conditions for its later disposal. There is no single holding-period test shared by all jurisdictions.

Netherlands, Luxembourg, Switzerland, Singapore and Cyprus

The following comparison assumes a locally resident seller and distinguishes a sale of shares from a sale of the company's business assets. It does not calculate tax in a second country, treaty relief or the later distribution of proceeds to the owner. A corporate exemption can leave money available for reinvestment inside a holding company without making its subsequent withdrawal tax-free.

Netherlands: the holding exemption and the owner's Box 2 are separate

A corporate participation normally begins at 5% of nominal paid-up capital. Under the participation exemption, qualifying disposal gains are excluded from taxable profit; corresponding losses and acquisition/disposal costs are generally not deductible. Non-qualifying investment participations fall outside this exemption. The relevant test is the status of the participation, not an imported UK twelve-month rule.

For a resident founder selling a substantial interest, usually at least 5% alone or with a fiscal partner, the gain instead falls in Box 2: 24.5% on the first €68,843 of taxable Box 2 income in 2026 and 31% above. Dividends from the holding also enter Box 2. Taxable operating-asset gains remain in the corporate profit calculation, whose 2026 rates are 19% through €200,000 and 25.8% above.

Deferred price needs its own classification. Article 13(6) can bring changes in the value of a qualifying contingent purchase-price right within the participation result. It does not make every vendor loan an exempt earn-out: the link to the share price and uncertainty of the consideration matter. Belastingdienst's earn-out analysis therefore belongs in the drafting review before signing.

Luxembourg: the €6 million threshold is for gains, not the dividend threshold

For an eligible corporate parent and subsidiary, the capital-gains exemption requires at least 10% ownership or an acquisition cost of €6 million, with twelve months held or a qualifying commitment to hold. A complete early disposal cannot fulfil a commitment to keep that stake. Previously deducted participation expenses can be recaptured. The €1.2 million alternative used for dividends must not be substituted for €6 million on a sale.

For a resident individual, a significant interest means more than 10% at any point in the previous five years, including the prescribed family aggregation. After more than six months, its gain is taxed at half the overall income-tax rate, with the available allowance and long-term-care contribution considered separately. A non-significant private holding sold after that period is generally exempt; short-term gains follow ordinary progressive taxation. The company itself pays corporate income tax on a taxable sale of business assets or goodwill; its shareholder exemption does not transfer to those assets.

Switzerland: private capital gain is not the same as corporate participation relief

Federal participation relief for a corporate share gain generally requires a disposed participation of at least 10% and ownership for at least one year. It reduces tax by the ratio of net qualifying participation income to total profit; recovered write-downs remain taxable. It is not a universal 0% company rate. Cantonal and municipal taxation must be calculated for the actual location.

A private individual's share gain can be exempt under Article 16(3) DBG, whereas business-asset gains and professional dealing are taxable. Failing a portfolio safe-harbour criterion does not by itself prove professional dealing. ESTV Circular 36 explains that distinction. A founder must also check indirect partial liquidation: a sale of at least 20% from private into the buyer's business assets can produce taxable investment income if, with the seller's knowledge or required knowledge, pre-existing distributable non-business substance is extracted within five years to finance the price. The SPA therefore needs a specific post-sale protection, not merely a declaration that the gain is private.

Singapore: the 2026 share safe harbour and foreign-asset rules must both be checked

For disposals from 1 January 2026, section 13W covers ordinary and qualifying equity-accounted preference shares: generally at least 20% held continuously for 24 months. The threshold can be assessed on the prescribed group basis; this does not validate newly acquired shares. The sunset is removed. Insurance and specified unlisted property-company exclusions remain. Failure to qualify does not automatically make the gain taxable.

Personal-investment share gains are generally non-taxable. For companies, distinguish capital receipts from taxable business income; the ordinary corporate rate is 17%. An asset sale requires classification of each component, not an automatic 17% or zero on the whole price. Moreover, section 10L can tax foreign-asset gains received in Singapore by covered group entities, including capital gains. For non-IP assets, adequate local economic substance is central; section 13 exemptions do not override an applicable section 10L charge.

Cyprus: securities relief stops at the real-estate exception

Income Tax Law 118(I)/2002, Article 8(22) exempts gains on disposal of qualifying securities for companies and individuals. The same law sets ordinary company tax at 15% from 2026; that rate applies to taxable income, not automatically to exempt share gains. Selling operating assets requires a separate tax computation.

The Capital Gains Tax Law, Articles 2, 4 and 5, still imposes 20% on gains within its Cyprus-property scope. This includes direct property-owning companies and indirect structures deriving at least 20% of share value from Cyprus immovable property, disregarding liabilities for that test. The regulated-market share exemption must be distinguished from the limited and transitional rules for non-regulated markets. A foreign operating business without such property exposure and a Cyprus-property company therefore cannot share one “tax-free exit” assumption.

For all five countries, allocate fixed price, contingent price, loan interest and post-sale employment or consultancy pay separately. The Dutch earn-out rule above is a country-specific result, not a template for the other four. In the deal model, retain separate dates for the taxable disposal, recognition of a contingent right and receipt of cash; an escrow or late payment is not enough evidence to assume tax deferral.

Pre-sale restructuring and the periods within which it stops being safe

Moving the trading company under a holding company before a sale is a standard step, and in Germany and France it carries a price measured in time.

Germany: a seven-year Sperrfrist

§22 UmwStG 2006 imposes a seven-year Sperrfrist after shares or a business have been contributed at book value. A disposal within that period retrospectively creates an Einbringungsgewinn I (contribution of a business) or II (contribution of shares), with tax assessed for the year of the contribution. The relief is linear: the amount is reduced by one seventh for each full year that has elapsed since the contribution date (§22(1) sentence 3). A separate procedural trap sits in §22(3): the holder must prove, no later than 31 May each year, that the shares still belong to him; if the deadline is missed, the shares are deemed to have been disposed of on the anniversary of the contribution. The confirmation is filed seven years running, and silence here is not neutral conduct but a deemed sale.

France: apport-cession and 150-0 B ter

The apport-cession mechanism under article 150-0 B ter CGI defers tax on the contribution of shares to a controlled company, but it requires reinvestment if the contributed shares are sold within three years. The 2026 finance act (LOI n° 2026-103 du 19 février 2026) tightened the conditions: the reinvestment quota was raised from 60% to 70%, the reinvestment period extended from two years to three, the minimum holding period for the assets acquired with the reinvestment increased from one year to five, and property transactions and purely financial activity were removed from the eligible destinations. The date from which the new rules apply to particular transactions turns on the act's transitional provision, and readings differ: part of the commentary ties them to transactions after 21 February 2026, part to the date of publication of the act.

The individual seller's rate and the timetable of the UK reform

For a UK founder selling personally the key figure is Business Asset Disposal Relief: 14% in tax year 2025/26 and 18% from 6 April 2026, subject to a lifetime limit of GBP 1m (HMRC CG64174). The reform comes with anti-forestalling: for unconditional contracts entered into on or after 30 October 2024 the disposal is treated, for rate purposes, as taking place on completion rather than on the date of the contract, unless the parties claim the exclusion. The threshold for making that claim is GBP 100,000 of aggregate untaxed gains.

The general rule in TCGA 1992 s.28, under which a disposal is dated by the contract, is specifically overridden in this construction. The practical conclusion: a contract signed in March 2026 with completion in May is taxed by default at 18%, and the only way to change that is a claim for exclusion made in time.

Deferred consideration: earn-outs and installment sales

An earn-out is not a deferred payment but a separate asset. A right to unascertainable deferred consideration is characterised as a chose in action rather than a debt: Marren v Ingles, 54 TC 76 (HMRC CG14990, page updated in 2026). The consequence: the market value of the right is taxed at the time of the sale, and the later actual payments give rise to a second disposal — of the right itself.

Where the earn-out is satisfied in shares or loan notes of the buyer, it is automatically treated as a security with rollover of base cost. An election under s.138A TCGA 1992 allows that treatment to be disapplied. The deadlines are strict: for companies, two years after the end of the accounting period; for everyone else, by 31 January following the tax year after the year in which the right was conferred; and the election is irrevocable (HMRC CG58020).

In the United States deferred consideration follows the installment sale rules, but §453A charges interest on the deferred tax where the sale price exceeds USD 150,000 and the outstanding installment obligations at the end of the year exceed USD 5,000,000; the rate is set by §6621(a)(2). The USD 5m threshold is measured at the level of the partner or shareholder of a pass-through entity, and spouses each have their own.

The main risk in an earn-out is not the rate but recharacterisation. If the payment is tied to the seller staying on to work in the business, the tax authority reads it as remuneration for services: income tax and social contributions instead of a capital gain. The link must run to business metrics, not to the person's presence; the employment contract is paid for separately and at a market rate.

Escrow, warranties and warranty insurance

Part of the price is almost always retained: escrow against breaches of warranty, a holdback against specific disputes. In the vast majority of UK and European deals that involve a W&I policy at all, the sellers' liability under the warranties is capped at a nominal GBP 1, and the policy becomes the buyer's principal protection (Orrick, UK Tech Exit Series — Warranty & Indemnity Insurance, 6 March 2026). A caveat: that is a share of the deals that carry a policy, not a measure of how many deals use W&I in the first place, and it says nothing about how widespread W&I is in continental Europe in 2026. The economics of the policy come down to three figures:

Without a policy the founders remain personally liable under the representations and warranties for up to seven years after completion — a seven-year tail of personal liability that rarely reaches the negotiating agenda until it is too late.

The tax side of escrow is harder and varies more between jurisdictions: the question is whether the retained part is recognised as the seller's proceeds at completion or only when it is released. Being taxed on the full price when part of the money may never arrive is the classic overpayment scenario. The treatment of escrow and holdbacks differs between jurisdictions and is confirmed locally before signing.

What happens to the team's share options

The UK EMI scheme has been widened from 6 April 2026, but not for everyone: under HMRC ETASSUM50500 neither the increased limits nor the extended exercise period apply where the employer company is a Specified Northern Ireland Company (Finance Act 2026).

More companies now stay inside the favoured perimeter by the time they reach an exit. A Specified Northern Ireland Company is defined in paragraph 57F of Schedule 5 ITEPA as a company with its registered office in Northern Ireland carrying on a trade in goods, or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. In a group the limits are still tested against the group as a whole, but on the old scale where the option is granted to an employee of a Specified Company and on the new scale where it is granted to an employee of the other group companies.

A change of control is an event with consequences for options: some changes in a company's structure or status amount to a disqualifying event, after which the favoured treatment holds for a limited time only, while unexercised options are usually either accelerated or exchanged for options over the buyer's shares (rollover). The list of disqualifying events on a change of control and the standard terms of accelerated vesting are not covered here: they are checked against HMRC's guidance and the terms of the particular plan. The practice is constant: the option pool is unpicked at due diligence, not in the week of signing, because the employees' tax becomes part of the negotiation about price.

The deal date against the date of the change of residence

Where a sale coincides with a move, the order of the dates decides everything. Exit taxation under the German §6 AStG, the French article 167 bis, the Spanish 95 bis, the Canadian rules and the US §877A is covered in the review of exit taxes; the US founder relief, with stacking through non-grantor trusts, is in the material on QSBS §1202. What matters here is only the relationship between the dates: a disposal dated before residence is lost is taxed in full under the rules of the old jurisdiction; a disposal after the move requires separate checks of any applicable exit tax, the new country's tax and treaty or domestic double-tax relief, and reliefs such as BADR or §1202 are lost or preserved depending on status at the date of disposal.

The timing of a change of residence in the Spanish and Russian settings is covered in the materials on the Beckham Law at exit and losing Russian tax residence; immigration routes for an owner are in the review of visa options for a business owner.

Comparative framework

Five deal parameters across four jurisdictions — the United Kingdom and Germany first:

France and the United States on the same parameters:

Five further jurisdictions: decision points

The detailed conditions and primary sources are set out in the five country sections above. This table is a comparison of the seller's position, not a combined effective tax rate.

The exit timetable

The structuring timetable follows the longest applicable period. If a German contribution starts the seven-year §22 UmwStG Sperrfrist, five years is not enough to exhaust it; the contribution must precede the intended unblocked sale by at least seven years. Check the separate SSE and other participation conditions against their own dates. Two years out the option pool is arranged and EMI qualification confirmed following the widening of the thresholds in 2026; in the United States §1202 compliance is checked against the holding period and the nature of the assets.

Six months out vendor due diligence begins, the W&I question is settled and warranty liability is allocated — the premium and the policy limit affect the seller's net proceeds more than half the concessions made on price. In the week of signing only the calendar is left: fixing the disposal date against anti-forestalling, the agreement on Form 8023, the earn-out wording and the escrow release mechanics. The motivational layer — the shareholders' agreement, drag-along and tag-along, the management buy-out where there is no successor — is in the material on business succession.

One more condition lands on that same calendar and is usually remembered late: where the buyer is foreign and the business sits in a critical sector, the deal needs a separate clearance under a foreign-investment screening regime. CFIUS in the United States, the National Security and Investment Act in the United Kingdom, Regulation 2019/452 in the EU and the Swiss Investment Screening Act differ both in the sectors they list and in whether notification is mandatory; where it is, the review period stands between signing and completion. Which deals are caught, how the procedure runs in each of those jurisdictions and what the investor risks are covered in national security review.

Typical seller mistakes

They differ from the mistakes in the general capital gains topic because almost all of them are procedural; there are seven typical ones.

• Restructuring inside a blocking period means an Einbringungsgewinn assessed retrospectively for the year of the contribution.
• Missing the annual confirmation due by 31 May means a deemed disposal without a single transaction.
• An earn-out tied to the seller's continued work means recharacterisation as remuneration, with social contributions.
• A missed deadline for the s.138A election means an irrevocable characterisation that can no longer be changed.
• A disqualifying event on the options, left unaddressed before completion, means a tax bill for the team instead of a relief.
• Escrow taxed on the full price means tax on money that may never arrive.
• Signing an unconditional contract without claiming the anti-forestalling exclusion means four percentage points of rate lost on the calendar.