Companies winding up their activities voluntarily in a solvent liquidation are well-advised to review the accounting and taxation implications of the liquidation before the owner makes this decision, to ensure that the closing down of the company is properly prepared and to avoid any unpleasant surprises or unexpected additional costs.
The start date for the voluntary liquidation should be the first day of the financial year
Since the company has to prepare a financial statement upon ending its activity along with tax returns as of the day prior to the start of the voluntary liquidation, it makes sense to make the start date of the voluntary liquidation the first day of the financial year. This means the company does not have to prepare an additional accounting close due to the start of the voluntary liquidation, and the financial statements can be the financial statements ending the activity as well. Consequently, the company also saves on the audit fee for the separate report, if indeed it is subject to an audit.
Despite the fact a company can continue its business activity in Hungary in the course of a voluntary liquidation, and the liquidation itself can last up to three years, it really makes things easier if business processes are closed and all outstanding issues are clarified prior to starting the voluntary liquidation.
Such issues can include loans received from owners. As there can be no liabilities left in the company at the end of the voluntary liquidation, this obligation towards the owner must be settled as well, by repaying it if possible, or by transferring loans given, other receivables or assets for example. Converting a loan into equity, or the forgiving of a liability that has not been properly scheduled or thought through, can cause problems during a tax inspection, not to mention that private individual owners can find themselves facing a tax payment liability.
It is worthwhile requesting a tax advance reduction
Based on tax payment liabilities in previous years, the company still has to pay corporate tax and local business tax advances during the voluntary liquidation period in Hungary.
If calculations show that the actual tax will be less over the period of the voluntary liquidation than the tax advances assessed, it is worthwhile requesting a tax advance reduction from the tax authority, to lower the payment burden on the company and the amount of any subsequent overpayment.
The deadlines during a voluntary liquidation are very tight: there are 30 days available to prepare and submit the final financial statements ending the company’s activity and the related tax returns, while there are 60 days to prepare and submit the financial statements ending the voluntary liquidation and the related tax returns. It is advisable to consult in advance with the company’s lawyers, accountants, auditors, tax consultants and of course with the managing directors, the liquidator and the owner’s representatives about tasks and timings, so that everyone is clear on the schedule.
Experience shows that you can expect at least one NAV tax inspection in Hungary if you opt for a voluntary liquidation. If the company was previously considered a risky taxpayer by the tax authority, then the tax authority is obliged to conduct a tax inspection.
At the end of the voluntary liquidation you have to designate the place where the company’s documents will be archived after the company is wound up. To assess the costs of document archiving it is worthwhile putting together the documents related to previous years and separating them in advance; these have to be kept by the company for 6, 9 or even more years.