Income tax treatment for the liquidation of an enterprise relates to tax matters arising from the liquidation of assets, liabilities and surplus property when the liquidation of an enterprise ceases to be ongoing. The table below summarizes the core elements of the process and allows for a quick overview。
The key steps to elaborate and illustrate the circumstances and scope of liquidation that require income tax liquidation include, inter alia: businesses that need to be liquidated under the companies act, the enterprise insolvency act, etc.; businesses that need to be liquidated in the reorganization of a business; and businesses that have terminated their production operations and dissolved or cancelled for other reasons. It is to be noted that the liquidation of income tax treatment is not usually required when branches of tax-paying enterprises are cancelled. The calculation of the proceeds of liquidation is at the core of the treatment of income tax for business liquidation. The basic formula for its calculation is as follows: proceeds of liquidation = total realizable value or transaction price of assets - basis of taxation of assets - liquidation costs - associated taxes and charges + gains or losses on the liquidation of obligations - tax treatment of assets lost in previous years: all assets should be recognized as transfers or losses at a realizable value or at a transaction price. The tax authorities have the power to approve asset transactions where the price is clearly low and unjustified. Gains or losses on liquidation of obligations: is the difference between the tax basis of the obligation and the amount actually repaid. Settlement period: the entire liquidation period is considered to be an independent tax year. Within 15 days from the date of liquidation, the enterprise shall submit to the competent tax authorities the income tax returns of the people's republic of china for the liquidation of enterprises and the schedules thereto, and pay the enterprise income tax in accordance with the law. An enterprise entering the liquidation period is also required to file with the competent tax authorities within 15 days of the commencement of liquidation. There is a need to distinguish between the distribution of surplus property to shareholders: dividends: the equivalent of the accumulated undistributed profits of the liquidated enterprise and the share of the accumulated surplus calculated in proportion to the shareholders'share. (b) proceeds or losses from the transfer of investments: the remaining assets, less the balance of the dividends, exceed or fall below the investment cost of the shareholders. Example
Assuming that an enterprise terminates its business and enters liquidation. The relevant information is as follows:
On the basis of the above information, we can calculate:
It is assumed that the surplus property to be distributed to shareholders would be $3. 15 million, of which the equivalent of the accumulated undistributed profits and surplus would be $1 million. If the original investment cost of the shareholders is $1. 8 million, then:
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