If you have a company that operates internationally or has a subsidiary abroad, you can benefit from the participation exemption. In this article we would like to explain to you exactly what the participation exemption is and whether it applies to your company.

International business

You may wonder if your company losses and profits from your participation will be part of your taxable profit or known as participation exemption.

When we speak of profits we include dividens received, but also profits on the sale of participating intrest. Losses include, for example, losses on the sale of a participating interest. In this case, the profits are not taxed. The losses are not deductible. Purchase and sale costs of a participating interest are not deductible.

The answer is no. Your company profits or losses will not be part of your participation exemption. The reason why is because with the participation exemption you will exclude profits that have been taxed at a subsidairy from being taxed another time in the parent company.

When you are a non-qualifying investment participation this rule will not effect you. In other words, the participation exemption does not apply on your company.

If so, participation settlement will be an option. This is when a participation changes into a non-qualifying investment participation and then the participation exemption no longer applies.

Liquidation loss

This rule is a special feature of the participation exemption in which losses are not deductible. If the liquidation payout is less than the invested amount, there is a liquidation loss.

It is also important to adhere to the specific conditions in order to demonstrate the burden of proof to the tax authorities. The conditionsoften deviate from the realized losses in the annual accounts.

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