Companies that adopt the calendar year for their financial year have recently fulfilled their tax return and reporting obligations for the previous financial year. The owners have learned about the company’s equity and the results of its operations for the entire year, and with this information, they can even decide to terminate their activities. We would like to provide them with a practical guide. Since the voluntary liquidation procedure is not a routine task from either an accounting or a tax perspective, it requires serious consideration.
In what cases can companies decide to initiate a voluntary liquidation?
The voluntary liquidation procedure can be initiated for several reasons, provided that the company is not insolvent. Typically, changed market conditions, cost optimisation in the case of companies with an international background, or changes in legislation prompt owners to terminate their companies through voluntary liquidation.
Voluntary liquidation cannot be decided, and voluntary liquidation that has already begun cannot be completed if the court, prosecutor’s office, or investigating authority conducting criminal proceedings notifies the company or the commercial court that criminal proceedings may be brought against the company.
Voluntary liquidation in Hungary is one of the possible forms of termination without a legal successor, the accounting tasks of which are set out in Hungarian Government Decree 72/2006. (IV. 3.), but in matters not regulated by the government decree, the provisions of the Hungarian Act on Accounting shall continue to apply.
Planning the voluntary liquidation
During the voluntary liquidation procedure, the company will have several tax and accounting obligations that differ in terms of timing and content from those fulfilled during standard operations. It is advisable to consider these before deciding on voluntary liquidation and to plan the tasks and obligations to be performed.
8 aspects to consider before deciding on voluntary liquidation
1. One of the most important questions is whether the owner wishes to terminate the company through standard voluntary liquidation or so-called simplified voluntary liquidation. The latter option is available to companies that are not subject to an audit and can complete the voluntary liquidation within 150 days.
2. The resolution must specify the start date of the voluntary liquidation and, in the case of standard voluntary liquidation, the liquidator. From the start date of the voluntary liquidation, the managing director’s mandate ceases and from then on, the liquidator represents the company.
3. In the case of simplified voluntary liquidation, it is not necessary to appoint a liquidator, as the senior executive of the company performs this role.
4. It is advisable to set the start date of the voluntary liquidation as the first day of the financial year, so that 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. If the start date of the voluntary liquidation is not the first day of the usual financial year, the financial year of the voluntary liquidation is 12 calendar months from the start date of the voluntary liquidation.
5. Simplified voluntary liquidation may involve less and faster administration and, in some cases, even lower costs, as it is not necessary to have a lawyer prepare the legal documents to be submitted to the Hungarian Court of Registration.
6. Before starting the voluntary liquidation procedure, it is advisable to review the company’s books in detail. The composition of assets and liabilities and the amount of outstanding receivables and liabilities must be examined. This is necessary because during voluntary liquidation, the company must settle all receivables and liabilities it has towards third parties.
7. During voluntary liquidation, it is advisable to submit a request for a reduction in tax advances payable to the Hungarian tax authority and local authorities if, based on calculations, the planned tax will be less than the tax advances payable. This will also reduce the amount of any subsequent overpayment.
8. If the voluntary liquidation is also subject to an audit obligation, it is advisable to consult with the auditor before starting the procedure in order to comply with the deadlines.
For more details about the Stages of the voluntary liquidation procedure please read the whole article on WTS Klient webpage.
