Camille Van Vyve
24 Jan 2022
Investing my company's cash, a good idea?
Many companies have dormant cash, for tax or simply operational reasons, which yields almost nothing – or even worse, which depreciates by being invested at a rate lower than inflation. Is it wise to invest this cash in the stock market? How to proceed ? Explanations in this blog.
The liquidation reserve, capital to be invested over the long term
Since 2015, small companies can reserve all or part of their profits each year in a "liquidation reserve", subject to the immediate payment of a contribution of 10% on these amounts. In the event of subsequent liquidation of the company, the liquidation reserve will escape any additional tax. In addition, dividends distributed from this reserve 5 years after its constitution are subject to a reduced withholding tax. Thanks to this mechanism, many companies have a "working capital" equivalent to 5 years of cash, the lifespan of which is equal to that of the company: capital to be invested over the long term that would be shame to let rot on a savings account!
Can my company invest?
For those who doubted it: the answer is yes! Unless expressly prohibited by the articles of association, a company is authorized to invest in the stock market. The applicable rules nevertheless differ from those provided for in the context of an investment in a natural person, so do not go headlong.
Capital gain taxed, capital loss not deductible
Unlike natural person investors, capital gains on investment are considered in the case of a legal entity as a taxable financial product, which will therefore be subject to corporation tax. Furthermore, capital losses on investments made by companies are not deductible. The risk incurred by the investing company is therefore twofold: that of losing money on its investment, and of paying taxes on an amount that it no longer has, or no longer has entirely.
Passive investment, ideal in society
Given the applicable taxation, it is better to avoid investing, in a company, in individual lines, because the risk of capital loss will be greater. Conversely, investing with a passive strategy in one or more trackers that aggregate the performance of the individual lines included in an index increases the chances of a positive long-term return and therefore minimizes the tax risk for the company.
Recoverable costs
Good news, in Belgium, VAT is recoverable and professional expenses are deductible. Your company will therefore be able to deduct the management fees for a portfolio opened in its name and recover the relating VAT.
Mandatory reporting
Since capital gains are taxed in the company, they must appear in the company's accounts. It will therefore be necessary to give your accountant access to the account statements of the securities account held by your company. In addition, the anti-money laundering law requires financial institutions to identify the beneficial owners of the companies for which they open accounts; this is called UBO legislation, for Ultimate Beneficial Owner. All persons who exercise control in the company – managers, directors – as well as all those who hold 25% or more of the capital must be formally identified. Finally, note that in order to be able to invest as a company, it is necessary to obtain an LEI (Legal Entity Identifier) code.
Conclusion: investing as a natural person or as a company?
While taxation is undeniably more advantageous for the individual investor, there are many reasons for an entrepreneur – in particular the liquidation reserve detailed above – to keep cash in his company. If that cash is going to stay with the company for a while, investing it in a diversified portfolio seems like a smart move. Your company will thus benefit from market returns and will be able to pay you more when the time comes!
Note: This article was written when Easyvest was authorized and regulated by the FSMA as an agent in banking and investment services.