An Irish company buying back their shares can be a good strategy for succession planning, and also other situations such as the departure of a disgruntled shareholder, or a marriage break-up.

From a tax perspective, any payment for the shares over and above the amount which the company received for a subscription of shares is treated as a distribution and subject to income tax for the shareholder at their marginal rates. However, tax law provides that if certain conditions are met, the shareholder may avail of capital gains tax treatment on the buyback.

Why would a company buyback its own shares? | Investopedia

This can be beneficial where the shareholder would be otherwise unwilling to exit the company due to the prospect of a significant income tax charge on a share buyback. Main legislative provisions Sections — of the Taxes Consolidation Act TCA contain the legislative provisions pertaining to share buybacks by unquoted companies. The main conditions for capital gains tax treatment are that:. For the purposes of tests 5 and 6 above the interest in the company held by persons associated with the disposing shareholder are deemed to be held by the disposing shareholder.

An associate includes a husband or wife that are living together and a minor child of the disposing shareholder there are other provisions in relation to controlled companies, estates etc.

Effectively the associated persons provision prevents a shareholder whose spouse holds a substantial interest in the company availing of capital gains tax treatment on a share buyback. Example of substantial reduction test: John wishes to retire from the company and arranges that Phone Limited will buy back 4, of his shares.

Brian and Helen would not he regarded as associates of John for the purposes of the share buyback. Company filing requirements Where a buyback is undertaken and the payment is not treated as a distribution, the company must return the details to Revenue using a Form AOS1. This return is required at the same time as the Form CT1 for the accounting period in which the payment what is company stock buyback made.

A payment made by a company for the buyback of its own shares is not thinkorswim active trader options against profits of the company for tax purposes.

The test would credit suisse forex manipulation be met where, for example, the sole or main purpose of the buyback is to benefit the shareholder or to benefit a business purpose of the company other than a trade. Revenue outlined in Tax Briefing 25 that they will normally regard a buyback as benefiting the trade where:.

Generally Revenue expect the exiting shareholder to dispose of their entire interest in the company but are willing to accept, in certain circumstances, a shareholder retaining some shares for sentimental reasons or for genuine business reasons e.

Capital Gains Tax Retirement Relief Retirement relief is a relief from CGT given to what is company stock buyback individual aged 55 or over on the disposals of certain assets provided the conditions of the relief are satisfied.

An amendment to the retirement relief legislation under section TCAintroduced in Finance Actprovides that an individual can come within the scope of the retirement relief provisions on the proceeds of a disposal of shares pursuant to redemption by a family company of its own shares.

Buyback by a Company of its Own Shares

Therefore, if the conditions for capital gains tax treatment are met a shareholder may dispose of their shares to the family company and avail of retirement relief. Finance Act introduced changes to retirement relief which applies to disposals made on or after 1 January Essentially individuals seeking to avail of the relief will fall into two categories; those agedand those aged 66 and over. It is common practice when dealing with share buybacks for a contract for the sale and purchase by the company of the shares to be created and thereby avoid the creation of any stock transfer form or other instrument which transfers legal title to the shares.

If the contract does not itself give rise to a conveyance, the contract itself will not be stampable. If the shareholder and the company enter into an agreement and the shareholder simply hands over the share certificates to the company there is no need for a stock transfer form and no duty can be charged.

Company Law Some of the key company law requirements of undertaking a share buyback include:.

Conclusion A company share buyback may be an attractive strategy to a shareholder wishing to end or reduce their involvement in a company, and if certain conditions are satisfied, such shareholder may be able to available of capital gains tax treatment on the share disposal. Retirement relief may be available to relieve this charge to capital gains tax. For a shareholder considering such a strategy, it is possible to obtain Revenue approval on the buyback and this added comfort is worth pursuing where possible.

Stock Buybacks

Mark Doyle Doyle Tax Consultants Phone: RESOURCES eNewsletter eTips Excel Word Links Tax Accountancy Finance Business Legal Calculators Help About Us Contact. Buyback by a Company of its Own Shares. By Mark Doyle, Doyle Tax Consultants Sep 16, Articles by this author.