Share buyback: conditions, procedure and taxation

What does a share buyback mean?

In a share buyback, a company repurchases some of its own shares from its members. It then holds treasury shares. The Belgian Code of Companies and Associations sets strict rules for this operation. You can read the text on the Belgian Official Gazette website. Often, the mechanism settles a partner's exit without an outside buyer.

Why a company launches a share buyback

The most common case: a partner wants to leave.

• A partner exits and nobody else can take over the shares.
• Two founders split up and the company buys out the leaver.
• Remaining shareholders gain weight if the company cancels the shares.
• The company sets shares aside for an employee incentive plan.
• A listed SA sometimes uses a share buyback to fend off a hostile bid.

The legal conditions

The operation rests on four safeguards.

A general meeting decision

The general meeting must authorise the share buyback in advance. The Companies Code sets the quorum and majority for this decision. The authorisation states the maximum number of shares, a price range and its duration. That duration cannot exceed five years.

The distribution tests

The company pays the price out of distributable funds. In an SRL, the board runs two tests:

• The net asset test: net assets must not turn negative after the payment.
• The liquidity test: the company must remain able to pay its debts for at least twelve months.

In an SA, the net asset test applies as well.

Equal treatment of shareholders

The company offers the share buyback to all shareholders on the same terms.

Fully paid-up shares

The shares involved must be fully paid up.

The procedure in five steps

Here is the order we recommend.

What happens to repurchased shares?

The company has three options.

• Keep them: their voting and dividend rights stay suspended.
• Cancel them: the total number of shares falls.
• Resell them later, for example to a new partner.

Cancellation normally changes the articles of association, so plan a visit to the notary. Our guide to amending the articles of association covers this step.

Taxation of a share buyback

For an individual shareholder, the price splits into two parts.

• The portion matching fiscal paid-up capital: repaid tax-free.
• The excess, called the surplus: taxed like a dividend.

That surplus bears 30% withholding tax.

Worked example

A partner subscribed to 100 shares at €100 each, giving €10,000 of fiscal capital. The company buys them back at €250 each, so €25,000 in total.

• Capital repayment: €10,000, tax-free.
• Surplus: €15,000.
• Withholding tax at 30%: €4,500.
• Net amount for the partner: €20,500.

This scheme stays simplified. The actual make-up of fiscal capital can change the result. So have the calculation checked before you set the price.

For the departing partner, only the surplus bears withholding, not the capital part. Our guide to dividend withholding in Belgium covers the rates in detail.

Common mistakes

These are the traps we see most often.

• Paying the price without documented net asset and liquidity tests.
• Buying one partner's shares without equal treatment.
• Letting the authorisation lapse without renewing it.
• Using a share buyback to disguise a distribution: the tax authorities can invoke tax abuse.
• Setting a price without a clear valuation method.

Planning a share buyback with a financial forecast

A share buyback hits cash immediately. The liquidity test also requires a projection over at least twelve months. With Juristelo, you build that financial forecast and simulate the outflow. If the exit follows a dispute, reread your shareholders' agreement: it often sets the exit price. For a sale to a third party, see our guide on selling a company.