Clearance Certificate

DEFINITION of 'Clearance Certificate'

A certificate that verifies that an entity has paid all its tax liabilities at the time that the entity ceases to exist or is transferred to a new owner. A clearance certificate is not required in all jurisdictions.

BREAKING DOWN 'Clearance Certificate'

There are many different situations to which a clearance certificate may apply. A business may be required to obtain an income tax clearance certificate when it decides to dissolve. An estate whose assets have a high value may be required to obtain an estate tax clearance certificate when the estate owner dies and the estate's assets are distributed to heirs. A sales tax clearance certificate allows someone purchasing an existing business to ensure that they will not be responsible for any unpaid sales taxes upon becoming the business' new owner.