If the share capital of the company is formed in full, the current legislation makes it possible to increase it at the expense of additional contributions by means, stocks or non-current assets. How this transaction should be reflected in the account and what tax consequences should be expected – in the following.
Organizational moments
Each founder (participant) can make an additional contribution within the limits of the amount of the increase of the share capital in proportion to its share. Accordingly, in case of increase of the share capital due to additional deposits, the nominal value of the share of the founder (participant) can be increased by the amount within the limits of his/her additional contribution.
At the same time, the general meeting of the participants can decide to increase the share capital of the company (refers to a limited liability company) not only at the expense of additional contributions of participants, but also third parties. In addition, third parties and participants can make additional contributions (both in cash and in non-monetary form) after each participant realizes his/her pre-emptive right or refuses to exercise such right within the difference between the amount of the increase of the share capital and the amount of additional contributions made by the participants.
Funds can be contributed in cashless form, and in cash: through the cash desk of the bank or cash register of the company.
When making cash, it is not necessary to apply cash register. As the contribution to the share capital belongs to non-operating income, which is not directly related to the sale of products (works, services). Since corporate rights are neither a product nor a service, cash contribution into the company’s cash register is made by a cash order.
In the case of contribution to the share capital at the expense of additional contributions, tax consequences do not arise at the company.
Corporate Income Tax
The object of taxation of corporate income tax is the financial result (profit or loss), determined by the accounting rules taking into account the differences (para. 134.1.1 of TCU).
According to para.5 of Accounting Standards 15 “Revenue”, the capital increase due to contributions from participants in a company is not recognized as income. In addition, the tax differences associated with the formation of the authorized capital, are not provided by the TCU. Therefore, the transaction to make a contribution to the share capital of a company does not affect the size of the subject to the corporate income tax.
Unified tax
If the company is on the simplified taxation system, such funds do not affect the object of taxation by the unified tax. Since the amount of funds invested by the founders or participants in the share capital of the unified tax payer is not the income of such a taxpayer (paras. 8 of para.292.11 of TCU).
VAT
Taking into account the requirements of paras. 196.1.1 of TCU, the transaction for the issue (placement) of shares and corporate rights is not subject to VAT. Therefore, the issuer does not incur tax liabilities. Receiving a deposit also does not result in a tax credit of VAT, since this transaction is not the supply of goods or services (para. 14.1.185, 14.1.191 of TCU). For the same reasons, the distribution of incoming VAT is not carried out as required by para. 199.1 of TCU for purchases for transactions subject to VAT as well as not subject to VAT.
Accounting
In case of reflection of transactions to increase the share capital due to additional contributions to the correspondence accounts will be the same as in the formation of share capital. The reflection of the receipt of funds from the founder in accounting is as follows.
To substantiate the contribution of the share capital it is necessary to issue an order on its replenishment. It is also necessary to amend the charter of the company in order to increase the share capital. In the accounting record is made: Dr 46 “Unpaid capital” – Cr 401 “Authorized capital”.
In the future, you can make funds in any way, for example, through a cash desk or bank account. This transaction is accompanied by: Dr 301 “Cash in national currency” or 311 “Current accounts in national currency” – Cr 46.
After that, the company may use funds for its intended purpose in economic transactions.
