Non-resident – a private individual – contributed funds into the share capital of a limited liability company. On the specific features of the transaction and its taxation are in the following.
Key aspects
The share capital of a limited liability company (hereinafter − the Company) consists of contributions of its participants. According to Ch. 2 Art. 115 of the Civil Code of Ukraine (hereinafter – CCU) as a contribution to the share (authorized) capital of a business entity might be considered funds, securities, other things, property or other alienated rights. The founders (participants) of the Company could be citizens of Ukraine and other business entities and non-residents – both – private individuals and legal entities.
By the legislation is not provided specific features for contribution of funds into the share capital of the Company for private individuals – non-residents as opposed to legal entities - non-residents.
By Art. 15 of the Law of Ukraine 'On Foreign Investment Regime' is determined an obligation of foreign-invested enterprises to submit a special statistical statements. Its type is approved by the order of 13.10.2014, № 297 of State Statistics Service (Report on foreign direct investments 10-зез, quarterly).
Basic principles of effectuation and return of foreign investments to Ukraine in cash are determined by the Regulation on the procedure for foreign investment in Ukraine, approved by the Resolution of the NBU of 10.08.2005, № 280 (hereinafter – the Regulation № 280). In particular, according to para. 1.3 of the Regulation № 280 foreign investments to Ukraine in cash is allowed in UAH and foreign currency 1st category only of the Classifier of foreign currencies.
As funds are received as a contribution to the share capital in foreign currency of 2nd and 3rd categories of the Classifier these funds are returned to the bank account from which they were received (para. 1.6 of the Regulation № 280).
Peculiarities of taxation
Corporate income tax
According to para. 134.1.1 of the Tax Code of Ukraine (hereinafter – the TCU) the object of taxation of Corporate income tax is income received in Ukraine and abroad that is determined by adjusting (increase or decrease) of financial result (profit or loss), specified in the financial statements in accordance with national regulations (standards) of accounting (hereinafter – NAS) or international financial reporting standards (hereinafter – IFRS), by the differences arising in accordance with rules and regulations of the TCU.
According to para. 3 Ch.1 of NAS 1 'General requirements for financial statements' revenues – the increase in economic benefits in the form of assets obtaining or obligations reduction that lead to an increase in shareholders' interests (except from capital growth through contributions of owners).
A similar statement is contained in IFRS (para. 4.25 Ch. 4 of Conceptual Framework for Financial Reporting, IAS 18 'Revenue' and IFRS 15 'Revenue').
Thus, transactions of contribution of funds into the share capital do not affect the financial results of the Company and are recorded as other comprehensive income.
VAT
In accordance with para. 196.1.1 of TCU is not the object of taxation transaction of sale (redemption) by means of securities issued in circulation by business entities and corporate rights denominated in other than securities forms.
Thus, contribution of funds by participant into the share capital is not the object of taxation of Value added tax (hereinafter – VAT).
It should be noted if contribution is not cash and property (by fixed assets or goods), the transaction will be treated as the supply of goods in accordance with para. 185.1 of the TCU and will be taxed of VAT.
A single tax
By paragraph 291.5 of the TCU are set restrictions for business entities – a single tax payers of group 3. In particular, group 3 can not choose:
- business entities in the share capital of which aggregate of shares of legal entities, that do not pay a single tax, equals or exceeds 25%;
- representative offices, subsidiaries, affiliates and other subdivisions of a legal entity that is not a single tax payer;
- private individuals and legal entities – non-residents.
However, that paragraph does not contain any restrictions on the Company being at the simplified tax system, the founder (participant) of which is private individual – non-resident.
For a single tax payers of group 3 sum of funds and the value of property, contributed by founders or participants into the share capital of the taxpayer, is not the object of taxation of a single tax (sub-para. 8 para. 292.11 of TCU).
