Tax-free transfer of property in business: which instrument to choose?
Why might a tax-free transfer of property be required? The change of ownership of property by concluding a sale and purchase agreement is recognized as a sale and entails the need to pay VAT and income tax (when applying the general taxation system). In the event that the property is transferred in a single group of companies, the occurrence of tax liabilities is highly undesirable: in fact, the property remains in the ownership of the same beneficiary, and taxes must be paid. In addition, a tax-free transfer (change of ownership) of property in a group may be required:
To increase the level of property security. Obviously, “vital” property for the business should not be in the operating sector.
To launch an investment project. It is more logical to start a new promising direction from scratch, it should not be subject to the risks and obligations of an existing business. In addition, partners who are not involved in your core business may participate in the implementation of the investment project. In this case, the filling of the new project with property (including money) should also occur with the most favorable tax consequences for both the transferring and receiving parties.
When refinancing in a group: the redistribution of financial flows between related companies (subjects) also requires the elimination of excessive tax liabilities.
How to carry out a tax-free transfer of property?
Capital contribution
Contributions to property on the basis of clause 3.7 and clause 11 of clause 1 of Article 251 of the Tax Code of the Russian Federation, including “child gift”
Reorganization in the form of separation
We have recorded the key points for you in a separate table.
Nuances
Capital contribution
Contribution to property on the basis of subparagraph 3.7 of paragraph 1 of article 251 of the Tax Code of the Russian Federation
Free transfer of property on the basis of subparagraph 11, paragraph 1, article 251 of the Tax Code of the Russian Federation
Extraction procedure
Organizational and legal form of the company receiving the property
Any
Only business companies and partnerships
Any in which there is an authorized / share capital or fund (JSC, LLC, business partnership / partnership)
Any
The amount of shares / shares of the transferring party in the authorized capital of the recipient company
Any
Any
50% or more. Not only direct, but also indirect participation is taken into account
Any
Does the size of the share of the transferring party in the Criminal Code change?
Yes
Not
Not
Not
Tax liabilities
For organizations on DOS:
no income tax
the transferring party must recover the VAT, the receiving party – can accept for deduction (subject to the application of DOS)
For organizations on DOS:
no income tax
the transferring party must recover the VAT, the receiving party cannot deduct
For organizations on DOS:
no income tax
the transferring party must recover the VAT, the receiving party cannot deduct
For organizations on DOS:
no income tax
the reorganized company has no obligation to accrue VAT or recover it. The host party is also not obliged to recover VAT
if the successor transfers to the simplified tax system, he is obliged to restore VAT for the reorganized organization
What can be transferred
Cash, securities, other property, property and other rights having a monetary value. This list should be in the charter
Property, property/non-property rights
Property and property rights. According to the Civil Code of the Russian Federation, non-cash money refers to property rights. From 01/01/2019 to 11/22/2020, their transfer under this item was not possible.
Cash, securities, other property, property and other rights having a monetary value
Restrictions
Mandatory independent evaluation of non-monetary contribution
It is impossible to transfer property to third parties during the year, including under a lease agreement (except for cash)
Capital contribution
This is the most well-known way of granting property and property rights to a company by its participants. A member of any commercial organization (JSC, LLC, etc.) can make a contribution to the Authorized Capital (MC), both at the stage of company registration and in the course of its activities.
In addition, a contribution to the authorized capital of an LLC can be made by a third party upon joining the membership of the company. In a joint-stock company, a third party can purchase shares during an additional issue – this will be a contribution to the UK. Money, securities, other property or property rights may be contributed to the payment of the authorized capital.
Tax implications
A contribution to the authorized capital of a commercial organization is exempt from income tax (clause 3, clause 1, article 251 of the Tax Code). As for VAT, in a situation where the share in the authorized capital is paid in property, the transferring party to the OSN is obliged to restore the previously deductible VAT (clause 3 of Article 170 of the Tax Code of the Russian Federation) in the amount proportional to the residual (book) value, excluding revaluation (in fixed assets and intangible assets).
However, the receiving party, if it is also on the general taxation system, takes into account the same amount of tax as deductions after the property is registered.
