When a commercial company is formed or in the event of a capital increase, the shareholders or partners contribute funds or assets to the company in exchange for ownership rights (company shares, equities, bonds, etc.).
These contributions, like reinvested profits, then become part of the company's capital, constituting its equity capital.
As soon as they become part of the assets of the company, these funds or assets must then:
In the case of a commercial company, the partners/shareholders contribute funds or assets to the company in exchange for company shares/equities.
As the company has a separate legal personality to that of the person/entity making the contribution, the assets or funds contributed therefore change hands. The contributions thus become the property of the company, which is then liable for any registration fees or VAT payable.
Furthermore, the company can deduct the cost for issuing equity shares (registration, lodging with the trade and companies register, etc.) from its taxable income as operating expenses.
In the case of a sole proprietorship, the trader transfers some of their own private assets or funds to their operating assets.
As the line between a trader and their business is not clear cut, these funds or assets do not change hands but simply allocation. These changes in allocation are not considered to be contributions and therefore have no tax implications for the trader or the business.
The more equity (own capital) the company has, the more third parties (banks, providers, etc.) are safe, because in the event of a liquidation:
The ratio between equity capital and external resources is therefore a key factor in obtaining a bank loan.
The partners/shareholders making contributions to the company bear more risk than its creditors. They may therefore:
In the second scenario, the equity capital/loan capital ratio will make it difficult to raise funds with third-party investors.
In the case of contributions resulting from the division of an existing business, the unrealised capital gains of the split-up company should be declared and taxed at the time of the contribution in accordance with the rules governing the transfer of businesses.
However, some provisions allow the immediate taxation of unrealised capital gains resulting from a division or a partial contribution of assets to be deferred.
Partners may make contributions:
Contributions in kind are valued differently according to when they are made:
Contributions in kind to a public limited company (SA - société anonyme) must be valued by an independent statutory auditor in a report attached as an appendix to the company's memorandum of association (excluding cooperative companies (sociétés coopératives) organised as public limited companies).
However, this report is not required if the following conditions are met:
Corporate deeds (deed of incorporation, changes to the articles of association, transfer of the registered office to Luxembourg, etc.) are subject to a fixed registration fee of EUR 75 payable to the Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA).
If these deeds concern the contribution of a building or movable assets, given that the assets change hands to become the property of the company, the acquiring company is proportionally liable for the registration fees and subsequent transcription fees:
The transfers of the partners' shares are not subject to this proportional fee (except in the case of partnerships and economic interest groups (GIEs) that own buildings: in this case, the transfer is treated as a sale of immovable property).
If the amount of the proportional fee exceeds EUR 75, the company benefiting from the contribution pays only the proportional fee on the deed concerned and not the specific registration fee of EUR 75.
If the contribution of a building or movable assets follows a restructuring classed as a division or partial contribution of assets, no proportional registration fee is due.
The company benefiting from the contribution must pay the registration fees:
Most contributions are VAT-exempt as:
However, some contributions may be subject to VAT, for example in the case of the contribution of isolated assets by a taxpayer.
An SA subject to VAT contributes incorporeal rights (e.g. the right to receive royalties) without transferring all of its assets: this is therefore a contribution of isolated assets.
The contribution is made in exchange for equities/company shares.
Given that the transfer of incorporeal rights is considered to constitute the provision of a service and that it is carried out against payment by a taxpayer, the contribution is therefore subject to VAT.