Very often real estate is the subject of non-monetary contributions (in-kind contributions) to companies. Such a transaction gives rise to certain VAT consequences – both for the contributor and the receiving company.
Pursuant to the wording of Article 5 sec. 1 point 1 of the Polish VAT Act, supply of goods and provision of services against payment within the territory of the country is subject to VAT.
A supply of goods is understood as a transfer of the right to dispose of goods as owner. The subject of an in-kind contribution may be anything that, without being money, represents any economic value that can make up the share capital.
A contribution in kind is considered to be a non-cash contribution made to the company to cover share capital, in the form of intangible assets (rights) or goods. Contribution in kind involves the transfer to the company of all rights to the object of the contribution, thus also the right of ownership, if it is vested in the shareholder.
Pursuant to Article 7 sec. 1 of the Polish VAT Act, a supply of goods against payment, which is subject to VAT pursuant to Article 5 sec. 1 point 1 of that Act, is understood as a transfer of the right to dispose of goods as owner.
A contribution-in-kind of property to a company constitutes a transfer of the right to dispose of goods as owner in exchange for a specific consideration (in this case, in exchange for taking up certain shares in a limited liability company).
This activity therefore meets the definition of a supply of goods for consideration – it is therefore an activity subject to VAT.
The above is confirmed by the positions of the tax authorities, for example in the individual interpretation of the Director of the Tax Chamber in Katowice of 26 February 2015 (file reference number IBPP3/443-1415/14/EJ).
Going further, as follows from Article 29a sec. 1 of the Polish VAT Act, the VAT taxable base is, as a rule, everything that constitutes payment that the supplier of goods or services has received or is to receive on account of the sale from the purchaser, recipient of services or a third party, including received grants, subsidies and other subsidies of a similar nature having a direct impact on the price of goods supplied or services rendered by the taxpayer.
It should be noted that in the case of an in-kind contribution, it is this provision that is applied when determining the VAT taxable base. This means that the VAT taxable base in this case will be the nominal value of the shares in the limited liability company received by the taxpayer in exchange for the in-kind contribution made, less the amount of tax. This position is currently well-established in tax interpretations, as indicated, for example, by the tax interpretations of the Director of the National Fiscal Information dated:
- 7 April 2022 (file reference number 0112-KDIL1-1.4012.76.2022.2.MB);
- 22 June 2021. (file reference number 0113-KDIPT1-2.4012.205.2021.2.SM).
The aforementioned positions stated that the tax base should be determined based on an amount equal to the sum of the nominal value of the shares taken up, less the amount of VAT due (without taking into account the value of the contribution transferred to the capital reserve, as the so-called agio).
This is also important for the receiving company, as the extent of output tax determines the extent of input tax.
It is worth bearing in mind that this issue is not interpreted unequivocally, as indicated by the question referred by the Supreme Administrative Court to the Court of Justice of the European Union (Decision of 24 February 2023, file reference number I FSK 2003/18), where the possibility of applying a nominal valuation to such transactions is questioned. In particular, one should always bear in mind Article 32 of the VAT Act in the context of the valuation of an in-kind contribution shown on an invoice.
Nevertheless, at this point, it should be pointed out that a tax-safe approach for the receiving company is to deduct VAT from the nominal value of the in-kind contribution made. At the same time, it is worth bearing in mind the position of the Court of Justice of the European Union issued in this respect in the future, which will potentially entitle to correct input VAT.
