The reduction of the authorized capital is an ordinary procedure for the legal entities. Generally speaking, the capital reduction is the process of decreasing a company´s shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons including increasing shareholder value and producing a more efficient capital structure.
But, what are the consequences ? We have summarized in this article the tax treatment after a capital reduction:
1. Income tax
If the share capital of the legal entity income tax does not arise.Thus, in the case of reducing the share capital, section III of the Tax Code of Ukraine provided the adjustment of financial result before tax for the difference, including when leaving one of the founders / participants.
2. VAT
Not taxable payment of share dividends and share capital in cash and VAT (pp. 196.1.6 TCU).
3. PIT and military collection
If a member / founder is a natural person, in this case, there is no taxable income, if there is a reduction of share capital, return of share of participants / founders of the cost previously made their contributions. It occurs only in case of alienation of corporate rights ( selling them to another person).
Contact:
Yaroslav Kalakura
Corporate services consultant, Accace Ukraine
