27 April 2023
NRA guidance in connection with company transformation through change of the legal form
Recent guidance of the National Revenue Agency (NRA) of February 2023 elaborates on tax questions in connection with company transformation through change of the legal form – from limited liability company (LLC) to joint stock company (JSC).
Upon entry of the change into the Commercial register and register of the non-for-profit entities (Commercial register) the transforming LLC is dissolved without liquidation and the newly incorporated JSC will be with a new Unified identity code. The rights and obligations of the transforming LLC shall pass entirely onto the new JSC.
VAT specifics
The VAT registration of the transforming LLC is terminated at the revenue authorities’ initiative with the issuance of a deregistration act. In this case, the deregistration act is not served to the taxpayer. The date of occurrence of the respective circumstance – dissolution of the legal entity, shall be the deregistration date for VAT purposes.
The transfer of goods or services from the transforming company to the receiving new company as a result of the transformation shall not be regarded to be a supply for VAT purposes. The new JSC shall be a successor of all VAT rights and obligations in connection with the received goods or services, including the right to VAT deduction and the obligation for adjustment of used VAT deduction.
The new JSC that receives goods or services from a VAT-registered transforming company, is subject to mandatory VAT registration. For that purpose, the new AD shall submit a VAT registration application within 7 days following the entry of the transformation into the Trade register. The date of the entry of the transformation in the Trade register is the date of VAT registration and from that date the new AD may issue invoices with VAT charged.
The last tax period of the transforming company for VAT purposes comprises the time from the beginning of the tax period till and including the date of deregistration. The first tax period of the newly incorporated company comprises the time from and including the date of entry of the transformation in the Trade register until the end of the tax period.
Corporate income tax (CIT) specifics
According to the CIT Act, upon transformation through change of the legal form, the tax year shall not be split in two periods – up to and after the date of transformation. The newly incorporated company shall assume all obligation for assessment of the tax result and payment of the due CIT for the whole year of the transformation.
For tax purposes, all rights and obligations stemming from actions of the transforming company for the current and previous periods, including the increases and decreases of the tax result, are deemed to have been performed by the newly incorporated company. A single CIT return shall be submitted in the name of the newly incorporated company, wherein shall be reflected the overall tax result for the tax year, both until and after the transformation. The due CIT under the annual CIT return shall be remitted to the NRA by the successor – the newly-registered AD.
The newly incorporated company shall make monthly or quarterly advance CIT installments following the general rules of the CIT Act on the basis of the forecast tax profit determined by the transforming company. The newly incorporated company may carry forward the tax losses formed by the transforming company.
