An in-kind contribution of real estate to a company's capital may be made both upon the initial registration of a company and upon a subsequent increase of its capital.

An in-kind contribution is a method of transferring ownership of real estate and is often used in practice as an alternative to a sale by notarial deed. One popular approach is to establish a new sole-owner limited liability company (EOOD) into which the property is contributed, whereupon the person wishing to acquire the property buys the company shares of that company, thereby acquiring sole ownership. The main advantages of an in-kind contribution include:

  • the absence of local tax,
  • lower notary fees,
  • no VAT being charged,
  • avoidance of matrimonial community of property where the buyer is married.

Individuals who contribute their own property to a company in kind do not owe tax under the Personal Income Tax Act. If the company later sells, exchanges or otherwise transfers the property, or reduces its capital by making a payment to the contributing person, for tax purposes the individual is deemed to have sold the property on the date of entry of the non-cash contribution. Where the capital is reduced, the income is deemed to have been acquired on the date of entry of the reduction.

In addition to real estate (buildings and land), a right to build may also be contributed in kind, but a right of use over real estate cannot be the subject of an in-kind contribution.

Where there is a mortgage or an injunction, the property may still be contributed in kind, but the encumbrances remain and may lead to a public sale. In that case, the right of ownership is extinguished, but the company has a receivable against the contributor.

There is no limit to the number of properties that may be contributed in kind to a company's capital.

Stages of an In-Kind Contribution of Real Estate
Valuation of the Property

To make an in-kind contribution of real estate, the owner must submit a request for valuation to the Registry Agency. The request must be accompanied by documents certifying the right of ownership, such as a notarial deed, a cadastral sketch, a tax valuation and others. Three experts appointed by a registration official prepare a valuation which includes a full description of the property, the valuation method and its value. The resulting valuation is the maximum value of the shares or company interests that the owner may receive in return for the contribution. The articles of association or the statutes may provide for a value lower than the one assessed.

For legal entities, if the difference between the value of the contribution and the book value of the property is positive, it is subject to corporate tax.

Entering the Contribution in the Commercial Register

The in-kind contribution of real estate is effected through the founding act of an EOOD, the articles of association of a limited liability company (OOD), or the statutes of a joint-stock company (AD and EAD). The documents must contain the name of the contributor, a full description and valuation of the contributed property, as well as the contributor's legal title. The following are required for entry in the Commercial Register:

  • the experts' report;
  • a declaration under Article 264(1) of the Tax and Social Insurance Procedure Code, with the owner's signature notarised;
  • a declaration of consent under Article 73 of the Commerce Act, notarised;
  • documents of ownership of the property, a cadastral sketch, a scheme, a combined sketch and a tax valuation;
  • minutes of the general meeting, if the contribution is made by a legal entity.

The certification of the declaration of consent under Article 73 includes a check of ownership, which requires the ownership documents to be presented to the notary.

Ownership of the contributed property is transferred as of the date of entry in the Commercial Register. The company acquires ownership as of the date of registration of the company or entry of the increase of capital.

Entering the Contribution in the Property Register

In order for the transfer to be opposable to third parties, the contribution must also be entered in the Property Register by the manager or the executive director of the company. In the event of any claims against the contributor or a transfer of the property to another person by notarial deed, entry in the Property Register is relevant to the order of opposability.

Documents required for entry in the Property Register:

  • a notarised extract from the articles of association, the founding act or the statutes;
  • the experts' report;
  • documents of ownership of the property (a notarial deed, a partition agreement and others);
  • cadastral sketches and schemes;
  • a tax valuation certificate;
  • a declaration of consent under Article 73 of the Commerce Act, with the contributor's signature notarised;
  • a declaration under Article 264(1) of the Tax and Social Insurance Procedure Code, with the signature notarised.

The documents may be submitted in the original or as copies certified by an attorney, and for most of them notarisation is not required. A fee of 0.1% of the valuation of the property is payable for entering an in-kind contribution in the Property Register.

Should you require legal advice or assistance in connection with in-kind contributions of non-cash assets to the capital of companies, please contact us on tel.: 0887550706 or by e-mail: [email protected]