Under Value Added Tax Act (VAT Act), the contribution in-kind is treated as a “non-delivery”. I.e. the transfer of an asset from one company (X) to another (Y) via contribution in-kind does not lead to VAT accrual.
Nevertheless, the contribution in-kind triggers several VAT effects, if the contributing company (company X) is VAT registered:
1. Company Y must get registered under the VAT Act (if it was not), as the date of registration is the entry date of the contribution in-kind in the Commercial Register. Company Y must submit application for VAT registration within 14 days after the entry date.
2. Company Y becomes legal successor of all rights and liabilities under the VAT Act, related to the contributed assets; including the VAT credit right and VAT credit obligations for correction of the used VAT credit. This suggests that if for some reason company Y performs a VAT-non-taxable deal, writes it off or similar, then company Y will be obliged to perform correction of the VAT credit, even though it the latter was used by company X. At the same time, if company X has not exercised its VAT credit right for all contributed assets, company Y can exercise it. In addition, if company X did not use VAT credit right for the contributed assets, but the circumstances leading to it are not available in company Y, then company Y can exercise the VAT credit right.