In-kind contribution for the incorporation of a company

By means of official letter 115 – 077651 dated April 10, 2024, the Superintendence of Corporations explained how to convert into shares the value of the contributions in kind for the incorporation of new companies.

For instance, the shareholders of the company in the process of incorporation may choose between contributing cash or goods. According to Article 98 of the Code of Commerce (C. Co), contributions are defined as the set of tangible and intangible assets that the partners or shareholders deliver for the incorporation of a company. Such contributions may be in cash (Capital), in work (Industry) or in other goods appreciable in money (in kind).

Regarding contributions in kind, the Superintendence of Corporations has clarified that this entity is no longer in charge of approving the appraisal of contributions in kind. This is based on article 132 as well as article 398 of the Code of Commerce, applicable to the SAS by remission of article 45 of Law 1258 of 2008, Decree 2155 of 1999 and Law 222 of 1995.

On the other hand, the value of the contribution in kind, in accordance with Article 126 of the Commercial Code, must be estimated according to its commercial value. In this sense, for new goods, the support of the commercial value will be the electronic invoice of purchase of such goods. These invoices must obviously have been issued in the name of the shareholder who will contribute them to the incorporation of the new company.

Regarding the accounting recognition, the financial reporting standards provide that the initial measurement of equity instruments (shares) other than those arising in a business combination, must be made on the fair value of the cash, or in this particular case, on the resources received or to be received (IFRS 9 Fair Value, paragraph 5.7.5 and Section 22 Liabilities and equity of IFRS for SMEs, paragraph 8, Decree 2420 of 2015, Annexes 1 and 2).

According to the above, the Superintendence of Companies has indicated that the entity being incorporated must record the asset received at its fair value and simultaneously account for the contribution received by the shareholder in the company’s equity.

With this value, the Superintendence has explained that the number of shares to be delivered to the contributor will be the result of dividing the fair value of the asset over the nominal value of the share.

Likewise, Article 319 of the Tax Statute applies the principle of tax neutrality whereby the contribution in kind for the incorporation of a company will not be understood as sale and therefore will not generate taxable income or deductible loss for the contributor.

Also, paragraph 1 of the same article establishes that the value of the contribution for commercial and accounting purposes may differ from the tax cost of the contributed asset.

Consequently, although article 319 requires maintaining the tax cost of the assets and shares to apply tax neutrality, the paragraph provides that, for commercial and accounting purposes, the value of the contribution is the one assigned by the parties, in accordance with the same accounting and commercial rules. Consequently, the tax cost may differ from the value for commercial and accounting purposes of the contributed asset.

Through Opinion No. 286 of April 23, 2024, DIAN has stated that the commercial value of these contributions does not necessarily have to correspond to the value of the fiscal cost to apply the principle of tax neutrality established in article 319 of the E.T., since in paragraph 1 of the same article establishes that the value of the contribution for commercial and accounting purposes may differ from the tax cost of the contributed asset.

Contribution requirements to maintain tax neutrality

Article 319 of the Tax Statute, establishes that the contribution in cash or in kind to national companies will not generate taxable income for these, nor will the contribution be considered as alienation, nor will it give rise to taxable income or deductible loss, for the contributor, provided that the following conditions are met:

1. That, as consideration for the contribution, the new company delivers shares that were issued for the purpose of using them for the purpose of its incorporation.
2. That in the document formalizing the incorporation it is expressly stated that the cost, that is, the value for which it was declared by the contributor is that of the immediately preceding year, corresponds to the same value for which it is being received. For the purposes of tax depreciation or amortization in the head of the new company, there will be no extensions or reductions in the useful life of the transferred assets, nor modifications to the tax cost base of the depreciation.
3. That the Company that receives them, the contributed assets keep, for tax purposes, the same nature of fixed or movable assets that they had for the contributor when the operation was formalized.
4. That the parties declare that they are fully subject to the provisions set forth in Article 319 of the E.T.T.