Tax on Civil Law Transactions (TCLT) applies to various transactions made by entities that do not have VAT-payer status and are not involved in professional commerce. The transactions covered include, among others, sale of property or a loan.
However, the TCLT may also be imposed on businesses. In particular, it applies to the limited number of transactions that fall outside the scope of VAT. Most typical of them is incorporation of a company and share capital increase. Both are subject to a flat TCLT of 0.5% calculated on the increased (created) share capital value. The same 0.5% burden is levied on two other transactions that are often used as alternatives to the share capital increase. The first one is a loan drawn by a company from its shareholder. The other is an “additional payment” contributed to a company’s supplementary capital. In each of theses cases, the company receiving a loan/capital injection is the entity, which is obliged to pay the TCLT.
Furthermore, businesses are obliged to pay the TCLT on two more common transactions:
- transfer of shares (1% TCLT rate) and
- transfer of real property, where it is exempted from VAT (2% TCLT rate).
In both cases the TCLT is payable by the purchaser.
As mentioned above, transfer of real property, if made between businesses, can be taxed with the TCLT only where it is exempted from VAT. This condition is met in a limited number of cases, e.g. where a transaction relates to so-called “used property” and the seller was not entitled to deduct input VAT while purchasing such property. Another VAT exemption that may trigger the 2% TCLT applies to residential properties and flats unless they are sold for the first time.
