Indirect taxes on raising capital

Directive 2008/7/EC — indirect taxes on the raising of capital seeks to regulate the indirect taxes levied by EU countries on the raising of capital. Indirect taxes are those levied on goods and services rather than on income or profits.

While it generally prohibits these taxes, notably capital duty, it allows certain countries to levy them if they meet certain exceptional conditions.Capital duty: an indirect tax payable when capital companies are formed and which interferes with the free movement of capital.
Instruments constituting the company: the company’s constitution or the legal act setting up the company.


Tax and the companies concerned

The directive seeks to regulate the levying of indirect taxes on:

contributions of capital to capital companies;
restructuring operations involving capital companies;
the issue of certain securities and debentures (long-term securities yielding a fixed rate of interest).

The directive applies to the following companies:

limited companies (private companies whose owners are legally responsible for their debts only to the extent of the amount of capital they invested);
limited partnerships with share capital (part of the capital that comes from the issue of shares);
limited liability companies.

In this directive ‘capital company’ means any company, firm, association or legal person:

whose shares can be dealt on the stock exchange;
whose members may freely dispose of their shares and are only responsible for company debts to the extent of their shares;
and, as a rule, any other which operates for profit.

The directive clarifies what is meant by contributions of capital (including the formation of or conversion into a capital company or the increases in capital shareholding either by contributions of assets or by capitalisation of profits or reserves). It also defines restructuring operations such as mergers affected by the contribution of assets or by the exchange of shares.

Prohibition on levying indirect tax on the raising of capital

EU countries may not levy indirect tax on the raising of capital to capital companies.

These transactions affect the following in particular:

contributions of capital;
loans or services provided as part of contributions of capital;
registration or other formalities required before starting a business because of the company’s legal form;
alteration of the instruments constituting the company*;
restructuring operations.
The directive also prohibits indirect taxes on the issue of certain securities and debentures. However, EU countries may charge certain transfer duties, fees, dues or value added tax.


Special rules apply to EU countries that charged a duty on contributions of capital to capital companies (capital duty) as at 1 January 2006. Those countries may continue to levy the duty, which must be charged at a single rate not exceeding 1% and may be charged solely on contributions of capital, i.e. capital duty may not be charged on other transactions such as restructuring operations.

Capital duty may only be levied by an EU country if the centre of effective management of the capital company is situated in that country at the time the contribution is made. In addition, capital duty can only be charged once in the EU.

Exemptions from capital duty may be applied to capital companies which supply a public service or have an exclusively cultural or social aim.

It has applied since 12 March 2008. It had to become law in the EU countries by 31 December 2008.


Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital (OJ L 46, 21.2.2008, pp. 11-22)

Successive amendments to Directive 2008/7/EC have been incorporated into the original document. This consolidated version is of documentary value only.

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