Recently, there has been a growing popularity of trust funds in the Czech Republic; these funds are mainly used for private purposes, family securing and property protection. According to a survey by the Association for the Support and Development of Trust Funds, there were 600 funds in the Czech Republic at the end of last year, which is double compared to 2015. In addition to the consolidation of legislation and the general positives offered by this form of asset management, the increase in popularity is also due to medialisation in relation to the use of this form of asset management by a well-known political figure. However, until recently there were tax inefficiencies that hampered the use of trust funds for the holding of ownership interests and shares.
There has been a substantial tax change in connection with the approval of the amendment to Act No. 586/1992 Coll. (hereinafter the “Amendment”), on Income Taxes (hereinafter the “Income Tax Act”). One of the most important points is the addition of Section 19 3(b) on tax exemptions, which introduces the exemption of profit shares paid to a trust fund from income tax. The exemption applies under similar conditions as in the case of business corporations. The condition for the exemption is therefore that the trust fund will hold at least a 10% share in the registered capital of the subsidiary (domestic/foreign) for at least 12 months. The Amendment was signed by the President of the Czech Republic in April 2017. Previously, legislation did not allow for this exemption and double taxation occurred. Another change brought about by the Amendment is the new definition of tangible assets excluded from depreciation. Tangible assets acquired from a trust fund or from a family fund whose acquisition was exempt from income tax or was not subject to tax are excluded from depreciation.
By adopting the Amendment to the Income Tax Act, the last of the tax obstacles to the development of trust funds in the Czech Republic was removed. Trust funds are now the ideal solution for holding and managing business corporations and setting up family holdings that protect property, facilitate succession, and ensure that the owner’s will is fulfilled.
Although the institute of trust fund appeared relatively recently (2014) in legislation, it is nowadays an important part of Czech law. What is positive is that legislation is changing and improving towards a better management and use of this institute. We may undoubtedly assume that the latest legislative novelty - the introduction of keeping records of trust funds as of 1 January 2018 - will facilitate the day-to-day operation of the funds, and we will witness an increase in their number.
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