On 19th November 2020, the Chamber of Deputies of the Czech Parliament approved a draft amendment concerning tax on securities transfer for consideration, amending Act No. 586/1992 Coll., on Income Taxes, as amended (the “Income Tax Act“).
The amendment to the Income Tax Act was delivered to the Senate of the Czech Republic on 23rd November 2020, and the Senate must decide on the draft amendment within 30 days. Under the current provisions of the Income Tax Act, the sale of securities is exempt from tax provided that a so-called time test is passed. Based on the time test, a securities transfer is exempt if the time between the acquisition and the sale is longer than three years. In the case of an equity certificate, the time must be five years, instead of three.
The amendment to these regulations approved by the Chamber of Deputies of the Czech Parliament consists of a value test of CZK 20,000,000.00 for:
- securities transfer for consideration; and
- income from shares attributable to a mutual fund share certificate in the event of dissolution of the mutual fund.
It means that income from a securities transfer exceeding CZK 20 million would be subject to tax at a rate of 15% or 23% if the amendment introduces the higher rate. This amendment does not apply to transfers of business shares in business corporations (such as an s.r.o. – limited liability companies) which will still be exempt after 5 years. First of all, it is not quite clear how the draft amendment will be interpreted and if this version of the amendment will be passed at all. It is more likely that the current version will not be passed and that the Senate will return the bill to the Chamber of Deputies for further debate. Most tax advisors believe the draft amendment has not been adequately thought through, lacking any conceptual solutions. Since the amendment does not contain any transitional provisions on the exemption of securities acquired before the effective date of the amendment, we might deduce that as of the effective date of the amendment, there will be a limit to the exemption of sales of securities, irrespective of when the taxpayers acquired the securities. Investors would therefore have to pay tax on sales of securities over the limit of CZK 20 million even if they acquired the securities more than 3 years ago, when they anticipated the full exemption. This would mean a leap from no tax to considerable tax, the consequences of which would be unjustified thwarting of investment plans and introduction of an element of legal uncertainty into the Czech environment.
We will keep you updated on any news related to changes in tax on securities transfer for consideration. In the case of any queries, do not hesitate to contact us.
Denisa Nováková
Managing Associate
CEE Attorneys s.r.o., advokátní kancelář
denisa.novakova@ceeattorneys.com
Lucie Berglová
Head of Tax Team
ASB Czech Republic
lberglova@asbgroup.eu