The New Civil Code, Act No. 92/2012 Coll., introduced the institute of Trust known from the Anglo-Saxon law. Trust has no legal subjectivity. Trust is established on the founder’s (natural person’s or legal entity’s) initiative, either under agreement or under testament.
A key document of Trust is a statute based on which Trust is managed. A statute shall be in a form of a public document and its substantial particulars are stipulated in a minimum extent by the law and so, its contents are at the founder’s discretion. In a statute, a property is indicated which was allocated from the founder’s assets and entrusted to the trustee for a certain purpose, and also, the beneficiary is identified, or the procedure to determine who the beneficiary will be is set.
The trustee is not the owner of the entrusted property, however, he exercises ownership rights over such property.
Taxes and Trusts
Property allocated by the founder to Trust is not subject to corporation income tax or real estate transfer/acquisition tax.
In the event of a paid allocation of property to trust, such transfer is subject to real estate transfer/ acquisition tax. Trust is an accounting unit.
Pursuant to Act No. 586/1992, on Income Taxes, Trust is a payer of corporation income tax. Its incomes are subject to tax, similarly to a “standard” business corporation, Section 17(1)(f), i.e. 19%.
Beneficiary’s incomes from Trust are classified as so called other incomes defined in Section 10 of the Income Taxes Act.
Beneficiary is free from income tax in the event that conditions determined in Section 10(3)(1) and (2) of the Income Taxes Act are satisfied:
In the event of beneficiary’s gratuitous income from property allocated to Trust, or increasing the existing property in such Trust, by any of the following persons:
If a natural person beneficiary is not free from tax, the incomes from Trust are subject to 15% income tax.
A legal entity beneficiary’s incomes are subject to a standard tax of 19%.
If Trust is an investment fund, Section 21 (2) (a) applies to such Trust in terms of corporation taxes under which the tax rate of an investment fund pursuant to Act No. 240/2013 Coll. regulating investment companies and investment funds amounts to 5% from the tax base.
Making disbursements from Trust after 19% tax, disbursements shall be made first from Trust profits and then from other Trust property, Section 21c. Disbursements from Trust profits are subject to 15% withholding tax for payers determined in Sections 2 and 17.
Beneficiary’s – either natural person’s or legal entity’s – incomes from Trust are free from income tax in the case of property allocated to Trust under a testament.
To establish Trust for the purpose of tax optimization is not expedient in the Czech Republic, unlike the foreign countries.
Trusts represent a new solution of situations in life that were previously hard to solve or even unsolvable, namely thanks to the possibility of allocation e.g. for the purpose of hand over of property to children and grand-children, protection of family property, inter-generation hand over or administration of business companies and last but not least, the charity.
Author: JUDR. Vladimíra Pajerová, AK Pajerová s.r.o.