Tax aspect of the transfer of stakes is in practice frequently subordinated to financial, legal or other aspects of a transaction. It may become topical only in later phases of a planned transaction when it can have a negative impact on the course of such transaction or even lead to a collapse of the negotiations that were promising until the emergence of such issue.
When I am talking about the tax aspect of a transaction, I primarily mean the capital gains tax that is paid (or not paid) by the seller – natural person on the occasion of selling the stakes in his company.
Capital gain involves a positive difference between the selling price and purchase value of the stakes in the company. Mention of the selling price as an element for establishing the capital gain means that this tax is paid only in the case of transfer for remuneration. Accordingly, if the stakes in a company are given as a gift to another natural person or even a legal entity there is, in principle, no ground for payment of this tax.
Transfer of a stake for remuneration needs to be understood in a broader sense, not as a sale only. By bringing a stake of one’s own company in equity capital of another company can also involve the payment of this tax if, naturally, the purchase price is smaller than the “selling” price. Legislator defines the mode of setting the selling price in the case of exchange because in this case the owner exchanges the stakes in his company for the stakes in another company in whose capital equity he brings-in his stakes.
Purchase price for the needs of establishing a capital gain is the price at which the owner purchased the stake, and/or how much he has invested in such stake. Hence, it would include the paid-in cash contributions and brought in non-cash contributions (in objects and rights), provided they are orderly registered with the Business Registers Agency. If a stake has been acquired on the basis of gift or inherited from a donor/testator, purchase price is deemed to be the price at which the donor/testator has acquired the stake.
Selling price for the purpose of establishing a capital gain is the contracted price, and/or the market price set by the Tax Administration if it estimates that the contracted price is lower than the market price. This corrective provision is applied to the sales that are taxed by the tax on absolute rights, such as real estates, where the Tax Administration is authorized, for the purposes of taxation, to correct the purchase/selling price, and levy tax on the same. As the sale of stakes is not subject to the tax on the transfer of absolute rights, it cannot be the case here.
Capital gain is taxed with the tax rate of 15%. The taxpayer has a duty to file a tax return within 30 days from the date when he earned income or started earning income based on the transfer of the stake. Tax is paid based on the Ruling of the Tax Administration. Please note that you first have to wait for the receipt of the Tax Administration’s ruling and see if the Tax Administration has adopted the calculation from your tax return, and only then pay the tax.
However, the tax on capital gain is not paid on all transactions where the selling price of the stake is higher than its purchase price. Legislator envisages several exemptions that are relevant for this topic.
First, transfer of a stake that a natural person held in its ownership continuously for a period of minimum 10 (ten) years prior to the transfer is not subject to capital gain tax.
Also, exempted from taxation is the transfer of a stake for remuneration between the spouses and first-line relatives. This provision has great significance for ownership reorganization within a family, taking into account at the same time the legal rule from the preceding paragraph.
The right to tax exemption (concretely, the consequence of the 10-year ownership of the stake) is not exercised in the case when a member of the company transfers a stake to the company and the company acquires own stakes on this ground. This rule was introduced in 2018, probably as a consequence of the practice that a large number of natural persons tried to optimize their tax situation by using the institute of own stake, i.e. the stake in the company whose owner is the company itself.
Also, it is important to know that legislator allows offsetting of capital loss with capital gain. Such offsetting can be done in the case when the taxpayer first makes a capital gain and a capital loss in a later period.
If after the offsetting a capital loss is declared, its offsetting is permitted to be done in the next 5 (five) years.
