CZECH REPUBLIC Law and Practice Contributed by: Daniela Kozáková, ŠIROKÝ ZRZAVECKÝ, attorneys-at-law
10.2 Legal and Fiscal Issues in Artwork Succession Trusts are very commonly used for the generational transfer of assets in the Czech Republic (Section 1448 et seq of the Civil Code). Property in trust does not belong to anyone and is referred to as property with - out an owner. First, the founder establishes a trust by means of a contract. A trust fund can also be set up in the event of the founder, although this would need to be after the death of the latter. If a trust is created by setting up a contract during the founder’s life, a trustee must be appointed to man - age it; once the trustee accepts the responsibility of managing the trust, it exists from the point that it is entered into the trust fund register. The trust must have its own statute in the form of a public deed (notary deed), and it must include a pur - pose. If the trust is to make profits or operate a busi - ness/asset, its purpose must be private, and not for public benefit. The proceeds from the trust belong to beneficiary but the beneficiary cannot dispose of the assets or participate in the management of the trust. The main advantages of an intergenerational transfer of assets through a trust are ensuring collection conti - nuity and control over it in the future. The founder can also be the trustee of the fund having control over the collection management if there is at least one other person appointed as a trustee with the founder. Another possibility is direct transfer of the collection from the trust to descendants. However, this option may include different types of transfer, depending on how the collection is owned (natural person, legal entity, etc) and needs careful detailed structuring/tax planning. The option that has been most recently discussed is transfer through a family holding, which is based on the family constitution. This should contain the values that the collection stands for and the goals the family wants to achieve in the future, as well as the relevant rights and obligations of the family members. In this option, there is no need to involve a third party – the family holding may be run by the family itself.
10.3 Tax Implications of Artwork Gifts and Donations Gift tax no longer officially exists, but is part of income tax. Individuals pay tax at the rate of 15% (or 23%, depending on the amount), and legal entities pay 21%. However, many donations/gifts are exempt from the tax – eg, if there is a family relationship between the donor and the beneficiary, the donation is exempt from tax. Tax is not paid from donations if the sum of the values of all donations from the same donor does not exceed the limit of CZK50,000 for a tax period (usually a cal - endar year). Donations are also exempt from tax if: • there is a direct family relationship between the donor and the beneficiary (parents, children, grand - children, spouses); • the donor and the beneficiary are relatives in the collateral line (siblings, nephews and nieces, uncles and aunts, sons-in-law and daughters-in-law, spouses of parents, children of the husband or parents of the spouse, spouses of children); and • the beneficiary and the donor have lived in the same household for at least one year, taken care of the common household, or the beneficiary is dependent on the donor for maintenance. Any tax-exempt income that exceeds CZK5 million must be reported to the tax authorities within the deadlines for submission of the tax declaration as specified in the law. 10.4 Artworks Exempt from Inheritance/ Donation Taxes Property and income that a natural person acquires through inheritance are no longer subject to inher - itance or any other tax. Inheritance is exempt from personal income tax under the Income Tax Act. It is still necessary to pay inheritance fees to a notary as a court commissioner in inheritance proceedings. Any tax-exempt income that exceeds CZK5 million must be reported to the tax authorities within the deadlines for submission of the tax declaration as specified in the law.
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