Of the changes proposed in the AICIF, the following are particularly important for imposing corporate income tax on investment funds:

• Enable investment funds, which are limited partnerships on investment certificates, and ordinary joint-stock companies (newly referred to as joint-stock companies with fixed share capital or SICAF), to establish sub-funds (the current legislation enables only joint-stock companies with variable share capital or SICAV to establish sub-funds);
• Specification of the term fund capital using the term “net asset value”; and
• Specification of some process aspects of the liquidation of a unit trust (obligation to prepare a report in the liquidation, obligation to prepare financial statements according to the Accounting Act, request for the deletion from the register held by the Czech National Bank filed by the administrator, etc.).

In connection with the aforementioned AICIF amendments, the following changes were proposed to the Income Taxes Act:

• Extension of the category of corporate income taxpayers by new types of sub-funds of investment funds. Besides the current sub-funds of joint-stock companies with variable share capital, sub-funds of limited partnerships on investment certificates and sub-funds of joint-stock companies with fixed share capital have now become corporate income taxpayers.
• Sub-funds of investment funds may now be classified as basic investment funds (with an advantaged income tax rate of 5%), as these are sub-funds, the shares of which are accepted for trading on the European regulated market, and, simultaneously, meet other legally set conditions (such as a maximum 10% interest of a corporate income taxpayer in the share capital and no trading activities). This amendment changes the practice as described in the judgments of the Municipal Court of Prague ref. no. 10 Af 10/2023-61. You will find more information on this interpretation in our article.
• The extension of sub-funds that may be classified as basic investment funds (with an advantaged income tax rate of 5%) arising from investing 90% of their asset value into a legally specified range of financial assets, besides the current sub-funds of joint-stock companies with variable share capital, by sub-funds of limited partnerships on investment certificates and sub-funds of joint-stock companies with fixed share capital.
• Testing of conditions for the relation between the parent company and subsidiaries for the sake of tax exemption of income from profit shares and the sale of shares separately for a joint-stock company and sub-funds newly apply not only to a joint-stock company with variable share capital and its sub-funds but also to a joint-stock company with fixed share capital and its sub-funds.
• Extension of the definition of depreciator of tangible assets to include new sub-funds of investment funds. In this context, the definition of a depreciator has been amended to include all corporate income taxpayers who are not legal entities but which include tangible assets.
• The analogy of the application of the provisions of the Income Taxes Act applicable to an open-end unit trust is generalised so that it also applies to a joint-stock company with fixed share capital and its sub-funds. Similarly, the rule on the application of the provisions of the Income Taxes Act relating to limited partnerships, limited partnerships on investment certificates and its sub-funds.

The changes proposed in the Income Taxes Act, which relate exclusively to the newly introduced investment funds’ sub-funds, should apply as of the effective date of the amendment, i. e. from 1 July 2024 already. For existing sub-funds of joint-stock companies with variable share capital, the standard rule according to which the provisions of the Income Taxes Act in the wording effective before the effective date of the amendment shall apply to tax liabilities for taxable periods commenced before the effective date of this amendment (i. e. until 30 June 2024).

As part of the changes adopted in the AICIF concerning the course of liquidation of a unit trust, its manager is newly obliged to prepare a report on the course of liquidation, which should describe how he dealt with the liquidation assets. As of the same day, the administrator is obliged to prepare financial statements according to the Accounting Act. The report on the course of liquidation can be considered as the preparation of a proposal for the use of the liquidation balance, which determines the deadline for filing a tax return pursuant to Section 240c (3) of the Tax Code.

In conclusion, it can be summarised that in addition to the application of the rules for the taxation of investment funds’ sub-funds to sub-funds of limited partnerships on investment certificates and sub-funds of joint-stock companies with fixed share capital, the possibilities for a sub-fund to become basic investment fund and thus apply a 5% corporate income tax rate have been extended.