The Ministry of Justice of the Slovak Republic has submitted a draft Act amending and supplementing Act No. 37/2002 Coll., on Foundations and on Amendments to the Civil Code, amending and supplementing certain acts (hereinafter referred to as the “Foundations Act”). The main reason for the proposed Act is the introduction of an institute for the management of property for private purposes, which has up until now been absent in Slovak legislation. Similar instruments are known from abroad, such as trusts or private funds. This will allow citizens to set up how property is managed and handed over to family members or other persons designated by them.
The proposed amendment to the Act is to add a new concept – private foundation. The forthcoming amendment will include legal regulation of the functioning of a private foundation, including the conditions for its establishment. The minimum contribution to a private foundation is proposed in the amount of EUR 1.
The assets of a private foundation will be able to consist of everything that can be the subject of private law relationships (e.g. movable and immovable property, securities, business shares, jewellery, cryptocurrencies).
Information about the founder of a private foundation should be non-public.
From an income tax perspective, a private foundation should have a similar tax treatment to a regular corporate income tax payer. Contributions and donations to a private foundation should thus not be subject to taxation at the level of the private foundation. The income of a private foundation should be subject to the corporate income tax rate. Benefits provided to the beneficiary – an individual – from the profits of the foundation should be subject to withholding tax in a similar way as in the case of dividends.
However, if a benefit that is not made from the profits of a private foundation is paid to a beneficiary, the tax treatment will be the same as in the case of a donation. The gratuitous use of the private foundation’s property by the beneficiary – individual – as well as the reimbursement of its costs from the private foundation’s property will also be considered in the same way, and such use of property will not be subject to personal income tax.
The proposed effectiveness of the Foundations Act is from 1 January 2024. However, we will inform you in more detail about the forthcoming Act in future issues of our Newsletter.