Dlouhodoby investicni produkt pozmenovaci navrhy

Long-term investment product - Amendments

We have previously informed about the new Long-term Investment Product ("LIP"). On 15 November 2023, the LIP was approved on third reading by the Chamber of Deputies, and will now go to the Senate for approval.

The LIP is expected to be effective since January 1, 2024.

Following the recently approved amendments of LIP, the LIP has been significantly modified. We therefore summarise below the main changes that will be reflected in the corresponding Acts:

Portfolio approach to the LIP

The original proposal worked with the assumption that, if the statutory conditions were met, income from the transfer of assets held under the LIP for consideration would be exempt from tax. The new treatment omits this provision entirely, and income from a transfer for consideration of assets held in a LIP will thus be treated and taxed as any other transaction carried out by an individual (i.e., the tax basis will need to be determined or the timing test for exempting the sale will need to be verified).

In theory, therefore, a situation may arise where an individual incurs tax liability in relation to transactions in a LIP. However, this tax liability will have to be paid from funds that available to him outside the LIP, as it is generally not possible to withdraw funds from the LIP.

Restrictions on investment instruments

There are significant restrictions on the investment instruments that can be evidenced under the LIP. Above others, the following are now considered to be permissible instruments:

• publicly traded instruments,
• bonds whose issuer is a Member State of the European Union or the central bank of such State, and
• collective investment securities.

The main change is that companies not listed on exchange, e.g. private limited liability companies or joint stock companies, cannot be evidenced under the LIP.

Mandatory registration of the LIP provider by Czech National Bank

The CNB will maintain a list of LIP providers. Each provider will have to notify the CNB that it will be a LIP provider.

If you have any questions, please contact the authors of this article or the EY tax team you are working with.

Author:

Radek Matuštík