Taxation on the sale of companies starts a transaction wave

The year 2024 may go down in our economic history as a transactional year marked by transfers of shares in companies and changes of ownership. The reason for this is a seemingly minor adjustment in the consolidation package proposed at the end of August.

Earlier, the coalition agreed to significantly limit the exemption of income from the sale of securities and shares in companies by individuals. The maximum tax-exempt income will be CZK 40 million (there is no limit now), while maintaining the existing condition of holding shares for three years, or five years in the case of other shares in companies.

The change of the effective date from the original 1 January 2024 to one year later, included in August, then gave room to those who are considering a sale in the near future. The most appropriate route for them will be to start the process as soon as possible. There are currently 13 months to go, and that is still time for even a well thought out and prepared sale of a share or business to be completed.

Demand from business owners for transaction services to help them manage the sale has been growing since the proposal for this legislation was first proposed.

Those who are not going to sell will be dealing with the valuation of the share in question. In an economy where there are only a minimum of publicly traded companies, this is a fairly fundamental issue. Given that the aim is for the taxpayer to effectively tax only the increase in value after the end of 2024, the question arises as to what is the most appropriate way of evidencing market value and when to prepare such a valuation. However, the amendment does not offer an answer. Although the valuation methods are legislated, they can result in very different values. For example, because market expectations of comparable companies may differ from those of a particular company and, in addition, these differ over time.

And these are just a sample of the question marks that owners will have to address in the new way. These are what drive many to avoid valuation issues and discussions with the IRS and sell while it can be done relatively easily.

Commentary by Štěpán Flieger for Hospodářské noviny of 1 December 2023