TRUST FUNDS – the issue of VAT when depositing assets into the fund
Things do not necessarily have to be complicated to work properly, on the contrary, it can be relatively easy. A simple solution for intergenerational property transfers, property protection with the inheritance and creditors or to preserve the integrity of family assets, can be trust funds.
Until mid-2017, we did not need to deal with VAT issues within trust funds. Not that the trust fund could not become a taxpayer. Similar VAT rules apply to the trust fund as for business entities. Rather, the fund itself could became a payer of VAT due to the economic activity.
The situation has changed with the amendment to the VAT Act effective from the 1st of July 2017 and the issue of VAT will have to be addressed at the establishment already, respective to when depositing assets into the fund. The change made with the amendment to the VAT Act is only small and perhaps even slightly overlooked, but the consequences may be crucial in the case of an erroneous application. What is happening with the change in the law?
From the provisions of the law, which laid down what is considered to be VAT for the supply of goods, restrictions on the deposit of assets have only disappeared into commercial corporations. Newly, therefore, any deposit of property for which a VAT deduction was claimed at the time of purchase is considered as the supply of goods. The change – as in the explanatory memorandum to the amendment – also concerns the deposit of assets into a Trust Fund.
Thus, the depositor of assets into a Trust Fund should carefully consider when and how the value added tax was deducted in the case of the asset. If the answer is in the affirmative, it will be necessary to examine whether it will be taxable or whether it will be subject to any of the possible exemptions. And, most importantly, whether, and under what conditions, the trust fund will be entitled to deduct the tax on the invested property if the deposit is considered a taxable transaction associated with the obligation to tax by the depositor.
The described issue will not continue to be relevant for the deposit of private property from the ownership of an individual, a non-payer of VAT (most often private property, i.e., in the case of the so-called family trust funds). However, if you enter or plan to enter business assets into the Trust Fund, I strongly recommend to consult the issue in advance.
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