In addition, Highgate Law & Tax is also celebrating its win in the “Capital Markets” category, proving itself to be a comprehensive law firm with an extensive portfolio of expertise and the ability to successfully navigate diverse legal challenges.

The awards gala evening, which was organized by the media and educational group EPRAVO Group and the weekly TREND, was held at the Double Tree by Hilton hotel in Bratislava. For Highgate Law & Tax it was not only an opportunity to celebrate its success, but also to thank its clients and partners for their trust and support, without which this milestone would not have been possible.

This double triumph confirms Highgate Law & Tax’s excellent reputation for legal and tax services and reinforces its position as a leading player in the legal services market in Slovakia.

Článok Highgate Law & Tax and its double triumph in the prestigious Law Firm of the Year competition je zobrazený ako prvý na Highgate.

Článok Hello world! je zobrazený ako prvý na Highgate.

The full recording of the conference can be found here:

If you are interested in this topic, please do not hesitate to contact us.

Článok Peter Varga at the NBS conference on the digitalisation of the capital market je zobrazený ako prvý na Highgate.

In our practice, we often encounter structures where it is not entirely clear whether or not they should be regulated. Unfortunately, in some cases, ignorance can even lead to criminal law. Peter Varga demonstrated this risk with examples at our conference, which focused on real estate financing through various regulatory and tax structures. However, Peter Varga also spoke briefly about this at the TA 3 investment conference.

Scams with funds, bonds or other investment structures and opportunities?

As the regulatory jurisdiction of the NBS and the OČTK is often territorially limited, many investors in Slovakia fall victim to fraud. However, some of these fraudulent schemes are purely Slovak.

Taxation of funds in Slovakia?

At the time of the conference, there was a law in place that gave tax advantages to certain types of fund structures that was to be effective January 1, 2024. Although Peter Varga described the new tax regime, he quite astutely stated that the debate on the taxation of funds may be premature given the activities of the new government.

We have been actively dealing with the topic of funds in our practice for a long time, if you are interested in this topic, we attach links where we deal with it in more detail, namely:

in the following articles or lectures:

at our successful unique conference:

or in our video podcasts and online training:

Tokenised financial instruments and real estate

Tokenisation of assets undoubtedly brings with it a number of benefits, but also challenges. Peter Varga summarized them at the conference as follows.

If you are interested in the topic of tokenised financial instruments, we have covered it in more detail in the following article:

Taxation of portfolio rebalancing

In most cases, Slovak tax law has the ambition to tax the generation of income when rebalancing portfolios. However, there are institutes where taxation on rebalancing does not occur. Peter Varga also commented on this at the conference.

Článok Peter Varga on financial regulation and taxes at TA3 conference on investing je zobrazený ako prvý na Highgate.

For those who did not attend the conference, this article provides a brief overview of the topics we covered. At the same time, if you would like to watch the whole conference, or just some parts of it, we have video recordings of the conference available for you, which can be found at this link.

What types of investment funds do we know in Slovakia?

We opened the conference with a comprehensive discussion of different types of investment funds. When setting up a structure through investment funds, a number of factors have to be taken into account, hence their division mainly according to:

• investment policy;
• legal form;
• passport options;
• taxability of income;
• application of VAT on management fees;
• the type of investor to whom the investment fund may be distributed;
• the type of offer; or
• whether a permit is required for its establishment and operation.

At the same time, not all types of investment funds are suitable or possible to use for real estate financing, and those that may have real estate in their portfolio consequently differ significantly in their specific parameters. Therefore, an initial comprehensive regulatory, legal and tax assessment of the above factors is crucial in the creation and establishment of investment funds.

What are the rules for distributing a retail investment fund? Slovak SICAV?

The first panel was devoted to the so-called. Small investment funds. These are investment funds whose managers are limited by the maximum amount of assets they can manage. On the other hand, these investment funds are subject to very limited application of collective investment legislation, do not have a statutory investment policy (so they can invest in real estate) and are primarily aimed at professional investors and, to a limited extent, qualified investors.

The following factors play a key role in the distribution of small investment funds that invest in real estate:

• identification and assessment of the professional investor;
• taking into account the criteria of a professional investor with regard to the investment policy of the fund;
• limits for qualified investors in terms of their number, their share of the fund’s assets and their share of the assets managed by the manager;
• the distribution channels through which qualified investors may be approached; and
• restrictions on the promotion of such funds.

Small investment funds can be set up as a variety of companies or cooperatives. At the same time, only an investment fund can take the legal form of a company limited by shares with a variable share capital (SICAV). This is a flexible legal form which is adapted to the needs of collective investment. Only a small investment fund set up as a SICAV can create sub-funds as accountably separate parts of the assets with different investment strategies.

Where is the collective investment frontier? When do I need the fund?

The second panel focused on various alternative forms of raising capital from investors and investing in foreign real estate. The first topic was defining the boundaries of collective investment, i.e. answering when a particular business model constitutes a fund and when it is a legal structure without any permission from the NBS. When analysing a particular business model from a collective investment perspective, it is necessary to assess whether this business model:

• cumulatively fulfils all the statutory characteristics of collective investment;
• meets the characteristics of one of the collective investment exemptions, e.g. it is a joint venture (JV) or a holding entity;
• there are other indications that are a prerequisite for a business model to be a fund or not.

Crowdfunding and bond financing

Crowdunfing is a relatively still new regulation that makes it possible to connect investors on the one hand and entrepreneurs seeking funding for their projects on the other. The Crowdfunding Regulation aims to facilitate financing, especially for small and medium-sized enterprises, for which, for example, bond financing with a prospectus may be too costly. At the same time, crowdfunding platforms, as online platforms, are widely accessible to a large range of investors, including retail, and thus allow project owners to find funding, either through loans or by placing the securities they issue on that platform.

Thus, for example, a crowdfunding platform allows a developer to issue bonds (only up to a certain amount) in order to build a specific development project. Bonds can of course also be offered outside the crowdfunding platform, while the issuance of bonds represents a standard traditional method of financing, which is widely used in Slovakia and by developers. The legal regulation of bond issues is very flexible, which gives issuers a lot of room to set the individual parameters of the bonds according to their needs, starting with the way of calculating the yield, setting the rules for early maturity of the issue, the period during which the bonds will be issued, or their subordination to bank financing. At the same time, when financing real estate through bonds, an interesting institute is the security agent, in whose favour, as an agent of the bondholders, the bonds can be secured by the real estate.

How is it possible to invest in foreign real estate?

Acquiring real estate outside the Slovak Republic can be an interesting investment opportunity. For investment structures that allow Slovak investors to make such investments, taxes are one of the most crucial parameters. Setting up the structure in such a way that it can be competitive for investors with other “domestic” investment products is a very complex matter, taking into account in particular the existing risk of double taxation.

European Investment Funds EuVECA and ELTIF

The third panel, which also included two panelists from Slovak asset management companies, was devoted to larger investment funds, i.e. funds whose establishment and operation in Slovakia requires the permission of the NBS. The venture capital fund or “EuVECA” is primarily intended for investments in the so-called “EuVECA”. However, with a relatively broadly defined investment policy, it is possible under certain circumstances for such a fund to invest, for example, in companies owning real estate. While such a fund can also be established by a registered manager, in order to use the EuVECA designation, a number of requirements that are normally required (of course to a greater extent) for licensed management companies must be met, such as qualification requirements for persons managing venture capital funds, prudential requirements for the manager, and a number of internal policies. Not forgetting the correct tax set-up.

EuVECA and ELTIFs have the advantage that they can be distributed across the EU to a wider range of investors than other AIFMD alternative investment funds. ELTIF is also the only alternative investment fund that can be offered to retailers across the European Union. The investment policy of this fund is primarily focused on investments in long-term assets (including real estate). Although ELTIF is a closed-end fund, under certain conditions investors may be allowed to redemption before the life of the fund expires.

Qualified investor fund, real estate fund and alternative investment fund

Typical investment funds used by Slovak asset management companies to invest in real estate (and which they also refer to as “real estate funds“) are qualified investor funds, which do not have a statutory investment policy, and then public special real estate funds, which can invest directly in real estate or in so-called “real estate funds”. They can also invest in real estate, in particular in real estate companies, and have to follow rules for limiting and spreading the risk in their portfolio. If certain criteria are met, it is also possible to acquire a commercial company that may own real estate as part of the assets of a public special alternative investment fund. Both real estate funds and alternative investment funds can be offered in Slovakia and to the retail sector without a minimum investment amount limitation.

Why investment funds are set up abroad?

The fourth panel was devoted to foreign funds whose securities or holdings can be offered to Slovak investors. There are various motivations for the decision not to set up an investment fund that will be offered (to a large extent) to Slovak investors, ranging from the stability of the legal environment, the variability of structures that do not exist in Slovakia, for example, but also for reasons of a more robust infrastructure (many Slovak entrepreneurs set up, for example, SICAVs in the Czech Republic, which are managed by “external” management companies).

A big challenge for Slovak investors in setting up investment funds abroad (also) is their tax structuring. Adding to the complexity of this issue are the various legal and tax-transparent structures that need to be dealt with when disbursing income to Slovakia.

In terms of distribution, foreign alternative investment funds (including non-European alternative investment funds) can be offered in Slovakia to all types of investors, but the individual conditions for achieving such distribution will vary depending primarily on:

• where the management company that wants to distribute the fund is based;
• where the Fund is established;
• whether the securities or holdings of such a fund should be offered only to professional investors or also to retail investors.

Acquisition financing

In the fifth and final panel, we addressed the topic of acquisition financing. In a broader sense, financing includes not only bank financing, but also the use of own funds, which have several specificities and limitations, and, for example, various alternative forms of foreign financing.

At the same time, different types of financing can be combined, in which case the potential regulatory aspects of such combinations also need to be considered.

Slovak law brings several specifics, resp. Legal restrictions related to the provision and subsequent repayment of own financing. This not only implies high demands for creative structuring of acquisition transactions using own funds, but also places on the statutory bodies the burden of responsibility for compliance with these rules and a common obligation to compensate for damages in the event of their breach. In particular, the following institutes serve to protect the company’s capital and its shareholders and creditors against transactions between the company and its related parties which are not market-standard:

• prohibition on the return of deposits;
• a society in crisis;
• financial assistance.

If you are interested in the above topics and would like to learn more about them, you can find video recordings of the individual conference panels right here:

If you are interested in this topic, please do not hesitate to contact us.

Článok Real Estate – Taxes and Financing Conference (Unique conference on fund and tax structures, crowdfunding, bonds, bank financing, etc.) je zobrazený ako prvý na Highgate.

The awards gala was organised by the EPRAVO Group and the weekly TREND, and its eleventh edition took place on Wednesday 26. April. The event took place at the Double Tree by Hilton Hotel in Bratislava, where the winners of the individual categories received their awards for their year-long work.

We would like to thank our clients and partners for their cooperation, thanks to which we have achieved this success.

If you are interested in a consultation, please do not hesitate to contact us.

Článok Highgate Law & Tax named Tax Law Firm of the Year 2023 je zobrazený ako prvý na Highgate.

We are thus relatively intimately familiar with the related realities of this segment. Whether it is the topic of tax optimization, “employing sole traders”, investor entry, setting up a holding company, automated accounting, ESOPs, the legal, practical and tax pitfalls of scaling a business abroad, or operating with cryptos, these are all topics that we encounter in practice.

For this reason, we perceived that this conference can help many entrepreneurs to navigate through the complex tangle of more complex Slovak and foreign tax and legal issues. It was also intended to help to better understand the perspective of an investor or potential buyer in a company exit.

Sale of the company or entry of an investor :

• What are the basic situations and types of investor entry into companies?
• What are the key motivations and areas of interest for the investor and the company owner?
• What should an IT firm focus on to maximize the benefits of the investment for the firm and the business owner?
• Structured transactions and relevant tax implications from an income tax perspective (e.g. tax burden through a Slovak vs. a foreign holding company);
• Transaction Experience;

Relevant financial ratios when a company is sold or an investor enters :

• What is of interest to the investor or the buyer in accounting?
• Risks associated with incorrect accounting;
• Capitalization of the company;
• Transaction Experience;

Foreign IT contractors and work “from Bali” :

• Withholding taxes on payments to foreign contractors;
• Working from “Bali” – tax and levy implications;
• Setting up contract documentation;

ESOP – Best practice :

• What forms of shares and options can Slovak companies offer to their employees?
• Legal and practical context;
• Tax and levy context;
• Cross-border structure and practical experience;

Functioning in the crypt :

• Receiving retribution and paying contractors in the crypt;
• Types of crypto projects (token issuance, management, consulting, community token,…) and regulatory and tax aspects;
• Accounting and tax pitfalls in Slovakia and best practice when leaving Slovakia;
• Experience;

Scaling the IT business abroad :

• Do I need to have a company abroad in different business situations?
• Establishment of a permanent establishment, VAT regimes, withholding taxes;
• A company in an offshore jurisdiction from a legal, tax and practical perspective;
• Holding abroad – advantages and disadvantages;
• Investor requirements for foreign structure;
• Protection of the owner’s private property in the context of the political situation in Slovakia;
• Transfer pricing;

Software contracts :

• Framework or one-off contracts;
• Waterfall vs. agile SW development;
• Licensing Terms;
• Warranties and liability for defects in the SW;
• Problematic provisions – experience from practice;

Structuring business to the US :

• How best to enter the US market;
• Where can I get some help/information/grants?
• What is the tax and administrative burden?
• How to choose the right lawyer and accountant?
• How to get into the investors/funds horizon?
• In which state are the best conditions to enter the US market?

Tax optimization for digital and IT companies :

• Holding structure – owner protection;
• Patent Box and Supercomputing – how some IT companies do not have to pay income tax in Slovakia;
• Other tax and levy types and practical experience;
• When is tax optimisation already a criminal offence;

Schwarz system :

• Tax-tax implications and calculations;
• Impact on employees’ social insurance benefits (maternity, pension, sick leave,…);
• What impact does the change to a sole trader’s trade have on a sole trader’s pension?
• Analysis of court decisions that have dealt with the topic;
• Practice of tax administrations and labour inspectorates;
• Criminal liability;
• Setting up contracts with contractors;

Relevant financial ratios when a company is sold or an investor enters :

• What is of interest to the investor or the buyer in accounting?
• Risks associated with incorrect accounting;
• Capitalization of the company;
• Transaction Experience;

Many topics and many questions from conference participants. Companies were particularly interested in topics around ESOPs, tax optimizations or company sales. However, many attendees stayed until the end to hear the current practice in connection with the so-called In the meantime, there was a lot of interest in the practice of the shvarc system (i.e. the employment of freelancers).

We received a lot of positive feedback on the content and organisation of the conference. We are therefore very pleased that after the conference on setting up investment funds, this conference was also a success.

If you are interested in this topic, please do not hesitate to contact us.

Článok Conference on legal and tax optimization for technology companies je zobrazený ako prvý na Highgate.

Our aim is to gradually push through various channels a number of proposals in order to make the fund environment in Slovakia more attractive. The most effective in this respect so far seems to be the participation of Peter Varga in the advisory team at the Ministry of Finance of the Slovak Republic, who is relatively active in this topic. In addition, it is also membership in SLOVCA or cooperation with Crowdberry that help to put pressure on state authorities. However, the aim is not so much to attract foreign fund managers, but rather to motivate Slovak fund managers not to establish funds abroad. These channels are membership in the In this context, we were approached by Hospodársky noviny to summarise the main legal, tax and accounting sticking points in Slovak legislation. There are several of these points and they are caused by the long-term disinterest of legislators in the area of collective investment. You can read more about this below

Článok Setting up funds in Slovakia – accounting and tax pitfalls je zobrazený ako prvý na Highgate.

The Law Firm of the Year poll is organised by the Czech company EPRAVO Group s.r.o. in Slovakia in cooperation with the weekly Trend. The poll was established in the Czech Republic in 2008 and the awards have been sold in Slovakia since 2013.

We put a lot of effort into tax and accounting. We strive not only to educate and advise, but also to lecture to the wider public. For example, our offshore or cryptocurrency taxation training courses have become a firm part of the offering for enquiring clients and professionals in the field. Moreover, this pandemic period has (we firmly believe that the past tense will remain valid) placed an additional burden not only logistically, but unfortunately also health-wise. And this ranking in the only Slovak advisory survey of this kind should also be seen as a great satisfaction for our tax team.

Článok We are again a highly recommended law firm in tax law – Law Firm of the Year 2021 je zobrazený ako prvý na Highgate.

Exemption from income tax on the sale of shares

From 2018 (with application for the first time from 2020) it is possible to sell shares in companies in Slovakia without the proceeds of such sale being taxable income. However, the Income Tax Act makes such a possibility conditional upon meeting a number of conditions. First of all, the exception in question concerns only legal entities, so that under structuring of the business holding companies are the right instrument for such tax optimisation. In addition to this condition, the Income Tax Act requires that the legal entity is not an “empty shell”, has held the business share(s) for more than 2 years and has at least a 10% direct shareholding in the share capital of the company in question.

Dilution (“dilution”) of the founder

Startup founders with investor input typically gradually reduce their level of participation in the company. There can be several reasons for this: (i) sale of part of the company, (ii) entry of an investor, or (iii) some ESOP structure (i.e., employee stock).

The consequence of these movements in the company’s ownership structure is usually the so-called “diluting” of the founder. And if the founder holds his interest in the company in question through his holding company, he may thus benefit from income tax exemption on the sale of individual parts of the company or a complete “exit” (otherwise he would be taxed as in the case of sale of a cryptocurrency).

However, if the founder’s interest in the company falls below 10%, is it still possible to exempt this income from income tax?

Share below 10% and exemption from income tax

In my view, a founder diluted in this way is no longer entitled to exemption from income tax, notwithstanding the fact that his shareholding in the company was originally even dramatically higher than 10%. Such a return would therefore have to be taxed by the founder’s holding company, and in the present case the tax base would be the difference between the sale amount and (by default) the amount of the paid-up contribution.

Such a tax base would be subject to income tax at a tax rate of 15% (if the holding company had total annual taxable income of less than €50,000) or 21% in other cases. However, it is also common for the founder to set up a holding company abroad, where the rules for income tax exemption are more flexible than in this country.

But let us imagine a situation where the founder owns a 19.5% stake in a company and plans to sell it equally in two stages. If he sells 9.75% first and then the remaining 9.75%, he would have taxable income on the second sale. However, if he had structured this sale as a sale of a 9.5% stake in the first round and a 10% stake in the second round, he would have avoided taxation altogether.

Is there any other way to avoid taxation?

In practice, there are a number of creative ways to address this “tax problem” in a way that avoids negative tax consequences. However, it is important to remember that any tax optimization must stand on firm ground.

I have written/discussed many times in various forums as well as on our website about when tax optimization is defensible. I have addressed this topic in more depth, for example, in connection with the KTAG of Andrej Kiska (untenable optimization) or the case of Dominika Cibulka’s move to Dubaia (untenable optimization).

If you are further interested in the topic, you will find many more of my articles, statements or interviews on this topic on the Internet. Alternatively, you can contact me/us.

Článok Is the “diluted” partner/shareholder entitled to exemption from income tax? je zobrazený ako prvý na Highgate.