In Slovakia, up until recently, there were two common ways shareholders could invest money into a company. Either the shareholders increased the company’s registered capital, or they provided a loan to the company. Numerous experts have discussed an additional third possibility – shareholders might invest the money in a company’s internal fund. This option has been subject to some disagreement in Slovakia with a variety of legal opinions on this matter.
Fortunately, the argument has been settled- recently, the legislature has codified the process of investing money in a company by allowing the shareholders to create a company internal fund.
As of 1st January 2018, a company can create a new internal fund called “the Capital Fund”. The Capital Fund is established by shareholder contributions (primary), according to the frame set up in the company’s Memorandum of Association.
Once the Capital Fund reaches the maximum amount, as defined by the Memorandum of Association, the shareholders can decide to redistribute the money back to themselves or use it to increase the company’s own capital. In case the decision is made to redistribute to the shareholders, it is only possible if the company is not in crisis or could be in crisis due to the money redistribution.
Additionally, the redistribution must be announced at least 60 days in advance.
Any shareholder’s contribution to the Capital Fund is booked as shareholder’s share value. Furthermore, any redistribution from the Capital Fund to the shareholder that exceeds the shareholder’s contribution to the Capital Fund is taxed as dividends. This is especially the case if the Capital Fund was created by contribution from the company’s income after tax, or in the event of a merger where a transfer of the dissolved company’s undistributed profits to the merged company’s Capital Fund is performed. In both cases, the shareholder did not contribute to the Capital Fund, thus all redistributions will be taxed as dividends.
Capital Fund contributions are not regarded as a shareholder tax deduction.