The request usually arrives in the same form. A Czech group has grown beyond its home market, a foreign investor or buyer is in the picture, and someone has suggested that the top of the structure should sit in the Netherlands. The question put to the adviser is what it costs. The question that decides the outcome is why.
Czech law does not prohibit the move, and European law protects it. What it does is impose an exit charge on assets that leave its taxing net, attach conditions to the reliefs that make the reorganization neutral, and apply an abuse test whose wording is not identical to the formula used elsewhere in Europe.
Three different moves
The phrase moving the holding covers three transactions with different consequences. The first is a share exchange, in which the shareholders of the Czech company contribute their shares to a Dutch company and receive shares in it. The operating company does not move; only the ownership above it changes.
The second is a cross border merger, in which an existing Czech holding company is dissolved without liquidation and its assets pass to a Dutch successor. The third is a migration of the Czech holding company itself, which keeps its identity and changes its tax residence, including through a cross border conversion.
The three are treated differently, and the difference is not cosmetic. The first two fall under the reorganization provisions in sections 23a to 23d of Act No. 586/1992 Coll. on income taxes and can be neutral if the conditions are met. The third engages section 23g, the exit charge, and is neutral only so far as the assets stay within the Czech net. Choosing the label before analyzing the substance is the commonest error in these files.
The share exchange
Section 23b defines an exchange of shares as a procedure by which one corporation acquires a holding in another representing a majority of its voting rights, by giving the shareholders of the acquired corporation a holding in the acquiring corporation, with a possible balancing cash payment. A majority means more than 50 per cent of all voting rights. Acquisitions made through an investment firm or a comparable foreign person count as one transaction if they occur within six months.
Subsection 2 caps the balancing payment at 10 per cent of the nominal value of all holdings in the acquiring corporation, or, where no nominal value can be determined, 10 per cent of their book value. A structure paying out more is not an exchange of shares for these purposes.
The substantive relief is in subsections 3 and 4. For the shareholder, the acquisition cost of the holding received in the acquiring corporation is the value the holding in the acquired corporation had under the act at the time of the exchange, and income from a revaluation on transfer is excluded from the tax base, except for the balancing payment. The gain is not forgiven; it is carried into the new holding at the old base. Subsection 6 sets out which entities may participate, by legal form and residence; a Dutch B.V. as acquirer with a Czech resident shareholder falls within it.
The conditions attached to neutrality
Section 23d contains the conditions, and the first is procedural. Subsection 1 requires the taxpayer to notify its locally competent tax administrator, before the transfer of a business, the exchange of shares or the merger or division, that it will proceed under sections 23a, 23b or 23c. Notification after the event is not what the provision asks for.
Subsections 3 and 4 impose a one year holding requirement. Where the transferring corporation disposes of the holding received for the transferred business, or the acquirer disposes of the holding received on the exchange, in less than a year, the relief does not apply. Both admit the same defence: proof that proper economic reasons exist for the disposal.
Subsection 2 targets shells. Where a participant had not in fact carried on any activity for longer than twelve months preceding the transfer or the decisive date of the merger or division, specified reliefs are unavailable, unless the taxpayer proves proper economic reasons for the transaction. Subsection 5 states the consequence of failing any condition: a tax base determined using sections 23a to 23c is assessed as a non fulfilment of the taxpayer’s obligation.
Migrating the entity itself
Where the Czech holding company moves rather than being replaced, section 23g applies, which tracks the exit taxation rule in article 5 of Directive (EU) 2016/1164. A transfer of assets without a change of ownership, from the Czech Republic abroad, is treated for income tax purposes as a disposal for consideration to oneself, at the price that would be agreed between unrelated persons in ordinary commercial relations, with the result adjusted accordingly.
Subsection 2 letter c) covers the case directly: a transfer of assets connected with a change of the corporate taxpayer’s tax residence from the Czech Republic abroad, where as a result the income from a subsequent disposal would not be subject to Czech tax. Assets that remain taxable in the Czech Republic after the migration, typically because they stay attributed to a Czech establishment, are outside the charge.
Subsection 3 excludes assets moved abroad temporarily where they can reasonably be expected to return within twelve months and the movement relates to securities financing, collateral or regulatory capital and liquidity requirements; subsection 4 brings the charge back where they do not return.
Section 38zg allows the tax attributable to the transfer to be spread over instalments for no more than five years from the due date, where the destination is another Member State of the European Union or a state of the European Economic Area with which an equivalent mutual recovery arrangement is in force. The decision may require security, and it lapses if the taxpayer loses ownership of the assets or moves them on outside that group.
The abuse test, in its Czech wording
The general anti abuse rule is in section 8 subsection 4 of Act No. 280/2009 Coll., the tax procedure code. No account is taken of legal acts and other facts decisive for tax administration whose predominant purpose is obtaining a tax advantage contrary to the sense and purpose of the tax legislation. Subsection 3 adds that the administrator proceeds from the actual content of the legal act.
The word that matters is predominant. Several European formulations, including the anti abuse provision inserted into Directive 2011/96/EU by Directive (EU) 2015/121, ask whether obtaining the advantage was the main purpose or one of the main purposes of an arrangement that is not genuine. The Czech general rule asks whether it was the predominant one, which is a different question and, on the purpose limb, a narrower one. A group whose relocation has substantial commercial drivers alongside a tax benefit argues on better ground under this wording than under a main purpose test, provided those drivers are documented as they arise.
That comfort does not extend everywhere. Section 23d requires proof of proper economic reasons where the shell test or the one year test bites, and the burden sits on the taxpayer. Section 19 subsection 11 disqualifies the participation exemption where either company is exempt, can elect exemption, or is taxed at nil. Each is a separate gate, and clearing the general rule does not clear them.
What a real reason looks like
The reasons that survive examination existed before the tax analysis and are recorded in ordinary documents. A shareholders’ agreement with a foreign investor requiring a holding company under a legal system the parties will litigate in. Board minutes recording that the treasury and acquisition function has moved. A sale process in which the buyer’s structure shapes the target group. Employment contracts and leases for the people and premises now above the operating companies.
The reasons that do not survive are assembled afterwards. A holding company incorporated three months before a distribution, with directors who meet by circulated written resolution, in a state chosen for its rate, describes itself. The administrator needs no novel theory to say so; section 8 subsection 3 permits it to proceed from the actual content of what was done.
The practical test is whether the group would keep the structure if the tax result were neutral. Where the answer is yes, the file writes itself out of the group’s own records. Where it is no, the honest options are to abandon the move or to build the functions the structure claims, and the second is a budget decision rather than a drafting one.
The arithmetic after the move
Czech corporate income tax is 21 per cent of the tax base under section 21 subsection 1, and the operating profits continue to bear it. What changes is the layer above. Distributions from the Czech company to the Dutch holding are exempt where the parent subsidiary conditions in section 19 subsection 3 are met, requiring a 10 per cent holding in registered capital held continuously for twelve months, and where no disqualification applies. Subsection 4 allows the exemption to be taken before those twelve months are complete, provided the condition is afterwards satisfied. The exemption reaches a parent resident in the Czech Republic or another Member State, and subsection 8 extends it to companies resident in the states listed there. Otherwise the convention in force between the two states limits source taxation to 10 per cent, and to nil where the Dutch company, whose capital is wholly or partly divided into shares, holds directly at least 25 per cent of the capital of the paying company.
On the Dutch side the participation exemption in article 13 of the corporate income tax act covers dividends from and gains on a holding of at least 5 per cent of the nominal paid up capital, and denies deduction of acquisition and disposal costs. Profits taxable in the Netherlands meet the rates in article 22 of the same act, for 2026 19 per cent on the first 200,000 euro and 25.8 per cent above. Distributions onward to the Dutch company’s own shareholders meet dividend withholding tax at 15 per cent of the proceeds under article 5 of the 1965 dividend tax act, subject to the exemption at source and to treaty relief.
Intra group financing deserves separate attention because the Czech interest limitation is generous by regional standards. Section 23e limits excessive borrowing costs to the higher of 30 per cent of tax profit before interest, tax and depreciation and 80,000,000 Czech crowns, leaving most mid sized groups outside the restriction.
Sequencing
The order of steps determines the cost more than the destination does. Where a share exchange achieves the objective, the operating company never moves, section 23g is never engaged, and the analysis reduces to the conditions in sections 23b and 23d. Where an existing Czech holding company must move, the exit charge is engaged and the question becomes which assets leave the Czech net and what they are worth on the day.
Three dates should be fixed before anything is signed. The notification date under section 23d subsection 1, which precedes the transaction. The valuation date for assets leaving under section 23g. And the date from which the twelve month holding period for the parent subsidiary exemption runs, which is not always the date the group assumes.
The last observation is the least technical and the most often ignored. A relocation of the top of a group is visible to every administration involved: in the commercial register, in the treaty claims that follow, and in the annual accounts. It should be built to be read by all of them, which means one set of facts, recorded once, answering the Czech question, the Dutch question and the question the eventual buyer’s counsel will ask.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.