On 1 January 2025, inter alia, an amendment to the Personal Income Tax Act relating to intellectual property (IP) contribution entered into force.
According to the amendment, if an individual who creates an intellectual property (the original IP right-holder) transfers its IP to a business company as an in-kind contribution, he/she will not have to pay income tax on the share he/she acquires in the company up to the contribution’s value indicated in the company's articles of association (practically the market value).
Under the previous legislation, income tax had to be paid in such a case, the tax base of which equalled the value of the transferred IP. This was an obstacle for inventors who wanted to raise venture capital for the development of the product they wanted to create from their IP.
The tax was an obstacle, since IP right-holders most common way to raise venture capital is that they establish a startup, transfer their IP to it and afterward the venture capital investors provide cash contribution to that same startup. Since it was the inventor (i.e. the provider of IP contribution) who had to pay the tax on the IP transfer, many inventors could not afford to raise venture capital in this way. This was compounded by the fact that an inventor does not receive any cash income after the IP transfer, therefore, the tax payment had to be covered by the inventor’s other resources. This change now will predictably foster venture capital investments and innovation.
By Gabriella Galik, Founding Partner, KCG Partners Law Firm
