Selling an s.r.o. interest tax-free after three years? No such rule exists

When preparing company sales, we regularly hear the same sentence: “I have held the interest for more than three years, so the sale is tax-exempt.” It sounds credible and appears in articles, but it is not true.

Where the idea came from

The origin is real. Article XIV of Act No. 309/2023 Z. z. on transformations of companies and cooperatives inserted a new point (r) in § 9(1) of the Income Tax Act. It would have exempted income from transferring an interest in a limited liability company after three years of ownership, with effect from 1 January 2024.

In August 2023, the Slovak Financial Directorate issued guidance describing the change in detail, including the transitional rule applying it to interests acquired after 31 December 2023.

The provision never took effect. The consolidation package, Act No. 530/2023 Z. z., amending legislation to improve public finances, repealed it before commencement. That Act was promulgated on 30 December 2023. Between enactment in June and year-end, the exemption was introduced and removed.

The same consolidation Act inserted transitional § 52zzz concerning amendments effective from 1 January 2024, without the share transfer exemption. The Financial Administration’s August 2023 guidance remained in circulation, describing a rule that never applied.

How to check in a minute

This is verifiable directly in the Act:

• § 9(1)(r) of the Income Tax Act now regulates returns on government bonds for citizens, not transfers of ownership interests.
• Transitional § 52zzw, cited by the former guidance, does not exist in the Act.
• § 52zzz(3), the transitional provision for amendments effective from 1 January 2024, refers only to points (i) and (k) for securities and ownership interests.

This also illustrates how tax guidance should be used. Financial Administration methodology and information are valuable sources, but are not law and may not reflect later legislative amendments. A legal opinion always requires checking the current statutory wording.

What applies to shareholders

An individual’s income from transferring an interest in an s.r.o. or limited partnership, or cooperative membership rights, is other income under § 8(1)(f) of the Income Tax Act. The taxable amount is the difference between proceeds and expenditure, namely the contribution or acquisition price. If expenditure exceeds proceeds, the difference is disregarded: no loss may be reported.

An exemption exists, but is narrow. Under § 9(1)(i), aggregate income of this kind less expenditure is exempt if it does not exceed EUR 500 in the tax period. The allowance is shared with rental and occasional activity income: if used there, none remains for the interest.

From 1 January 2024, even this exemption does not apply to an interest or security that formed part of the taxpayer’s business assets, regardless of time since removal, or an interest acquired as employee or contractor remuneration.

Where holding periods really matter

To avoid confusion, the Income Tax Act does contain holding-period tests, but for other situations:

• Interests acquired by 31 December 2003: transitional § 52(21) applies the exemption under legislation effective until the end of 2003, which exempted income after five years of ownership. This matters for older companies.
• Shares admitted to a regulated market: § 9(1)(k) exempts income after one year from acquisition, provided more than one year has also elapsed between admission and sale.
• Property: the five-year test under § 9(1)(a) and (b).

For an interest in an ordinary Slovak s.r.o., however, there is no general “wait and it becomes tax-free” test.

Why it matters in practice

The difference is not academic. Planning a company sale on the assumption of exemption changes the seller’s expected net proceeds and sometimes whether and when to sell. The mistake may emerge only when filing the tax return, long after signing.

We therefore discuss the tax impact before agreeing the price and payment method. We are not tax advisers and do not file tax returns, but can identify in time what assumptions are sound and where a tax adviser should be involved.

If you are considering selling an interest or an entire company, see our ownership interest transfer and company sale and purchase services.