Demerger by spin-off as a new form of corporate transformation

An amendment to the Act on Transformations, effective as of 19 July 2024, introduced a new form of corporate transformation into Czech law – demerger by spin-off. This new form of transformation is similar to demerger by separation; however, there is one fundamental difference: the shareholder of the successor company does not become the shareholders of the demerged company, but the demerged company itself. Demerger by spin-off therefore represents an alternative to establishing a company through an in-kind contribution or to increasing share capital in this manner, while also providing an interesting tool for creating holding structures.

Key points - Legal Aspects:

The July 2024 amendment to the Act on Transformations introduced demerger by spin-off.
In a demerger by spin-off, the shareholder of the successor company becomes the demerged company itself.
Demerger by spin-off involving the formation of a new company: an alternative to establishing a single-member company through an in-kind contribution.
Demerger by spin-off by merger: an alternative to increasing share capital through an in-kind contribution.

Key points - Tax and Accounting Aspects:

Accounting: The interest in the successor company is measured at the net book value of the segregated assets; if the value is negative, it is recognised at zero, with the difference reflected in equity.
Taxation (demerged company): The acquisition cost of the interest is determined based on an expert valuation (in the case of a business enterprise) or on the tax residual value (for other assets); such acquisition cost is tax-deductible upon disposal of the interest.
Taxation (successor company): The successor company takes over the tax residual values of the transferred assets; tax continuity is preserved, meaning that the spin-off is tax-neutral.