Purchase of units of an investment mutual fund from a legal entity
Purchase of units of an investment mutual fund from a legal entity
Question:
Hello!
A legal entity wants to buy units of an investment mutual fund. How will the operation be accounted for? Where will the money for this type of purchase of the company come from? Should they be from the profit? What would be the benefit of a company to make this type of investment?
Should the company's money for this type of investment be after tax paid? The profit from this type of investment is not taxed with a flat tax, but should a dividend be paid on the realized profit from a mutual fund?
Thanks in advance!
Answer:
Hello,
Directly to the questions:
1. How will the operation be accounted for? - It all depends on the idea with which these units are purchased. If they are purchased for the purpose of long-term investment (over 1 year), then this should be reflected in the accounting (ie on page 22 of the accounting chart - investments). If the investment is rather short-term (less than 1 year) then the accounting will be under city 51 of the chart of accounts - financial assets.
2. Where will the money for this type of purchase of the company come from? Should they be from the profit? - In any case, the money will come either from the cash desk or from the bank account of the legal entity. And they may have reached there both from the realized profit from the company and from the authorized capital of the legal entity, from a received loan or from an additional cash contribution of the owner / owners of the legal entity. Ie the money can come both from the operating activities of the company and from additional capital that the company has attracted specifically for this investment.
3. What would be the benefit of a company to make this type of investment? - The benefit is a possible profit. By actually investing a certain amount in such a fund, the fund itself uses this money to buy various financial instruments, forming the so-called "portfolio". At any given time, this "portfolio" has a value that depends on the value of the purchased financial instruments. If the value of these financial instruments has increased, then the value of the "portfolio" also increases, which means that the value of the units of the legal entity that it holds in the fund (respectively in its "portfolio") also increases. At some point, the legal entity decides to sell these units (this type of funds are obliged to buy them under pre-agreed conditions) and if the fund has managed its "portfolio" well, it will sell them at a higher value than the purchase value. , i.e. will make a profit. Of course, there is also a risk of loss. The benefit of a company from this was:
- The company has free money that does not know what to invest it in
- The company has free money, but the management does not have time to deal with research and investment
- The company has free money and wants to invest it in financial assets, but the management does not understand this matter and decides to trust professionals (as they are supposed to be such funds)
- According to Art. 44 of the Corporate Income Tax Act (CITA) and item 21 of the final provisions to the law, the possible profit from such an investment is not taxable - ie. no tax is due on the realized profit from such type of investment
If the Company, which has invested in a mutual fund, has made a profit after selling its units, then this profit is not subject to any taxes. If the owners of this Company decide to distribute the realized profit as a dividend, then only the Company must withhold and pay a 5% dividend tax on behalf of the owners, if they are individuals. If the owners of the Company are Other Companies, no dividend tax is deducted. This will be maintained when a dividend is distributed along the chain to the final owners - individuals.
We hope we have been helpful to you.
Greetings!
