The life contract is simply a circumstantial form of transfer of property that has its unique features and legal and taxation implications. It is simply a kind of civilian law agreement that is gaining popularity due to its possible benefits to both parties. Before entering into specified an agreement, it is crucial to realize precisely what its consequences are and how it affects taxation obligations, peculiarly in the context of donations and another financial obligations.
Characteristics of the life conviction contract
The life contract shall be governed by the provisions of the civilian Code, namely Article 908 § 1. Under this provision, it is an agreement whereby the acquirer of the property undertakes to guarantee the life of the seller (life sentence) in exchange for the transfer to him of the property. Life support includes not only basic life needs, specified as food, clothing, housing, but besides care in case of illness, and organizing a dignified ceremony after the death of a lifer.
Specific provisions of the life conviction contract
In addition, in accordance with Article 908 § 2 of the civilian Code, a life conviction contract may include obligations on the buyer to charge the property with the use, service of the apartment, or another individual service to the seller. specified obligations are an integral part of the right to life imprisonment and may include various forms of benefits, specified as the fulfilment of recurring benefits in money or of goods designated as species.
Life contract and donation tax
One of the key aspects of the life imprisonment agreement is its taxation status. In view of the specificity of this agreement, in which the advantages for the seller are of a factual and individual nature, the life contract is not treated as a donation within the meaning of the inheritance and donation taxation law. This means that it is not taxed on donations, which is an crucial component that distinguishes it from a classical donation.
No taxation work on donations
As indicated in Article 1(1) of the Law on inheritance and donation, the life conviction is not included in the catalogue of taxable activities. Consequently, both the seller and the acquirer are not obliged to pay the taxation on donations in connection with the conclusion of specified a contract. This non-taxation constitutes 1 of the key distinctions between a life conviction contract and another forms of transfer of assets.
Notary's function in the life conviction agreement
A public notary plays a key function in the process of concluding a life sentence. According to Article 18(1) of the Law on inheritance taxation and donations, notaries are payers of the taxation on donations made in the form of a notarial act. However, in the case of a life conviction contract, the notary is not obliged to collect this taxation due to the fact that the contract is not treated as a donation.
Other forms of taxation of a life sentence
Although the life contract is not subject to inheritance and donation taxes, it may be subject to another forms of taxation, specified as the civilian law (PCC). It is worth noting that if a life contract involves the establishment of unpaid usage or service that is usually taxable, in the context of that contract they are exempt from the taxation on donations. This is confirmed by the interpretations of the taxation authorities, specified as the individual explanation of 3 November 2023 (Event No 0111-KDIB2-3.4015.188.2023.1.AD), which clearly indicates that a life contract is not subject to inheritance and donation tax, even if it includes free usage or service.
Comparison of a life conviction contract with another forms of transfer
The life contract differs importantly from another forms of ownership transfer, specified as donation or sale. In the case of a donation, the transfer of the property is unconditional and subject to inheritance and donation tax. In turn, the sale of real property involves the payment of income taxation on individuals or taxation on goods and services (VAT), depending on the nature of the transaction.
Summary
A life contract is an interesting alternate to conventional forms of property transfer, offering any taxation advantages, especially in the context of a donation tax. Due to circumstantial legal regulations, it is not straight subject to this tax, which could be beneficial for both the seller and the buyer of the property. Nevertheless, each of the parties should carefully consider all legal and taxation aspects of a life conviction contract and consult a lawyer or taxation advisor to avoid unforeseen consequences.
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Life contract: taxation and legal consequences
