Planning a capital contribution of real estate? Now is the time to do it!
Why? Because in-kind contributions of real estate to registered capital will be subject to a 4% real estate acquisition tax (a tax replacing the real estate transfer tax). As of 1 January 2014, the new Civil Code, the Companies Act and a number of other acts will become effective. As part of these extensive changes, the real estate transfer tax will be replaced by the real estate acquisition tax, as we informed you in our previous newsletters. This change will result, inter alia, in the conditional exemption from real estate transfer tax in respect of real estate contribution in a company’s registered capital. Such an exemption was regulated in Section 20 (6) (d) of Act No. 357/1992 Sb., on Gift Tax, Inheritance Tax and Real Estate Transfer Tax. For example, if real estate is contributed in the registered capital of a limited liability company, then the company (acquirer) will be required to pay tax on the acquired immovable property at the rate of 4% of the tax base. In most cases, the tax base will be the price determined by an expert upon valuation of the in-kind contribution. So if you are planning a contribution of immovable property into a company’s registered capital, we recommend making the contribution by the end of 2013, while capital contributions are still governed by the original Real Estate Transfer Tax Act and, therefore, tax-exempt provided that a shareholder’s participation does not cease to exist within five years of the contribution.