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AQUIRING CZECH REAL ESTATE

DIRECT PURCHASE OF REAL ESTATE

This section shows the most important tax implications of direct purchase of real estate (asset deal). Firstly, the impacts for resident and non-resident individuals are explained, thereafter the impacts for resident and non-resident companies.

Resident Individuals

Transfer tax

There is no transfer tax in the Czech Republic.

Value added tax

Transfers of real estate after lapse of 5 years from issuance of the first building permit, first approval for use or from the first use are exempt from VAT. Substantial change of the real estate restarts the five-year period. The transfers of buildings before lapse of this period are subject to 15%/21% VAT (the lower rate is applicable to transfers of residential properties).

The transfer of land is exempt from VAT except for building plots and land which forms a functional unit with a building.

In case of an exempt supply the seller may opt for VAT-able supply upon the buyer’s agreement. Reverse charge applies in such a case (i.e. VAT is applied by the purchaser).

Deductibility of costs

Individuals who own the real estate as a business asset must activate the costs related to the purchase of real estate and depreciate along with the purchase price. Other individuals apply the purchase price only when selling the real estate.

Non-resident individuals

Non-resident individuals are treated in the same way as resident individuals.

Resident companies

Transfer tax

There is no transfer tax in the Czech Republic.

Value added tax

Transfers of real estate after lapse of 5 years from issuance of the first building permit, first approval for use or from the first use are exempt from VAT. Substantial change of the real estate restarts the five-year period. The transfers of buildings before lapse of this period are subject to 15%/21% VAT (the lower rate is applicable to transfers of residential properties).

The transfer of land is exempt from VAT except for building plots and land which forms a functional unit with a building.

In case of an exempt supply the seller may opt for VAT-able supply upon buyer’s agreement. Reverse charge applies in such a case (i.e. VAT is applied by the purchaser).

Deductibility of costs

Costs related to the purchase of real estate must be activated as a main rule and depreciated along with the purchase price.

Non-resident companies

Non-resident companies are treated in the same way as resident companies.

INDIRECT PURCHASE OF REAL ESTATE

This section shows the most important tax implications of indirect purchase of real estate (i.e. share deal). Firstly, the impacts for resident and non-resident individuals are explained; thereafter the impacts for resident and non-resident companies.

Resident individuals

Transfer tax

There is no transfer tax in the Czech Republic.

Deductibility of costs

The costs related to the purchase of shares are not treated as tax deductible.

Non-resident individuals

Non-resident individuals are treated in the same way as resident individuals.

Resident companies

Transfer tax

There is no transfer tax in the Czech Republic.

Deductibility of costs

The expenses related to the purchase of shares are not treated as tax deductible expense (e.g. purchase price, acquisition financing expense). Generally, in case of a pure holding company, most of the expenses are tax non-deductible due to the exempt dividends.

Non-resident companies

Non-resident companies are treated in the same way as resident companies.

Contact persons

Jaroslav Sůsa

Senior Manager

+420 226 219 000

jaroslav.susa@rsm.cz

Kateřina Provodová

Head of Tax Czech Republic

+420 226 219 000

katerina.provodova@rsm.cz

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