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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 (i.e. asset deal). First, the impacts for resident and non-resident individuals are explained. Thereafter the impact for resident and non-resident companies is illustrated.

Resident Individuals

Immovable property acquisition tax

Resident individuals that acquires the Czech real estate are obliged to pay immovable property acquisition tax in the amount of 4 % of the purchase price of the immovable property.

Value added tax

Transfer of land is VAT exempt except for building plots and land which forms a functional unit with a building. The transfer of buildings within 5 years after their acquisition or the issuance of use of permit are subject to 15%/21 % VAT (the lower rate is applicable to transfer of residential properties). Transfers of real estate 5 years after their acquisition are exempt from VAT.

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

The buildings of hotels, stores and office buildings are depreciated for tax purposes for 50 years. Other buildings are depreciated for tax purpose for 30 years. The lands are not depreciated for tax purposes. The taxpayers may elect to depreciate assets using the straight-line or the accelerated depreciation method.

Generally, tax depreciation, interest, maintenance and operational costs (expenses to secure and maintain income) reduce the rental income if general and special legal conditions are met.

Non-resident individuals

The income generated by the real estate located in the Czech Republic constitutes Czech source income. The tax regime similar to that described under the “Resident Individuals” above applies.

Resident companies

Resident company that acquire Czech real estate is obliged to pay immovable property acquisition tax in the amount of 4 % of the purchase price of the immovable property. Some transfers of property are not subject to immovable property acquisition tax (e.g. merger, demerger).

Value added tax

Transfer of land is VAT exempt except for building plots and land which forms a functional unit with a building. The transfer of buildings within 5 years after their acquisition or the issuance of use of permit are subject to 15%/21 % VAT (the lower rate is applicable to transfer of residential properties). Transfers of real estate 5 years after their acquisition are exempt from VAT.

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

The buildings of hotels, stores and office buildings are depreciated for tax purposes for 50 years. Other buildings are depreciated for tax purpose for 30 years. The lands are not depreciated for tax purposes. The taxpayers may elect to depreciate assets using the straight-line or the accelerated depreciation method.

Generally, tax depreciation, interest, maintenance and operational costs (expenses to secure and maintain income) reduce the rental income if general and special legal conditions are met.

Non-resident companies

The income generated by the real estate located in the Czech Republic constitutes Czech source income. The tax regime similar to that described under the “Resident Companies” above applies.

Indirect purchase of real estate 

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

Resident individuals

Transfer tax

The purchase of the shares is not subject to immovable property acquisition tax. 

Personal income tax

The costs related to the share deal 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

The purchase of the shares is not subject to immovable property acquisition tax.

Corporate income tax

The expenses related to the share deal 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

Corporate income tax

Non-resident companies are treated 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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