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Czech real estate legislation explained
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Acquisition of Real Estate

Current legislation governing the acquisition of real estate in the Czech Republic presents the last exception in the system of otherwise free movement of capital and payments.

On 1 May 2004, the Czech Republic becamea full member of the European Union.

This article explains how this is reflected in the country’s legislation on the acquisition of real estate.

 

The primary law of the European Communities, specifically article 56 of the Treaty establishing the European Community, in its Amsterdam wording, stipulates that all restrictions on the free movement of capital and payments are forbidden, both between member states and in relation to third countries outside the European Union.

The Czech Republic has been granted two exemptions from this rule, namely two transition periods, enabling it to apply certain restrictions temporarily on the acquisition of buildings designed for non-permanent residence, farmland, and forest land.

These transitional periods are provided for in chapter 2 of Appendix V to the Act on the conditions of the accession of the Czech Republic, the Estonian Republic, the Hungarian Republic, the Latvian Republic, the Lithuanian Republic, the Polish Republic, the Republic of Cyprus, the Republic of Malta, the Slovak Republic, and the Slovenian Republic, and on the amendment of treaties establishing the European Union, which is an integral part of the actual treaty on the accession of the above states to the European Union.

 

Transition Periods
According to the rules on transition periods, the Czech Republic may keep the following provisions in force:

- for the duration of five years from accession day the restrictions provided for by the Foreign Exchange Act applying to the acquisition of real estate (buildings designed for non-permanent residence) by citizens of the other EU member states not residing permanently in the Czech Republic and companies from the European Union not having their registered offices, branches, or representations there;

- for the duration of seven years from accession day restrictions on the acquisition of farmland and forest land. provided for by the Foreign Exchange Act, the Act on Land and the Act on the Privatization of State-owned Land by citizens of the other EU member states and companies from the European Union not having their permanent residence in the Czech Republic and not being registered there;

- the rules relating to private farmers from the European Union wishing to settle in the Czech Republic and have their permanent residence there are to be the same as those applying to Czech citizens.

Current Legislation
As a reminder of the conditions applying to transition periods ensuing from the above current legislation, the following is a brief summary of its basic provisions.

I.
The basic regulations are the general rules provided for by the Foreign Exchange Act (No. 219/1995 Coll.), as later amended.
This Act distinguishes between two groups of parties to foreign exchange relations: residents and non-residents. The criterion for determining the foreign-exchange status of legal entities is the place of their registered offices, and in the case of individuals, the place of his/her permanent residence, regardless of his/her citizenship. Under section 1 b) and c) of the Foreign Exchange Act, persons with permanent residence or registered offices in the Czech Republic have resident status, the rest being non-residents.

The Foreign Exchange Act imposes no restrictions whatsoever on residents acquiring real estate. On the other hand, a non-resident may acquire real estate in the Czech Republic only in the cases listed in section 17 of the Foreign Exchange Act. Czech nationals, however, are granted special treatment under this Act and the restriction does not apply to them even if they have permanent residence in another country, and consequently have non-resident status.

II.
Under section 4 of Act No. 95/1999 Coll. on the transfer of land from state ownership to the ownership of other persons, as later amended, only the following entities may take part in the privatization of state-owned farmland:

- Czech nationals, municipalities,

- legal entities that are owners or co-owners of buildings or structures belonging to the original farmstead or serving agricultural production or related water management projects (only the land under such buildings or structures and the land adjoining them, if it is essential for their operation, may be transferred to them)

- public universities,

- and in the case of state-owned forest land., only municipalities and public universities.

III.
From a practical point of view, a slight restriction is comprised in the Land Act (No. 229/1991 Coll.), as later amended, which in section 3 stipulates that "land cannot be transferred to the possession of foreign non-residents". This restriction, however, does not apply generally, but it only refers to state-owned land administered by the Land Fund of the Czech Republic being transferred under the provisions of this Act.

Proposed Legislation
The Czech Parliament is currently debating a government bill (Parliamentary print No. 474) comprising amendments to the aforementioned three acts.

Its only purpose is to project the transitional periods described above into Czech legislation.

Unlike current legislation, the new amendment does not distinguish solely between residents and Czech nationals on the one hand and foreign non-residents on the other hand, but also between citizens of the European Union and citizens of third countries.

In the latter category, stricter rules are to be maintained for the time being as regards the acquisition of real estate in the Czech Republic than those that will apply to citizens from other EU member states, who will be legally resident or doing business in agricultural production in the Czech Republic.

The specific requirements those persons will have to meet to be registered as business entities operating in agriculture will be laid down in the new amendment to the Agricultural Act (No. 252/1997 Coll.).

There will be several exemptions from these general rules, as the special treatment to apply to citizens of the European Union will also be granted to persons from other countries under international arrangements made by the Czech Republic.

This concerns the countries of the European Free Trade Association, which means Iceland, Norway, and Liechtenstein, since the Czech Republic, like the other new EU members, has acceded to the European Economic Area Agreement, which also comes into force on 1 May 2004.

Zdenka Slavíková

Ministry of Finance

 

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