Taxation on real estate sales / investment in the Czech Republic
Czech taxation laws

 Property sales tax

 

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Tax aspects for companies buying and selling property

Taxation is an important evaluation factor to be considered by foreign companies when deciding under what aspect and purpose to acquire Czech real estate and even more so when evaluating how to dispose of the property - the so called 'exit-route'.

The general principle of international taxation also applies to the Czech Republic being: that any gain or profit from real estate is taxed in the country where the real estate is located.
So taxes for real estate on Czech soil are paid in the Czech Republic

Important to consider is that it is not always necessary to deal directly with real estate to be able to buy and sell the real estate itself.

Meaning that transactions can also be made in companies that hold real estate. (shares, partnerships etc)

Investors home country taxation factors:

If a foreign company has to decide on whether to hold real estate directly (or indirectly via a local company) the decision may be influenced by a number of factors.

For example, the investor's home country requirements as to whether he opts for direct or indirect ownership will depend on the individual regulations of that home country, be it Italy, Germany, the U.S.A or the Netherlands.

Also to be evaluated are the Czech Republic's international treaties with the investor's home country to avoid double taxation.
There are variations as to which country has the right to tax profits and gains and in understanding the legislations of one's home country - the investor may avoid double taxation of the gains.

From the Czech side of legislation, for example: the repatriation of profits from the rental income of a property owned by a branch of a company are not subject to withholding tax.

Also and different tax treatment applies to financing with respect to the amount of interest that can reduce taxable profits.

In other cases there may be a major disadvantage to investing directly if evaluating VAT issues depending on the investors country of origin .

 

The Exit -route. - selling the property

Direct Ownership:
When selling a property usually the proceeds will be subject to a transfer tax of 5 percent, and gain on the sale of the property is taxed in the Czech Republic.

Indirect Ownership:
Here the foreign investor has the option of minimizing tax paid in the Czech Republic by selling shares of the company that owns the property.

As opposed to indirect ownership, if the property is directly owned the shares option becomes pretty difficult to apply since a company branch cannot be sold and the property will either be sold directly, or a buyer may be found, who will buy shares in the foreign company itself (the mother of the branch).

In some cases this may be disadvantageous as it may reduce the sellers options and flexibility.

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