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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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