ACQUISITION OF REAL ESTATE
Buying property in the Czech Republic – the booming real estate market in and around Prague.
The rules for buying and selling property are very complicated, especially for non-EU citizens. European Union (EU) citizens get an upper hand because they are not required to have a visa allowing them to stay in the Czech Republic longer than 90 days. To buy property, EU citizens need only an EU card, which they will receive after explaining why they must remain in the Czech Republic. Appropriate reasons for staying in the country include employment, studies, management of a company or a sole trade license, which is taxed annually and requires only proof of residency. Non-EU citizens, on the other hand, must have a visa, remain in the Czech Republic for seven years or marry a Czech citizen to obtain a green card allowing them to buy property. Both non-EU and EU citizens may buy property through a limited liability company (known as an s.r.o.), but only an EU citizen can control the company without Czech participation. A non-EU citizen must recruit a Czech person, EU citizen or person holding a long-term visa to be the company’s executive director.
To buy a shell company to facilitate buying, holding, renting or selling real estate, it is necessary to provide all necessary documentation, a process which usually takes about 24 hours. The flat fee cost required should include registration of all necessary institutions and changes, bureaucratic measures and any other cost related to the purchase. The fee should include a registered address for the company free of charge for 6 months from the purchasing date. As with a trade license, in this particular situation it is not required to have a Czech address. During the first six months, the address of the company can be transferred to the property bought with the SVP. The price for a shell company should not exceed CZK 60,000 – CZK 100,000 and the entire process should ideally take about 1 to 2 working days.
The purchase of a shell company carries with it certain key responsibilities, such as filing for income tax once a year. The cost of accounting for a standard real estate s.r.o. should not exceed CZK 10,000 per year. If there has been no income, however, there will be no need to pay income tax. Additionally, there is no need to pay monthly social security payments or health insurance, if there are no employees in the company. For more info on setting u p an s.r.o. click here.
Non-residents, such as individuals not having permanent residence or owning legal entities headquartered in the Czech Republic, could purchase real estate in the Czech Republic even before the entry of the Czech Republic into the European Union. After the accession and particularly after the adoption of the last amendment to the Foreign Exchange Act, it has become much easier for foreigners and particularly for nationals of members states of the European Community to purchase real estate in the Czech Republic.
Even though under certain circumstances real estate in the Czech Republic may be owned by anyone, it is not always so simple. While there are no limits imposed in this respect on a certain groups of people, other cases may differ with regard to persons who want to acquire a Czech property and to the various property types.
The following categories of people can acquire real estate in the Czech Republic without any restriction:
- Citizens of the Czech Republic;
- Legal entities having their headquarters in the Czech Republic;
- Foreigners with a permanent residence permit in the Czech Republic;
- People who have been granted asylum in the Czech Republic.
The following categories of persons are subject to certain restrictions in acquisition of real estate:
Persons who wish to acquire properties other than those listed in clause 2 below:
- nationals of an EU member state who hold a residence permit for a member state of the European Community;
- nationals of other states - solely in cases listed explicitly by the law, e.g. by inheritance, for the diplomatic mission of a state, from a relative, sibling or spouse, etc.
- legal entities that locate their enterprise or branch in the Czech Republic and are authorised to do business here; otherwise solely under the same conditions as people who are not nationals of a member state of the European Union.
Banks lend against their own property valuations rather than against property market prices and bank valuations therefore tend to be lower than the actual price of the property. It will be necessary to demonstrate additional income to obtain a bigger mortgage and as such it is a good idea to speak to an independent mortgage broker who can act as an intermediary between the client and the bank.
The following individuals and/or
entities can buy Czech Real Estate:
EU member state citizens as private individuals
EU member state citizens as companies (set up in the C.R.)
EU member state companies who set up a branch in the C.R.
EU member state companies who set up a new company in the C.R.
Non-EU member state companies who set up a new company in the C.R.
Conditions and criteria needed to buy Czech Real estate
For EU member state individual citizens and companies:
As a private individual all you need is proof of being an EU citizen such as an EU passport.
Once you have this - you can buy Czech real estate.
As a company, you either have to open a branch of your existing company (existing in your EU country) in the Czech Republic - or register a new company in the Czech Republic.
With either of these implemented - you can buy Czech real estate.
For Non- EU member state individual citizens and companies:
For Non-EU members - citizens or companies from most other countries that are not part of the European Union, the standard procedure is to open a company in the Czech Republic, usually an s.r.o company.
If an individual or a business from outside the EU (with a few exceptions) want to buy Czech property - then a company inside the Czech Republic must be formed. Once this is done, property on Czech soil can be bought.
Czech real estate legislation explained
by the Czech Ministry of Finance:
Acquisition of Real Estate
Current legislation governing the acquisition of real estate in the Czech Republic presents an exception to the system which otherwise has the free movement of capital and payments.
On 1 May 2004, the Czech Republic becomes a full member of the European Union.
This article explains how this will be 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 a 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 a duration of seven years from accession day, the 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 which apply 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 Bill No. 474) comprising of 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 that individuals 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.
Taxation
Real Estate Tax
Real Estate Tax is payable by registered owners of real estate, i.e. on land and buildings located in the Czech Republic. The rates depend on the size of the building, location, and actual area of the land in square meters.
Real Estate Transfer Tax
The transfer of real estate is subject to real estate transfer tax at a rate of 3%. The tax base is either the purchase price or the value determined by an expert, according to the Czech Valuation Act, if this value is higher than the agreed purchase price.
Income tax: A property owned by a company and generating an income is subject to a tax of 28% of profit. An individual Czech person or an EU citizen with a residence permit is subject to a 15 - 32% income tax based on the amount of income earned in the Czech Republic.
VAT on sales: Residential sales are subject to VAT at 5% of the purchase price. Commercial sales are subject to VAT at 19% of the purchase price. For residential sales there may be exceptions, and the laws are expected to change in 2007.
VAT: Commercial tenants are charged 19% VAT on the rent and fixtures.