Country - Czech Republic
Corporate Vehicles
|
A. DIRECT INVESTMENT
1. Investment without a permanent establishment
Direct investments in real estate by foreign companies and individuals are governed by the Foreign Exchange Act. There are two categories of real estate recognised by law: agricultural land and other real estate.
Agricultural and forest land may only be acquired by a foreigner who:
- has citizenship of the Czech Republic;
- has a residence permit as a citizen of a European Union member state, has had the right to a residence permit for at least three years and is registered in the Register of Agricultural Entrepreneurs for the relevant area;
- fulfils one of the exceptional conditions listed in the Foreign Exchange Act, including:
- inheriting real estate;
- having a Czech citizen as a spouse (in which case the land may be co-owned); or
- receiving a gift from a sibling, spouse, direct ancestor or direct descendant;
- non-agricultural (and non-forest) land may be acquired by foreign companies and individuals where a company runs an enterprise or has an organisational unit (permanent establishment) in the Czech Republic and is entitled to do business in the Czech Republic;
- has citizenship of the Czech Republic;
- has a residence permit as a citizen of a European Union member state; or
- fulfils one of the exceptional conditions listed in the Foreign Exchange Act, including:
-
inheriting real estate;
-
having a Czech citizen as a spouse (in which case the land may be co-owned); or
-
receives a gift from a sibling, spouse, direct ancestor or direct descendant.
The vast majority of investment transactions use a form of indirect investment by using s.r.o. and a.s. vehicles.
2. Investment through a permanent establishment
Minimum capital
Not applicable.
Set-up costs
Approximately CZK 80,000 including legal fees.
Time required to become operative
20 days.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the company and the scope of its activities.
Corporate governance
The permanent establishment must be registered in the Commercial Register in the Czech Republic. The foreign entity must appoint a chairman of the permanent establishment, who must be empowered to legally represent the permanent establishment on behalf of the foreign entity.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
Rental income from real estate in the Czech Republic is subject to income tax in the Czech Republic.
The tax basis is the rental income minus related expenses (for example, interest, depreciation and administrative costs).
The personal income tax rate is 15% and from 1 January 2009 will be the tax rate 12.5%.
Taxation of distribution of current income to investors
Not applicable.
Taxation of capital gains
Capital gains realised by foreign investors from the sale of real estate assets in the Czech Republic are subject to Czech personal income taxation for five years from the date of acquisition. In special cases this period may be reduced to two years.
After this period capital gains are not taxable in the Czech Republic as long as the real estate was held as private not business property.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
There are four types of corporate vehicle which can be used for real estate investment in the Czech Republic:
1. Limited liability company (spolecnost s rucenim omezenym - s.r.o.)
Minimum capital
CZK 200,000.
Set-up costs
Approximately CZK 90,000, including legal fees.
Time required to become operative
30 days.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the company and the scope of its activities.
Corporate governance
The company is managed by one or more managing directors (jednatel), who can act and sign on behalf of the company, either independently or jointly. Flexible management may be provided for in the articles of association. General meetings of company shareholders are also required for matters stated by law and by the articles of Association. Voting and dividend rights may be freely allocated.
Auditing of financial statements is required only if two out of three statutory thresholds, relating to the size of assets and turnover, and the number of employees, are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
Rental income is taxed after deducting related expenses (for example, interest, depreciation and administrative costs).
The corporate income tax rate is 21%, from 1 January 2009 shall be the tax rate 20% and from 1 January 2010 shall be the tax rate 19%.
Taxation of distribution of current income to investors
Dividend distribution to shareholders
In general, there is a 15% withholding tax on dividends for corporate and individual shareholders.
There is no withholding tax if the dividend is distributed by a subsidiary to its parent company where: the parent is a corporation registered in the Czech Republic, EU member state or Switzerland; and the parent company has held 10% of the shares in the subsidiary for an uninterrupted period of 12 months preceding the date of distribution of the dividends. Interest on loans is not tax deductible although this can be modified with special tax structuring.
Taxation at the level of the shareholder
Under double taxation treaties between the Czech Republic and other countries, dividends may be taxed either in the company's country of registration or in the shareholder's country of residence. However, the rate of withholding tax in the former is usually lower.
Dividend income received from Czech subsidiaries is normally exempt from tax.
Taxation of capital gains
Capital gains from the sale of real estate made by non-resident corporations are subject to Czech corporate income tax.
Capital gains made by an individual are only taxable if the shares are sold within six months of purchase (or within five years of purchase in the case of a limited liability company). Capital gains are taxed at the applicable tax rate as set out above.
Capital gains deriving from the sale of shares by corporate investors are taxable.
Double taxation treaties usually stipulate that the gains from the sale of shares are taxed in the foreign investor's country of residence or company registration. However, if a corporation's income is mainly derived from real estate then the country in which tax is payable depends on the wording of the relevant tax treaty.
2. Joint stock company (akciova spolecnost - a.s.)
Minimum capital
CZK 2,000,000 of an a.s. without a public offer of shares.
CZK 20,000,000 of an a.s. with a public offer of shares.
Set-up costs
Approximately CZK 150,000 for an a.s. without a public offer of shares, including legal fees.
For an a.s. with a public offer of shares, approximately EUR 500 plus variable costs for issuing shares and registering them with the Commercial Court.
Time required to become operative
30 days in the case of an a.s. without a public offer of shares.
For an a.s. with a public offer of shares, the company can decide how long to give the public to buy the shares.
Costs per annum for corporate and accounting compliance
CZK 100,000, although the figure depends on the size of company and scope of its activities.
Corporate governance
The company is managed by a board of at least three directors (unless it only has one shareholder, in which case one director is sufficient). Corporate governance may be regulated flexibly by the company by-laws. Day-to-day management is carried out by the directors, who are generally appointed by a general meeting of shareholders or by the supervisory board if the by-laws specify this.
It is possible to create different categories of shares which can have different rights associated with them. Voting and dividend rights may be freely allocated.
Auditing of financial statements is required only if two out of three statutory thresholds, relating to the size of assets and turnover, and the number of employees, are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
Rental income is taxed after deducting related expenses (for example, interest, depreciation and administrative costs).
The corporate income tax rate is 21%, from 1 January 2009 shall be the tax rate 20% and from 1 January 2010 shall be the tax rate 19%.
Taxation of distribution of current income to investors
Dividend distribution to shareholders
In general, there is a 15% withholding tax on dividends for corporate and individual shareholders.
There is no withholding tax if the dividend is distributed by a subsidiary to its parent company where: the parent is a corporation registered in the Czech Republic, EU member state or Switzerland; and the parent company has held 10% of the shares in the subsidiary for an uninterrupted period of 12 months preceding the date of distribution of the dividends. Interest on loans is not tax deductible although this can be modified with special tax structuring.
Taxation at the level of the shareholder
Under double taxation treaties between the Czech Republic and other countries, dividends may be taxed either in the company's country of registration or in the shareholder's country of residence. However, the rate of withholding tax in the former is usually lower.
Dividend income from Czech subsidiaries is normally exempt from tax.
Taxation of capital gains
Capital gains made by non-resident corporations from the sale of real estate are taxable under Czech corporate income tax.
Capital gains on shares held by an individual are taxable only if the shares are sold within six months of purchase (or in the case of a limited liability company, within five years of purchase). They are taxed at the applicable tax rate above.
Capital gains made by corporate investors from the sale of shares are taxable.
Double taxation treaties usually stipulate that the gains from the sale of shares are taxed in the foreign investor's country of residence or company registration. However, if a corporation's income is mainly derived from real estate then the country in which tax is charged depends on the wording of the relevant tax treaty.
3. Unlimited partnership (verejna obchodni spolecnost - v.o.s.)
Please note that, in contrast with many other jurisdictions, the Czech Republic recognises unlimited partnerships as companies with their own legal identity.
Minimum capital
Not applicable.
Set-up costs
Approximately CZK 90,000, including legal fees.
Time required to become operative
30 days.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the company and the scope of its activities.
Corporate governance
The company is managed by all of its partners unless the articles of association state otherwise. The articles may regulate corporate governance flexibly, including voting rights and the allocation of dividends.
All partners have full liability for the obligations of the partnership and this liability cannot be limited.
Auditing of financial statements is required only if two out of three statutory thresholds, relating to the size of assets and turnover, and the number of employees, are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
A partnership is considered to be transparent for income tax purposes. Any profits generated under the partnership are regarded as the profits of individual partners and are therefore treated as personal income.
Taxation of distribution of current income to investors
Where foreign investors have invested through a Czech partnership, the business profits will already have been taxed, and the partners will not therefore be taxed again. However, income which has been paid out to the partners will be taxed through personal income tax.
Taxation of capital gains
Not applicable.
4. Limited partnership (komanditni spolecnost - k.s.)
Please note that, in contrast with many other jurisdictions, the Czech Republic recognises limited partnerships as companies with their own legal identity.
Minimum capital
CZK 5,000.
Set-up costs
Approximately CZK 90,000 for k.s. with registered capital of up to CZK 200,000, including legal fees.
Time required to become operative
30 days.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the company and the scope of its activities.
Corporate governance
The partnership has two categories of partners: partners with unlimited liability (komplementari) and partners with limited liability (komanditiste).
Day-to-day management may only be conducted by unlimited liability partners. Other matters must be decided by all partners.
Voting rights and the allocation of dividends are freely adjustable through the articles of association.
Auditing of financial statements is required only if two out of three statutory thresholds, relating to the size of assets and turnover, and the number of employees, are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
Since a partnership is considered to be transparent for income tax purposes, any profits generated under the partnership are regarded as the profits of individual partners and therefore treated as personal income.
Taxation of distribution of current income to investors
Where foreign investors have invested through a Czech partnership, the business profits will already have been taxed, and the partners will not therefore be taxed again. However, income which has been paid out to the partners will be taxed through personal income tax.
Taxation of capital gains
Not applicable.
C. PARTNERSHIPS
Please note that, in contrast with many other jurisdictions, the Czech Republic recognises limited partnerships as companies with their own legal identity.
1. Unlimited Partnership (verejna obchodni spolecnost - v.o.s.)
Minimum capital
Not applicable.
Set-up costs
Approximately CZK 90,000, including legal fees.
Time required to become operative
30 days.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the company and the scope of its activities.
Corporate governance
The company is managed by all of its partners unless the articles of association state otherwise. The articles may regulate corporate governance flexibly, including voting rights and the allocation of dividends.
All partners have full liability for the obligations of the partnership and this liability cannot be limited.
Auditing of financial statements is required only if two out of three statutory thresholds, relating to the size of assets and turnover, and the number of employees, are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
A partnership is considered to be transparent for income tax purposes. Any profits generated under the partnership are regarded as the profits of individual partners and are therefore treated as personal income.
Taxation of distribution of current income to investors
Where foreign investors have invested through a Czech partnership, the business profits will already have been taxed, and the partners will not therefore be taxed again. However, income which has been paid out to the partners will be taxed through personal income tax.
Taxation of capital gains
Not applicable.
2. Limited Partnership (komanditni spolecnost - k.s.)
Minimum capital
CZK 5,000.
Set-up costs
Approximately CZK 90,000 for k.s. with registered capital of up to CZK 200,000, including legal fees.
Time required to become operative
30 days.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the company and the scope of its activities.
Corporate governance
The partnership has two categories of partners: partners with unlimited liability (komplementari) and partners with limited liability (komanditiste).
Day-to-day management may only be conducted by unlimited liability partners. Other matters must be decided by all partners.
Voting rights and the allocation of dividends are freely adjustable through the articles of association.
Auditing of financial statements is required only if two out of three statutory thresholds, relating to the size of assets and turnover, and the number of employees, are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Czech Republic
Since a partnership is considered to be transparent for income tax purposes, any profits generated under the partnership are regarded as the profits of individual partners and therefore treated as personal income.
Taxation of distribution of current income to investors
Where foreign investors have invested through a Czech partnership, the business profits will already have been taxed, and the partners will not therefore be taxed again. However, income which has been paid out to the partners will be taxed through personal income tax.
Taxation of capital gains
Not applicable.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
Collective investment in the Czech Republic is governed by the Collective Investment Act. This recognises a special form of investment in real estate: the real estate fund (fond nemovistosti).
A fund allows investors to invest together but is not a legal person like a company. An investment company sets up and administers the fund. Investors receive an "allotment certificate" and not a share certificate.
The fund can invest directly in real estate or (subject to conditions) in real estate companies. A fund cannot develop property but can invest in companies which do so.
A "Depositary" (a bank) supervises purchases and sales of real estate by the fund. No purchase can exceed 20% of the value of assets held by the fund at that time. The Czech National Bank supervises the system.
Funds do not have an equivalent of shareholder meetings. Investors can only control the fund if they are shareholders in the investment company which administers the fund.
The fund pays tax at 5%. A further 15% for tax is withheld before profits can be paid to investors.
E. THIN CAPITALISATION RULES
As long as a loan granted by a third party is not secured, back-to-back interest should be fully deductible.
There are restrictions on the amount which may be borrowed relative to the amount of capital invested where a loan is provided by a related company. The applicable ratio is 6:1 for banks and other financial entities receiving loans and 4:1 in other cases.
Interest on the portion of debt exceeding four or, in the case of banks and other financial entities, six times the recipient's equity cannot be offset against income to reduce tax. It is reclassified as a distribution of dividends and is subject to withholding tax of 15%, unless a relevant tax treaty reduces the rate.
|
|
|