How can investment in real estate by an individual/organization/company be set up?
There are several possible routes for real estate investment in the Czech Republic, including a direct acquisition of real estate (an asset deal), an indirect acquisition via a corporation (a share deal), an acquisition via a partnership and a purchase of an enterprise or its branch office. No specific conditions for organizations or companies apply to investment in real estate. On 1 May 2011 the seven year transitional period during which temporary restrictions applicable to agricultural land and forest ended and, from this date, European Union rules regarding the free movement of capital apply to real estate acquisitions in the Czech Republic.
Investors may be interested in investing through special funds, known as Real Estate Funds or Funds for Qualified Investors. A Real Estate Fund brings together domestic and foreign investors, whose scope of business comprises the acquisition, operation and transfer of real estate for profit. These funds are subject to legal limitations and the supervision of the Czech National Bank, mainly because they are intended for public investment. On the other hand, a Fund for Qualified Investors attracts finance only from a limited range of "Qualified Investors" (ie financial institutions, such as banks, insurance companies, pension companies, etc) and, therefore, the Fund is not subject to such strict limitations and supervision. The Fund governs itself through its statute.
Besides asset deals, real estate may also be acquired through a share deal.
Asset deals involve the sale of the real estate directly; any profit from the sale, as well as any property transfer profit, is taxed. However, the real estate acquisition tax has been cancelled in 2020. The buyer acquires ownership of the property and, at the same time, the seller loses it by virtue of registration in the Cadastral Register – this is a time-consuming process and, in the meantime, questions of insurance and responsibility for maintenance of the real estate may arise.
On the other hand, in the case of a share deal, a share in the company that owns the real estate is transferred. After the transfer, the legal owner of the real estate – the company – remains unchanged but, because the major share in the company is owned by the buyer, the real estate will, for practical purposes, be owned by that person. An advantage is that the company may, subject to certain legally defined conditions, achieve various tax-exemptions, such as an exemption from paying VAT and even income tax. The procedure of transferring property rights is much easier in a share deal, ownership of the shareholding passes by virtue of the share sale contract, which saves a significant amount of time as there is no need to implement the complicated procedure at the Cadastral Register that applies in the case of an asset deal.
