REALWorld Law

Taxes

Taxation of disposals

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Angola

Angola

Real estate held by companies

Capital gains obtained by resident companies or by permanent establishments in Angola are included in their taxable income and subject to corporate income tax at a standard flat rate of 30 percent.

Real estate held by collective investment undertakings

Capital gains obtained by collective investment undertakings in Angola are included in their taxable income and subject to corporate income tax at a rate of 7.5 percent or 15 percent, depending on the nature of the CIU.

Real estate held by persons

Capital gains obtained by persons are subject to investment income tax at a rate of 10 percent.

Australia

Australia

If the real estate is held by a flow-through or tax-transparent entity (such as, certain trusts and partnerships) the income or capital gains on the sale of the real estate flows through to the investors and tax is payable on these gains at the investor’s marginal tax rate. If the real estate is held by a company, the company is liable to pay tax at 30 percent on the capital or income gain from the sale (after deductions).

If the vendor is an individual, trust or complying superannuation entity and the real estate is held on capital account for at least 12 months by the vendor, the tax payable on the gain may be discounted. A discount of 50 percent applies for individuals and trusts. This discount is not available for non-resident investors.

The capital gain (or loss) is generally equal to the capital proceeds received (eg sale price) less the cost base (eg original purchase price and other costs of acquisition).

From 1 July 2016, disposals of direct or indirect interests in Australian real estate by foreign residents  will be subject to a non-final 10 percent capital gains withholding tax. Purchasers will be required to withhold this amount from the purchase price and remit payment to the Australian Taxation Office by the settlement date. In certain circumstances, the withholding tax rate can be varied, including to nil (eg where the vendor will not make a capital gain from the sale).

Belgium

Belgium

Sale of shares

In principle, capital gains on shares in a property company are exempt provided that:

  • The property company meets a subject-to-tax test
  • The vendor held a participation in the property company of at least 10 percent or with an acquisition value of €2.5 million, and
  • The vendor holds the shares in full ownership for at least one year

The non-fulfilment of either of the two first conditions would suffice to have the capital gain subject to the full corporation tax rate (ie 29.58 percent or 20.40 percent for small companies on a first income band of €100,000). If these first two conditions are met but the condition related to the holding duration is not fulfilled, a rate of 25.50 percent (or 20.40 percent for small companies on a first income band of €100,000) will apply.

Capital losses on sales of shares are not deductible, except where the company is wound up, and even then, only up to the amount of the paid-up capital of the liquidated company, or except where the shares form part of the trading profit of credit institutions and investment undertakings.

Capital gains realized by Belgian individuals on the sale of shares held for business purposes are normally taxed at the general progressive income tax rates. A separate tax rate of 16.5 percent (plus a municipal surcharge) applies if the shares were held for more than five years. The minimum five year holding period does not apply when the capital gains are realized in the context of the winding-up of a business or a branch of a business.

Capital gains realized on the sale of shares by Belgian individuals that were not held for business purposes are tax-exempt, unless the sale does not qualify as a normal act of asset management. In these circumstances, the capital gain is subject to a tax rate of 33 percent, supplemented by municipal surcharges.

The sale of shares in a property company is not subject to registration duties or VAT.

Sale of real estate assets

Capital gains realized on the sale of a real asset held directly (buildings as well as land) are subject to normal corporation tax. However, a system of deferred and spread taxation applies if the proceeds are entirely reinvested within three to five years in depreciable intangible or tangible fixed assets that are used for business purposes in Belgium or in any other member state of the European Economic Area (EEA). Losses related to real estate can be offset against other income. Tax losses may be carried forward indefinitely, but their use in a given tax year is limited to € 1 million plus 70 percent of the taxable basis in excess of €1 million. Any carried-forward tax losses that cannot be used due to this limitation may be further carried forward indefinitely.

Capital gains realized by non-resident companies on the sale of immovable property in Belgium are subject to a withholding tax retained at source by the notary public. Afterwards the companies may offset any relevant charges and losses carried forward against this income through their annual tax return. As such the withholding tax only results in a pre-financing cost.

Capital gains realized by individuals on the sale of real estate assets held for business purposes are normally taxed at the general progressive income tax rates (plus a municipal surcharge). This system of deferred and spread taxation also applies to individuals. A separate tax rate of 16.5 percent (plus a municipal charge) applies if these real estate assets are held for more than five years, in which case, the system of deferred and spread taxation will not apply.

Capital gains realized by individuals on the sale of real estate assets that are not held for business purposes are taxed at a separate rate of 16.5 percent (plus a municipal charge), if they are sold within five years (in the case of buildings) or eight years (in the case of land) from their acquisition.

Transfer tax

The transfer of ownership or disposal of real estate interests in Belgium is subject to a 12.5 percent registration duty (10 percent in the Flemish region), payable by the buyer and calculated on the basis of the contractual price or the market value, whichever is higher. Under certain conditions reduced registration duty rates of 4 percent in the Flemish region, 5 percent in the Walloon region and 8 percent in the Brussels region apply to purchases by corporate entities (or individuals) whose business activities mainly consist of buying and selling real estate.

The acquisition of new buildings is subject to VAT (generally at 21 percent). A building is considered to be ‘new’ for VAT purposes until 31 December in the second year following the year the building was first put to use. Not only new buildings but also, in some cases, old buildings that have been thoroughly renovated can be regarded as ‘new’ buildings for VAT purposes.

The purchase of land belonging to a ‘new’ building, is subject to the same VAT treatment as the purchase of the new building, if that land and the new building are sold simultaneously by one and the same owner. No VAT is due on the part of the price attributable to the land in the event the building is not new or if these conditions are not met. Registration duties will however then be payable on that part of the price which is attributable to the sale of the land.

Transfer tax is usually payable by the buyer. If this is not the case, the tax is deemed to be included in the purchase price and grossing up will be necessary.

Bosnia-Herzegovina

Bosnia-Herzegovina

In the Federation of Bosnia and Herzegovina, the sale of real estate is taxed at a level set by each canton individually.

The tax rate is 5% of the value of the real estate, as determined by the municipal appraisal team. This tax is paid by the buyer and cannot be reduced in any way.

In Republika Sprska (RS), the tax rate is 3% and is not payable on newly built buildings.

These taxes are payable by the buyer.

Canada

Canada

Canada taxes one-half of capital gains. A taxpayer that realizes a gain on the disposition of Canadian real property held as capital property will be required to include one-half of the gain (the taxable capital gain) in income and generally be subject to tax at applicable rates. For this purpose a capital gain is computed as the proceeds of disposition, minus the ACB of the property and reasonable costs of disposition. If the real property includes depreciable property – for example a building – that has been depreciated for tax purposes, any gain attributable to the building up to the total previously-deducted net tax depreciation will be fully taxable.

The tax rates and rules described under ‘Recurring Taxation – Ongoing Taxation – Income Tax’ will generally apply to the taxable capital gain included in the taxpayer’s income.

One hundred per cent of any realized gain on the disposition of real property held as a trading asset or acquired in the course of an adventure or concern in the nature of trade will normally be taxable at applicable rates.

China

China

Property Transfer

In a property transfer, the taxes paid by a seller of real estate are as follows:

  • Income Tax:
    • Onshore entity seller: 25% of the net profit
    • Offshore entity seller: 10% of the net gain
  • VAT: 11% of the gross sales proceeds which will be passed through to the purchaser to pay. If the real estate properties were acquired by the seller before 30 April 2016, the seller may opt for a simplified tax method, ie apply a reduced VAT rate of 5% on the gross sales proceeds which will be borne by the seller itself
  • Land Value Appreciation Tax (LVAT): Progressive scale ranging from 30% to 60% depending on the amount of taxable gains derived from the transfer of real property, and
  • Stamp Duty: 0.05% of the purchase price

Individual sellers may be exempted from paying income tax, VAT, stamp duty and LVAT provided that required conditions have been satisfied.

Share Transfer

In a share transfer, the taxes paid by a seller of a real estate company are as follows:

  • Income Tax:
    • Onshore entity seller: 25% of the net profit
    • Offshore entity seller: 10% of the net gain, and
  • Stamp Duty: 0.05% of the Equity Transfer Price
Croatia

Croatia

In the case of companies (including closed end real estate investment funds) capital gains are normally taxed as profit at the rate of 18% (or 12%). Capital gains are treated in the same way as rental income and other income from real estate ownership.

Czech Republic

Czech Republic

On the sale of real estate in the Czech Republic, it is necessary to pay real estate acquisition tax. No type of corporate vehicle is exempted from paying this tax. Generally, the tax is paid by the purchaser. In some cases, a transfer/sale of real estate may be tax free. This applies, for example, on the first transfer/sale of a new family house or flat within the first five years following construction.

Income gained from the sale of real estate is subject to income tax and, in some cases, to VAT.

In the case of a sale of real estate by a natural person, Czech tax law stipulates certain exemptions from liability for income tax, for example, inheritance or if the seller uses the real estate as his/her residence for at least two years prior to the sale, or if the period between the real estate acquisition and its sale exceeds five years in the case of sales of family houses, flats and non-residential premises.

Denmark

Denmark

Profits from the sale of investment property are taxed as capital gains in Denmark. For corporate owners (resident or non-resident) the applicable rate is 22 percent.

Corporate bodies which own real estate may both reduce and offset their tax liability but this depends on their specific circumstances.

In general, individuals resident in Denmark are liable to taxation in respect of capital gains and losses arising from the sale of real property. For individuals the rate is up to 42 percent, depending on the individual's total income.

However, capital gains on real property which has served as the personal residence of the individual owner are tax-exempt. Similarly, losses on such property are not deductible.

France

France

Capital gains

Real estate assets held by foreign investors directly without a permanent residence in France

Profits (other than usual profits derived by asset dealers) on the sale of a French property by a non-resident company are subject to a 33.33% tax in France (although certain treaty exemptions may apply).

Profits on the sale of a property by a French resident individual or an individual residing either in or outside the European Union are subject to a 19% tax, plus 17.2% in social contributions, giving a total charge of 38.2% (although certain treaty exemptions apply).

Furthermore, a progressive 2% to 6% tax applies on real estate capital gains on sales of property. This tax applies indifferently on real estate rights or assets, other than building lands. This tax applies to:

  • Transfers made by individuals and pass through entities in the scope of article 8 to 8 ter of the FTC (eg SCI), and
  • Transfers made by non-French tax residents who are subject to taxes levied on the basis of the article 244 bis A of the FTC

Allowances increasing with the holding period can be deducted from the taxable gain, leading to a full exemption of individual income tax after 22 years of holding and social contributions after 30 years of holding.

Real estate assets held by foreign investors through a permanent establishment in France or a French company

Capital gains realized on the sale of French real estate assets by a French permanent establishment or a French company are subject to corporate income tax at the rate of 33.33% on top of which miscellaneous contributions are added. The effective tax rate is 34.43% for corporate taxpayers whose turnover exceeds €7,630,000.

If participation shares are registered as such in the accounts, and are held for more than two years, a participation exemption applies on any capital gains so that only 12% of their value is subject to French corporate tax at the rate of 33.33% on top of which miscellaneous contributions are added for an effective tax rate of up to 34.43%, provided the company whose shares are held by the French permanent establishment do not qualify as a predominantly French real estate company from a French capital gain tax perspective (for capital gain tax purposes, a predominantly French real estate company is a company that owns, directly or indirectly, French real estate assets that represent more than 50% of the fair market value of its total assets, without taking into account those that are allocated by the company to run its own business, at the closing of the three tax years preceding the sale, irrespective of the fact that this company has its respective head offices in France or not).

Please note that the French Finance Law for 2018 has created two exceptional contributions which will be levied on fiscal years ending from 31 December 2017 until 30 December 2018. Accordingly, companies subject to corporate income tax whose turnover exceed €1bn will be liable to an exceptional contribution to corporate income tax at a 15% rate. Moreover, companies subject to corporate income tax whose turnover exceeds €3bn will also be subject to an additional contribution to the exceptional contribution to the CIT levied at a 15% rate. Specific rules apply to companies that are members of a tax consolidated group.

Replacement of the wealth tax (ISF) by a real estate wealth tax (IFI)

The Finance Law for 2018 provides that ISF is repealed and replaced, with effect from 1 January 1, 2018, by a new real estate wealth tax (IFI). IFI is assessed on the real estate owned by the taxpayer to the extent that the value of the taxpayer's real estate net assets exceeds €1.3m.

The definition of the taxpayers, the triggering event as well as the tax threshold and the tax scale as regards IFI are similar to those that were applicable to the previous wealth tax.

The main change concerns the IFI's tax base, which is defined as all the real estate owned directly or indirectly by the taxpayer via companies or collective investment vehicles when it is not allocated to the business of the relevant entities. Taxation is not limited to shares in real estate companies.

Measures are designed to exclude from the taxable fraction, on the one hand, professional real estate owned by companies and, on the other hand, real estate held by taxpayers through operating companies in which their shareholding is less than 10%. Tax-exempt status may be granted to taxpayers holding less than 10% interest in non-operating companies if they establish that they are not in a position to obtain the information necessary for the assessment of the taxable portion of their shares. A similar exclusion applies in the case of holding less than 10% of the rights in an investment fund or in a collective investment vehicle, provided that these funds hold (directly or indirectly) less than 20% of their assets in property and real estate rights taxable to the IFI. Finally, goods of a professional nature are, under certain conditions, also excluded from the IFI's tax base.

The French Finance Law for 2018 sets out the list of deductible debts (in particular, expenditure on the acquisition of taxable property or real estate rights and shares, in proportion to the value of taxable real estate assets) and provides for a deduction cap for large heritage assets. The Finance Act 2018 also lays down special deduction rules for "in fine" loans designed to take account of theoretical amortisation. An anti-abuse clause is also provided for the deduction of intra-group loans limiting the deduction of the debt, except in the event that the borrower is able to justify the normal nature of the loan terms and conditions (i.e.ie on an arm's length basis), in particular compliance with due dates, the amount and the actual effectiveness of repayments.

In this respect, it should be noted that the provisions exempting financial investments of non-residents from ISF have been repealed, so that, subject to tax treaties, non-residents holding corporate securities will henceforth be liable to the IFI for the part of the value of such shares corresponding to real estate, whereas they were previously subject to ISF only on shares in real estate companies and shares in companies held more than 50% by the family group.

Germany

Germany

Real estate assets held by investors with a permanent establishment in Germany

If the investor is a corporation with a permanent establishment in Germany, through which it sells real estate located in Germany, any capital gains are subject to corporate income tax at the rate of 15 percent plus a 5.5 percent solidarity surcharge thereon, leading to an effective tax rate of 15.825 percent. Income is also subject to trade tax at a rate of generally between 7 percent and 19.25 percent, unless the corporation qualifies for a trade tax exemption. If the corporate investor is exclusively engaged in long term letting and management of real estate, a special trade tax exemption may apply.

If the investor is an individual with a permanent establishment in Germany, through which he sells real estate located in Germany, any capital gains are subject to income and trade tax unless the investor qualifies for a trade tax exemption. If the individual is exclusively engaged in letting and managing real estate, a special trade tax exemption may apply.

Real estate assets held by investors directly without a permanent establishment in Germany

If the investor is a non-resident corporation selling real estate located in Germany, any capital gains are subject to corporate income tax at the rate of 15 percent (plus a 5.5 percent solidarity surcharge thereon), leading to an effective tax rate of 15.825 percent.

If the investor is an individual selling real estate located in Germany and the real estate is held as a private asset, capital gains are only subject to income tax in Germany if the real estate was held for less than ten years or if the sale qualifies as a trade or business activity.

An additional tax bracket of 45% applies to taxable income in excess of €265,000 for individuals and €531,000 for married couples who are subject to joint taxation if the income qualifies as leasing income. If the real estate was held for ten or more years and the property concerned was not an asset belonging to a trade or business, the income deriving from the sale is not taxable in Germany.

Real estate assets held by investors through a German corporation

Where a private individual disposes of shares in a German company that are not a business asset, capital gains are subject to a tax rate of 25 percent plus a solidarity surcharge thereon (ie 26.375 percent). Where the shareholder held a direct or indirect stake of 1 percent or more in the company during the preceding five years, capital gains on the disposal are subject to the taxpayer's individual tax rate, however 40 percent of such capital gain is tax exempt.

If the shares disposed of are in a company that is an asset of a German permanent establishment, or of the taxpayer's trade or business, any capital gains are subject to income tax and trade tax regardless of the holding period or the size of the stake in the company. However, 40 percent of the capital gains are tax exempt at the level of an individual.

If a corporation disposes of shares in a German company, effectively only 5 percent of capital gains are subject to corporation tax and trade tax in Germany.

However, for non-resident corporations and individuals this tax regime may be affected by German double taxation treaties. In most German double taxation treaties capital gains are subject to tax in the country in which the selling shareholder resides and are tax exempt in Germany. However, according to a number of double taxation treaties, Germany's right to levy taxes applies where 50 percent or more of the German company's value consists of German real estate. In this case capital gains on the disposal of shares can be taxed in Germany, however in most of such cases the taxpayer is entitled to a tax credit in his country of residence.

Real estate assets held by an investor through a German partnership

The taxation of capital gains from the disposal of a partnership interest in a German partnership depends on whether its partners are corporations or individuals and whether the partnership operates, or is deemed to operate, a trade or business. If the partnership operates, or is deemed to operate, a trade or business, the partnership can perform its activities with or without a permanent establishment in Germany.

Hong Kong

Hong Kong

Stamp duty

Stamp duty would be incurred in the sale and purchase of real property. The latest applicable scales for the calculation of stamp duty in the purchase of real estate in Hong Kong are provided on the GovHK website.

Special stamp duty

In addition to the ad valorem stamp duty, any residential property acquired on or after 20 November 2010 which is being resold within 24 months (if the property was acquired between 20 November 2010 and 26 October 2012) or 36 months (if the property was acquired on or after 27 October 2012) from the date of purchase will be subject to Special Stamp Duty (SSD). Both the vendor and purchaser are jointly and severally liable for paying SSD. The seller and the buyer should, by consent, specify in the Provisional Agreement for Sale and Purchase (PASP) and the Agreement for Sale and Purchase (ASP) which party (the buyer or the seller) is to pay the SSD. SSD is calculated based on the stated consideration or the market value of the property (whichever is the higher) x the applicable rate as follows:

If the property was acquired between 20 November 2010 and 26 October 2012:

  • 15% if the property has been held for six months or less
  • 10% if the property has been held for more than six months but not exceeding 12 months 
  • 5% if the property has been held for more than 12 months but not exceeding 24 months

If the property was acquired on or after 27 October 2012:

  • 20% if the property has been held for six months or less 
  • 15% if the property has been held for more than six months but not exceeding 12 months 
  • 10% if the property has been held for more than 12 months but not exceeding 36 months

A chargeable agreement for sale or a conveyance on sale is to be stamped with SSD at the same time as that for the ad valorem stamp duty, ie in general, within 30 days after the date on which the agreement for sale or conveyance is executed.

SSD is exempted in a number of situations:

  • Nomination of the spouse, parents, children, brothers or sisters to take up the assignment of the residential property, and sale or transfer of the residential property to the spouse, parents, children, brothers or sisters 
  • Addition /deletion of name(s) of a person(s) to / from a chargeable agreement for sale or a conveyance on sale in respect of the residential property if the person(s) is the spouse, parents, children, brothers or sisters of the original purchaser(s) 
  • Sale or transfer of residential properties by a court order or pursuant to a court order. The exemption covers a compulsory sale of residential property under a Compulsory Sale Order granted under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545), and also any sale of residential property where the residential property was transferred to or vested in the vendor by or pursuant to any decree or order of any court, including a foreclosure order obtained by the mortgagee whether or not it falls under the definition of a financial institution within the meaning of section 2 of the IRO 
  • Sale of mortgaged residential properties in various forms by a mortgagee which is a financial institution within the meaning of section 2 of the IRO, or by a receiver appointed by such a mortgagee 
  • Sale or transfer of residential properties (including bare sites) after demolishing the original residential properties thereon for constructing redeveloped ones 
  • Sale of the estate of a deceased person, which involves residential property, by the executor or personal representative, and sale or transfer of a residential property by a person whose property is inherited from a deceased person's estate or passed to that person under the right of survivorship 
  • Sale or transfer of residential properties between associated bodies corporate 
  • The residential property sold relates solely to a bankrupt's estate or the property of a company which is being wound up by the court by reason of its inability to pay debts 
  • Sale or transfer of residential properties to the Government 
  • Gift of residential properties to charitable institutions exempted from tax under section 88 of the IRO.

Capital gains tax

There is no capital gains tax in Hong Kong. However, if the profits of a person are in the nature of trading (ie the general course of business of trading of real property interest), then the profits will likely be subject to profits tax. 

Hungary

Hungary

Capital gains from the sale of real estate by a Hungarian company, limited partnership or unlimited partnership are subject to tax at a rate of 9%. In certain circumstances, local business tax (at a rate of up to 2%) may also apply.

Capital gains from the sale of real estate by a non-resident investor are also subject to tax at the general rate of 9% if the income is attributable to a permanent establishment in Hungary. In certain circumstances, local business tax (at a rate of up to 2%) may also apply if there is a permanent establishment for tax purposes.

Real estate investment funds are not subject to direct taxation in Hungary.

REITs and their wholly owned special purpose vehicles are, as a rule, exempt from corporate income tax and local business tax.

As from 1 January 2010, the Corporate Income Tax Act introduced non-resident taxation in respect of real estate companies. The term ‘real estate company’ refers to a business entity (and its related parties owning Hungarian real estate), other than a company listed on a regulated market, whose assets include Hungarian real estate with a fair market value exceeding 75% of the total assets (on a consolidated basis).

Also, for a company to qualify as a real estate company, at least one of the owners (including the owners of the company’s related parties if such related parties own Hungarian real estate and are subject to the Corporate Income Tax Act in Hungary) must be tax resident in a country which does not have a double taxation convention with Hungary or, if it does, the convention allows the taxation of capital gains in Hungary.

Taxpayers are obliged to report to the tax authorities if they qualify as (or no longer qualify as) a real estate company.

A foreign tax resident company is subject to a 9% tax in Hungary if it realizes a gain on transferring its shares in, or reducing the capital of, a real estate company.

Ireland

Ireland

Assets held by a foreign investor directly without a permanent establishment in Ireland

Gains arising on the sale of Irish investment property are generally liable to Irish Capital Gains Tax (CGT), currently at the rate of 33%. This is the case whether or not the seller is resident in Ireland and subject to any relief that may be available under a double-taxation treaty. The taxation of property purchased with the intention of resale or development differs from the taxation of investment property. The tax rate depends on the nature of the property and the tax status of the owner. However, there is a relief from capital gains tax for real estate purchased from 7 December 2011 to 31 December 2014 provided it is held for a specified period. The original holding period was seven years. There was proportionate relief where the property was held for any period longer than seven years, with the relief being lost in its entirety if the property was sold during the initial seven-year acquisition period.

The requisite holding period has been reduced from seven years to four years. The measure has created a three-year period (ie years 4 to 7) in which the property can be sold and benefit from a full exemption whereas if held longer than seven years, only proportionate relief is available.

In order for the relief to apply, the property must be acquired for a consideration equal to the market value of the property (or if acquired from a relative, not less than 75% of the market value on the date acquired). This exemption applies to all persons regardless of how the real estate is acquired, ie individual or corporate.

The incidental costs of acquisition may be deductible when calculating any gain or loss on the disposal of the property. Such fees must be incurred wholly and exclusively for the purpose of the acquisition of the asset, and must fall into one or other of the following categories:

  • Fees, commission, or remuneration for the professional services of any:
    • Surveyor
    • Valuer
    • Auctioneer
    • Accountant
    • Agent
    • Legal advisor
  • Costs of transfer or conveyance
  • Cost of advertising to acquire the asset

Where proceeds from the sale of a property exceed €500,000 (or €1,000,000 if the property disposed of is residential property – effective from 1 January 2016), the buyer is obliged to withhold tax of 15% from the gross proceeds. However, withholding tax does not apply where the seller produces a CGT clearance certificate issued by the Irish tax authorities before the sale. Some sellers, for example, a non‑resident seller, may not be entitled to a clearance certificate. Tax withheld by the buyer can normally be offset against the Irish CGT payable by the seller, and any excess is refunded to the seller following the submission of a CGT return to the tax authorities.

Assets held by a foreign investor through a permanent establishment in Ireland

Gains arising on the sale of Irish investment property are generally liable to Irish Capital Gains Tax (CGT), currently at the rate of 33%. This is the case whether or not the seller is resident in Ireland and subject to any relief that may be available under a double taxation treaty. The taxation of property purchased with the intention of resale or development differs from the taxation of investment property. The tax rate depends on the nature of the property and the tax status of the owner. However, there is a relief from capital gains tax for real estate purchased from 7 December 2011 to 31 December 2014 provided it is held for a specified period. The original holding period was seven years. There was proportionate relief where the property was held for any period longer than seven years, with the relief being lost in its entirety if the property was sold during the initial seven-year acquisition period.

The requisite holding period has been reduced from seven years to four years. The measure has created a three-year period (ie years 4 to 7) in which the property can be sold and benefit from a full exemption whereas if held longer than seven years, only proportionate relief is available.

In order for the relief to apply, the property must be acquired for a consideration equal to the market value of the property (or if acquired from a relative, not less than 75% of the market value on the date acquired). This exemption applies to all persons regardless of how the real estate is acquired, ie individual or corporate.

The incidental costs of acquisition as set out above in relation to investment without a permanent establishment may be deductible when calculating any gain or loss on the disposal of the property.

Where proceeds from the sale of a property exceed €500,000 (or €1,000,000 if the property disposed of is residential property – effective from 1 January 2016), the buyer is obliged to withhold tax of 15% from the gross proceeds. However, withholding tax does not apply where the seller produces a CGT clearance certificate issued by the Irish tax authorities before the sale. Some sellers, for example a non‑resident seller, may not be entitled to a clearance certificate. Tax withheld by the buyer can normally be offset against the Irish CGT payable by the seller, and any excess is refunded to the seller following the submission of a CGT return to the tax authorities.

Indirect investment through a corporate entity

Gains arising on the sale of Irish investment property are generally liable to Irish Capital Gains Tax (CGT), or, if held through an Irish tax resident company, Irish corporation tax, both currently at the rate of 33%. This is the case whether or not the seller is resident in Ireland and subject to any relief that may be available under a double-taxation treaty. The taxation of property purchased with the intention of resale or development differs from the taxation of investment property. The tax rate depends on the nature of the property and the tax status of the owner. However, there is a relief from capital gains tax for real estate purchased from 7 December 2011 to 31 December 2014 provided it is held for a specified period. The original holding period was seven years. There was proportionate relief where the property was held for any period longer than seven years with the relief being lost in its entirety if the property was sold during the initial seven year acquisition period.

The requisite holding period has been reduced from 7 years to 4 years. The measure has created a three year period (i.e. years 4 to 7) in which the property can be sold and benefit from a full exemption whereas if held longer than 7 years, only proportionate relief is available.

In order for the relief to apply, the property must be acquired for a consideration equal to the market value of the property (or if acquired from a relative, not less than 75% of the market value on the date acquired). This exemption applies to all persons regardless of how the real estate is acquired, ie individual or corporate.

The incidental costs of acquisition as set out above in relation to investment without a permanent establishment may be deductible when calculating any gain or loss on the disposal of the property.

Where the proceeds from the sale of a property exceed €500,000 (or €1,000,000 if the property disposed of is residential property – effective from 1 January 2016), the buyer is obliged to withhold tax of 15% from the gross proceeds. However, withholding tax does not apply where the seller produces a CGT clearance certificate issued by the Irish tax authorities before the sale. A clearance certificate is automatically available to a seller who is tax resident in Ireland. Some sellers, for example, a non‑resident seller, may not be entitled to a clearance certificate. Tax withheld by the buyer can normally be offset against the Irish CGT payable by the seller, and any excess is refunded to the seller following the submission of a CGT return to the tax authorities.

The sale of shares in an Irish or non‑Irish property holding company which derive their value or the greater part of their value from Irish situate land and buildings is subject to Irish CGT at a current rate of 33% irrespective of the residence of the vendor. The relief from capital gains tax referred to above does not extend to the disposal of shares in a company which derives its value or the greater part of its value from Irish real estate.

Italy

Italy

Investment via an Italian corporate vehicle

Profits on the sale of property are subject to corporate tax (IRES), regardless of how much time has elapsed since its acquisition. The profit is the difference between the book value of the property at the time of the sale (as reduced by depreciation) and the agreed purchase price. In some cases (ie if the property has been held for more than 3 years) it is possible to spread the liability for tax on capital gains over a period of five years.

Capital gains realized from the sale of property are also generally subject to regional tax (IRAP) at the rate of 3.9%.

If the property is sold as a going concern (ie if it is a real estate asset including licences and other intangible assets), the sale is not subject to IRAP.

Financial transactions tax (Tobin Tax) is payable by the purchaser of shares in an Italian resident joint stock company, even if the purchaser and the seller are not Italian resident. This tax is levied at a rate of 0.2% on the agreed price.

Direct investment by a foreign company without a permanent establishment in Italy

Capital gains derived from the sale of real estate are not subject to corporate tax (IRES) if the property is sold more than five years after its acquisition. If the sale occurs within five years, IRES applies at the rate of 24% (27.5% for fiscal years before 2017). Since depreciation is not permitted in the absence of a permanent establishment, taxable gains comprise the difference between the acquisition cost at the time of purchase and the price agreed for the sale of the property.

Investment via an Italian partnership

Since an Italian partnership is a transparent entity for tax purposes, any income deriving from the sale of real estate is taxed at the level of the individual partners even if this is not distributed. If the partner is non-resident, income is taxed at partner level at the rate of 24% (27.5% for fiscal years before 2017).

Capital gains are excluded from the IRAP taxable basis of a partnership, unless its normal business activities include the sale of real estate. If this is the case, capital gains would be included in the IRAP taxable basis.

If the property is sold as a going concern (ie if it is a real estate asset including licences and other intangible assets), the sale is not subject to IRAP.

Investment via a real estate investment fund

Capital gains from the sale of property are included in the fund’s net income and taxed at the level of the investors when the income is distributed or upon redemption of the units.

Investment via a listed real estate investment company (SIIQ)

Capital gains from the sale of real estate by a SIIQ are included in the taxable income for IRES and IRAP purposes.

Japan

Japan

Direct acquisition

Capital gains on the sale of real property or TBI in Japan will be subject to withholding tax at a rate of 10.21% to the extent a purchaser has a withholding obligation (for example, a Japanese entity).

Capital gains tax is also applicable and the current rate is 23.4% or higher for an offshore entity, including those without a PE.  Most tax treaties between Japan and other jurisdictions do not provide an exemption for capital gains from real estate in Japan, and capital gains tax is generally not subject to exemptions under the applicable tax treaty with the seller's home jurisdiction.

GK

Capital gains attributable to a GK are subject to corporate tax.  Dividends distributed to its members are not deductible.

For an offshore investor, capital gains on the sale of GK equity are not subject to withholding tax, but are subject to corporate tax even if the offshore entity has no PE in Japan.

GK-TK

A GK under the GK-TK structure is subject to corporate tax on capital gains.  However, distributions to investors can be treated as deductions against the GK's income as described above.

TMK

A tax-qualifying TMK can also enjoy a deduction against income arising from sale of assets, as described above.

Netherlands

Netherlands

Capital gains made by a foreign entity on the sale of real estate are subject to corporate income tax. Capital gains made by individuals, who qualify as business operators, are subject to personal income tax at tiered rates of up to 51.75% (2019 rates).

Capital gains are generally calculated upon the difference between the tax book value of the property at the date of sale and the agreed purchase price. Under specific circumstances, it is possible to re-invest the profit into a 're-investment reserve', in which case the capital gains are not taxed. A replacement investment must be made within three years.

In the case of individuals who qualify as portfolio investors, no specific Dutch capital gains tax applies as they likely fall under the scope of a specific net wealth type of income tax (so-called Box-3 income).

Capital gains deriving from the sale of shares/interests in property companies taxed in the Netherlands

In the case of a resident corporate shareholder, the participation exemption generally applies if the shareholder owns at least 5% of the company's nominal paid-up share capital.

For foreign corporate shareholders, capital gains tax does generally not apply where the shareholder is resident in a country that has concluded a double taxation treaty with the Netherlands, or where the shares are trading assets of a corporate shareholder (rather than investments). However, there are certain situations where in the case of investments in real estate companies, the Netherlands may be allowed to tax the capital gains. This is the case if the double taxation treaty contains an article allowing the source state (i.e. the Netherlands) to tax capital gains related to the disposal of shares in a real estate company and the foreign shareholder is subject to Dutch non-resident taxation Please note that the introduction of the MLI and the PPT may result in a denial of treaty benefits.

Nigeria

Nigeria

Capital Gains Tax is payable by the seller; Stamp Duty is also payable by the purchaser. Lands Use Charges that are outstanding are payable by the purchaser before the registration of the interests in real property. Consent fee and registration fees apply for the registration of the title at the relevant State Lands Registry Offices.

Norway

Norway

Capital gains from the sale of Norwegian property are subject to tax at 22%. The tax rate may increase for private individuals if a property investment in Norway is considered to be a business activity (normally consisting of at least 500 square metres of business premises or five apartments for rent). This applies both to resident and non-resident sellers. This liability is also applied in Norway’s tax treaties.

Capital gains and losses from sale of a property owned by a Norwegian limited liability company or a partnership may be transferred to a ‘profit and loss account’, meaning that only 20% of the tax balance at year end needs to be included in taxable income (or deductible) annually.

Capital gains from the sale of shares in a Norwegian limited liability company are not taxable in Norway if the seller is a limited liability company resident in the EEA. This also applies to shares in general and limited partnerships. The fact that gains derived from the sale of shares in companies is tax-free in Norway means that most foreign-based real estate investments are carried out through a Norwegian (limited liability) company. If the investor in the Norwegian company is also resident in a state where the applicable tax treaty applies the exemption method to income derived from real estate (and often to shares in companies whose assets are real estate), capital gains from the investment in Norway may, in certain cases, be tax-free.

For individuals who are tax resident in Norway, a capital gain on shares is taxable at 31.68% (Capital gain is multiplied with an adjustment factor of 1.44 and then taxed at 22%).

Poland

Poland

Income from the sale of real estate is subject to personal income tax or corporate income tax.

Income from the sale of property is calculated as the difference between the sale price and the net value of the real estate. Income can be reduced by any costs related to the sale. There are complex rules on allowable deductions.

Corporate income tax is payable at a flat rate of 19% on net income. Entities resident in Poland generally pay corporate income tax in Poland on their worldwide income. In the case of foreign entities (including companies) all income generated in Poland is taxed in Poland (including the income from sale of real estate). However, double-tax treaties may modify this.

Partnerships (excluded limited joint stock partnerships) are treated as transparent for tax purposes so the partnership itself does not pay tax. Income is allocated directly to the partners who are taxed individually in accordance with the applicable rate of corporate income tax (for legal entities) or personal income tax (PIT) (for individuals).

For income tax purposes, partners (excluded partners of limited joint stock partnerships) are treated as if they held the real estate themselves. There are complex rules on the tax rates applicable to partners selling real estate in the course of their business activities. For partners that are legal entities a 19% corporate income tax rule is applicable. For individuals, tax rates are progressive (18% and 32%) or a flat rate of 19% may apply. As a rule, non-tax residents pay PIT on net income from real estate located in Poland. Double-tax treaties may apply.

On 1 January 2014, limited joint stock partnerships became liable to pay CIT in the same way as limited liability companies and joint stock companies.

Where an individual disposes of real estate, the taxation (PIT) rules will be determined on the basis of when the property was acquired. Specific exemptions may apply.

Where shares of the company the assets of which consist mainly of real estate located in Poland are disposed of, the seller may be liable to income tax in Poland (double-tax treaties may apply). Sale of shares is subject to tax on civil law transactions (PCC) which is payable by the buyer. The tax on civil law transactions (PCC) equals 1% of the market value of shares.

In case of sale of real estate (asset deal) where the seller is an entity conducting a business activity, VAT is payable. Generally, the VAT rate on real estate is 23%. The sale of agricultural land is exempt from VAT.

Any sales of real property other than land are exempt from VAT if two years have lapsed since that property's first occupation. However, in some circumstances the seller may opt for such a transaction to be subject to VAT. Other specific exemptions may apply.

If a sale is exempt from VAT, it is subject to a 2% tax on civil law transactions (PCC).

Portugal

Portugal

Whether generated through a resident corporate vehicle, a permanent establishment (PE) of a non-resident entity or a non-resident entity without a PE, income from the sale of real estate may be subject to tax as follows:

Real estate assets held by a foreign investor through a corporate vehicle

  • Sale of real estate by the corporate vehicle

    A corporate vehicle established under Portuguese law is subject to IRC at 21 percent plus surcharges up to 9 percent on any capital gains arising from the sale of real estate.

    In the case of a Portuguese corporate vehicle, capital gains can be offset against other capital costs or losses. Only 50 percent of the capital gains need to be included in taxable income for IRC purposes if the sale proceeds are reinvested in the purchase of certain qualified assets.

  • Sale of shares in a corporate vehicle

    Portuguese taxation on the capital gains of non-residents arising from the disposal of shares in a Portuguese-based property company applies as follows:
    • 25 percent for corporate entities
    • 28 percent for individuals (although only half of the capital gain will be taken into consideration for tax proposes if the company whose shares will be sold is recognized as a micro or small company. To be recognized as such, the company must have less than 50 employees and its annual turnover or annual balance sheet total must not exceed €10 million).

    Certain exemptions from Portuguese capital gains tax on the sale of shares by non-Portuguese-resident individuals or entities are available. However, these do not apply to the disposal of shares in Portuguese-resident companies where more than 50 percent of the company's assets consist of immovable property located in Portugal, or of shares in holding companies in which an affiliated or controlled company holds more than 50 percent of its assets in immovable property located in Portugal.

Real estate assets held by foreign investors through a PE in Portugal

A PE is taxed on capital gains or business profits arising from the disposal of real estate in the same way as a Portuguese corporate vehicle.

Capital gains can be offset against other capital costs or losses. Only 50 percent of the capital gains need to be included in taxable income for IRC purposes if the sale proceeds are reinvested in the purchase of certain qualified assets.

Real estate assets held by foreign investors directly without a permanent establishment in Portugal

Capital gains or business profits from the sale of real estate are subject to IRC at a flat rate of 25 percent or IRS at a flat rate of 28 percent.

Romania

Romania

The general rule under Romanian legislation is that gains derived by non-residents from sale of real estate located in Romania are subject to 16% tax in Romania for corporate entities or 10% for natural persons. This includes gains from disposals of shares held in local entities that own real estate. Alternatively, income from real estate properties that are sold by micro-companies is subject to the rate of 1% or 3% (as the case may be) applicable to the entire amount.

The Romanian tax legislation provides a tax exemption for capital gains derived from the sale of shares held in a Romanian legal entity by the foreign investor if the latter is a corporate entity which is resident in a double-tax treaty jurisdiction, provided a minimum holding criteria is met (ie 10 percent for at least one year of holding).

The tax can be also reduced under the provisions of a double-tax treaty, if a valid fiscal residence certificate is made available by the beneficiary of income at the moment when the payment is made (at present, Romania is a party to more than 85 double-tax treaties which usually follow the OECD model).

Russia

Russia

Generally, Russian companies, and foreign legal entities with a permanent establishment in Russia are liable for profits tax at a rate of 20 percent (regional authorities may reduce the rate by up to 4.5 percent) and VAT at 18 percent charged on the sale of real estate. VAT is not payable on the sale of plots of land in Russia. The sale of residential buildings and premises is also exempt from VAT.

If the seller is a foreign legal entity not registered in Russia for tax purposes, the buyer may be required to withhold applicable income tax and VAT.

If the seller is an individual (not registered as an individual entrepreneur) no VAT applies to the sale. Sales proceeds, however, will be subject to personal income tax.

Slovak Republic

Slovak Republic

Real Estate Transfer Tax was abolished from 1 January 2005. No transfer tax therefore applies to the purchase of a real estate asset. Income gained from the sale of real estate is subject to income tax and, in some cases, to VAT. In the case of the sale of real estate by a natural person, Slovak tax legislation provides for certain income tax-exemptions (eg in the case of the sale of real estate acquired as a result of a gift or inheritance).

Spain

Spain

Capital gains from the sale of real estate assets in Spain are taxed as follows:

Assets held by foreign investors through a permanent establishment in Spain

Capital gains realized by foreign investors with a permanent establishment in Spain are subject to Spanish non-resident income tax at a rate of 25 percent.

Assets held by foreign investors directly without a permanent establishment in Spain

Capital gains realized by foreign investors without a permanent establishment are subject to Spanish non-resident income tax at a rate of 19 percent unless an applicable tax treaty provides otherwise. The buyer is obliged to withhold tax at 3 percent of the agreed price, or make an equivalent payment on account, as part payment of the tax. This does not apply to contributions of real estate made to companies resident in Spain when they are incorporated or if they increase their capital.

Indirect investment through a corporate entity

Capital gains from the sale of shares or an interest in a Spanish property company or partnership are subject to Spanish non-resident income tax at a rate of 19 percent, unless an applicable tax treaty provides otherwise. 

Sweden

Sweden

An incorporated company is taxed on capital gains from the sale of real estate as ordinary business income at a rate of currently 21.4% (20.6% in 2021). A capital loss from the sale of real estate may normally be offset only against capital gains from real estate sales.

Capital gains from the disposal of shares in unlisted companies and shares in partnerships are exempt from capital gains tax for corporate shareholders. Normally the sale of real estate is structured as a share sale rather than a direct sale of real estate. In this way, the seller avoids paying capital gains tax (and stamp duty).

Non-resident holders (without a permanent establishment in Sweden) of shares in a Swedish limited liability company are not taxed in Sweden on capital gains from the sale of the shares.

Swedish resident non-corporate shareholders are normally taxed on capital gains from the sale of unlisted shares at the rate of 25%.

Capital gains from the sale of shares in a partnership are exempt from tax for corporate partners.

The sale of real estate by a partnership is generally structured as a sale of shares in the partnership in order to avoid paying capital gains tax and stamp duty.

Individual partners that are resident in Sweden are normally taxed at 30% on capital gains.

Partners that are not resident in Sweden are not taxed in Sweden on capital gains arising from the sale of shares in a Swedish partnership.

Thailand

Thailand

Upon the transfer of real estate, the following taxes and duty would generally be payable.

Withholding Tax

If the seller is a corporation, there is a requirement for the buyer (payer) to withhold and pay withholding tax at the rate of 1 percent of the actual sales price or the Land Department's appraisal value, whichever is higher. This withheld tax can be used as a tax credit for the corporate seller, when calculating its corporate income tax liability.

However, in situations where the owner is a foreigner, the capital gain from the sale of immovable property is generally subject to withholding tax at the rate of 15 percent.

If the seller is an individual, the Land Department's appraisal value for the property is used and personal income tax rates apply after a complex calculation. Individuals may choose to exclude income from the sale of immovable property from their annual personal income tax return in certain cases (eg when there is a sale of immovable property acquired by bequest or gift).

Specific Business Tax

Specific Business Tax (including municipal tax) applies at a rate of 3.3 percent of the appraisal value, or the actual transaction value, whichever is higher. Specific Business Tax applies if immovable property is sold in a commercial manner or for profit. Generally, a seller who is a corporate entity is liable to pay this tax. An exemption may apply to a seller who is a natural person in situations where he or she has owned the immovable property for five years or his/her name has been entered on the house registration for the property for at least one year.

Stamp Duty

If the sale is not subject to the Specific Business Tax, it is subject to Stamp Duty of 0.5 percent of the Land Department's appraisal value or the actual transaction value, whichever is higher. Liability generally falls on the seller. In other words, the Stamp Duty is exempt if the seller is subject to the Specific Business Tax.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

United Arab Emirates - Dubai

United Arab Emirates - Dubai

There are no such applicable taxes but registration fees payable to the Dubai Land Department will be payable in order to register the transfer. These amount to 4 percent of the purchase price, which is to be split equally between the buyer and the seller unless agreed otherwise.

UK - England and Wales UK - England and Wales

UK - England and Wales

Limited partnerships and limited liability partnerships are generally treated as transparent for UK tax purposes meaning that any gains from the sale of property will accrue directly to the partners.

For disposals after 5 April 2015, non-UK residents are generally subject to UK tax on capital gains from the sale of UK residential property.

Prior to 6 April 2019, non-UK residents were generally not subject to UK tax on capital gains from the sale of commercial property unless it had been held for the purposes of a permanent establishment, branch or agency for a UK trade.  From April 2019 non-UK residents are, subject to some exceptions, also subject to UK tax on any capital gain made on the sale of UK commercial property or the sale of a company (or other form of legal entity) that, broadly, derives 75% or more of its gross asset value from UK property.

Note that profits arising from the sale of property in the course of development or trading transactions can be taxed as income rather than capital gains and therefore may be subject to tax in the UK both before and after April 2019.

As a “bare” trust (that is to say the simplest form of trust) is treated as transparent for UK tax purposes, any gains from the sale of property will be taxable directly against the beneficiary.

As with limited partnerships and limited liability partnerships profits arising from the sale of property in the course of development or trading transactions can be taxed as income rather than capital gains and therefore may be subject to tax in the UK.

Any gains arising to trustees of a non-UK unit trust from the sale of UK property will not be taxable in the UK provided the trustees are not UK resident. Note that profits arising from the sale of property in the course of development or trading transactions can be taxed as income rather than capital gains and therefore may be subject to tax in the UK.

A UK resident company is subject to corporation tax at the rate of up to 19%.  It is intended that the rate will drop to 17% from April 2020.

UK - Scotland

UK - Scotland

Limited partnerships and limited liability partnerships are generally treated as transparent for UK tax purposes meaning that any gains from the sale of property will accrue directly to the partners.

For disposals after 5 April 2015, non-UK residents are generally subject to UK tax on capital gains from the sale of UK residential property.

Prior to 6 April 2019, non‑UK residents were generally not subject to UK tax on capital gains from the sale of commercial property unless it had been held for the purposes of a permanent establishment, branch or agency for a UK trade. From April 2019 non-UK residents are, subject to some exemptions, also subject to UK tax on any capital gain made on the sale of UK commercial property or the sale of a company (or other form of legal entity) that, broadly, derives 75% or more of its gross asset value from UK property.

Note that profits arising from the sale of property in the course of development or trading transactions can be taxed as income rather than capital gains and therefore may be subject to tax in the UK both before and after April 2019.

As a 'bare' trust (that is to say the simplest form of trust) is treated as transparent for UK tax purposes, any gains from the sale of property will be taxable directly against the beneficiary.

Note that as with limited partnerships and limited liability partnerships profits arising from the sale of property in the course of development or trading transactions can be taxed as income rather than capital gains and therefore may be subject to tax in the UK.

Any gains arising to trustees of an non‑UK unit trust from the sale of UK property will not be taxable in the UK provided the trustees are not UK resident. Note that profits arising from the sale of property in the course of development or trading transactions can be taxed as income rather than capital gains and therefore may be subject to tax in the UK.

A UK resident company is subject to corporation tax at the rate of up to 19%. It is intended that the rate will drop to 17% from April 2020.

Ukraine

Ukraine

Income from the disposal of real estate exceeding its book value (ie capital gain) is treated as taxable income and is subject to corporate profit tax (CPT) at the applicable rate (18%). Such taxable income may be offset against any allowable deductible expenses of the seller. Therefore, no specific opportunities are available to offset or reduce the tax on a disposal of real estate.

For CPT purposes consideration for transactions which are treated as ‘controlled’ for transfer pricing purposes cannot be lower than arm's length price.

A sale of real estate is normally subject to VAT at the standard rate of 20%. The VATable consideration in respect of such transactions cannot be less than the book value of the property asset as of the beginning of the tax period during which it is disposed of (or the usual price if the property asset is not recorded in the books). Sales of undeveloped plots of land and residential real estate (except for the first sale) are exempt from VAT.

United States

United States

US federal income taxes

Capital gains taxes

Gains from the disposition of real property that has been held by a non-corporate taxpayer for more than one year generally enjoy a reduced federal capital gains tax rate of 20 percent. However, if the real property includes building improvements that have been previously depreciated, gains up to the aggregate amount of prior depreciation deductions are taxed at a special federal rate of 25 percent. Real property that is held for less than a year or is held in the ordinary course of a trade or business is taxed at regular tax rates. Corporations do not enjoy the benefit of reduced capital gains tax rates applicable to individual taxpayers.

Disregarded entity

Generally, a limited liability company or other unincorporated business entity that has a single owner is disregarded for US tax purposes. Accordingly, any taxable gains from the sale or other disposition of real property is subject to tax by the single owner as if the single owner had directly owned the property.

Partnership

Taxable gains from the sale or disposition of real property owned by an entity that is classified as a partnership for US tax purposes ‘flows through’ the partnership to the partners, who are subject to tax on their shares of that gain, regardless of the amount of cash distributions actually made by the partnership to its partners. The character of the gain (as ordinary income or capital gain) passes through the partnership to its partners.

Any cash distributions to a partner that exceed the partner’s adjusted tax basis in his or its partnership interest usually generates capital gain as if the partner had sold a portion of his or its partnership interest.

Regular corporation

Gain from the sale or disposition of real property by a regular corporation is subject to two levels of income tax. First, the corporation is subject to tax on gain from the sale or disposition of the property at regular tax rates applicable to US corporations. In addition, dividends paid by the corporation to its shareholders are subject to tax at the shareholder level (see also Income tax withholding for foreign investors, above). If a corporation sells all of its US real property and then liquidates, the corporation is subject to income tax on gains from the sale of the property, but foreign stockholders will not be subject to tax on liquidating distributions from the corporation, and there is no Foreign Investment in Real Property Tax Act (FIRPTA) withholding (discussed below) required.

Real estate investment trust (REIT)

A REIT, assuming that it complies with various REIT requirements, will not be subject to US federal income tax on gains realized from the sale or disposition of real property. A REIT may designate distributions to its shareholders as capital gain dividends, to the extent that they do not exceed the actual net capital gain of the REIT for the taxable year, in which case the distributions are taxable in the hands of stockholders as long-term capital gains.

Like-kind exchanges

A significant tax benefit to the ownership of US real estate is the ability of the owner to defer current income tax upon the disposition of real property through a like-kind exchange transaction. Gains realized from a like-kind exchange of US real property will not be recognized currently but will be deferred if the owner acquires real property of a like kind and of equal value, and otherwise complies with complex timing, payment arrangements and other requirements applicable to exchange transactions.

FIRPTA

The Foreign Investment in Real Property Tax Act (FIRPTA) provides special rules for gains from the disposition of a ‘US real property interest’ (USRPI). Gains realized by a foreign investor from the sale of a USRPI are treated as effectively connected with a US trade or business carried on by the foreign investor.

The liability of foreign investors for FIRPTA tax is enforced by a comprehensive withholding tax regime that applies to a disposition of a USRPI by any foreign person, under which the purchaser of a USRPI is required to withhold 15%  of the gross sales price and pay that amount over to the Internal Revenue Service. The amount withheld and paid over is not an additional tax, but is treated as a tax payment against the foreign investor’s actual US income tax liability. No FIRPTA tax is imposed on a sale of REIT shares if:

  • The REIT is publicly traded and the investor holds a 10 percent or less interest in the REIT; or
  • The REIT is a ‘domestically controlled’ REIT (less than 50 percent of the REIT shares are or have been held directly or indirectly by foreign persons).

Investments in US real estate by non-US retirement and pension funds have historically been subject to FIRPTA. The Protecting Americans From Tax Hikes Act of 2015 (the PATH Act), however, provides for an exemption from FIRPTA for non-US retirement and pension funds that dispose of (or that receive REIT distributions that are sourced from the disposition of) interests in US real estate, assuming the non-US retirement and pension funds satisfy several conditions. Significantly, the Act does not exempt tax on operating income and/or dividends from REITs, and therefore significant tax planning is still required for such investors.

State and local taxes

Most (but not all) states impose income tax on gains from the sale or other disposition of real property located within that state. Income taxes may also be imposed at the local (city and county) level. Various cities, counties and other local jurisdictions also require withholding against taxable gains from the sale or disposition of property in that local jurisdiction.

Various states and localities impose taxes on the transfer of interests in real property within that state and upon the recordation of deeds (also known as ‘documentary stamp taxes’) conveying interests in real property.

Zimbabwe

Zimbabwe

Gains realized from the sale of real estate are subject to capital gains tax (CGT), calculated by the Zimbabwe Revenue Authority (ZIMRA) in terms of Section 6 of the Capital Gains Tax Act [Chapter 23:01] at the following rates:

  1. Where a specified asset was acquired after 1 February 2009 and before 22 February 2019, then CGT is levied at the rate of 5% of the capital gain, however, no deductions are allowable in terms of section 11 of the CGT Act. The result is, therefore, that CGT is levied at a rate of 5% on the gross purchase price in the currency of the transaction.
  2. Where a specified asset was acquired after 22 February 2019, then CGT is levied at 20% of the capital gain in the currency of the transaction.
  3. Where acquisition was prior to 1 February 2009 and is disposed of after that date, CGT shall be calculated at the rate of 5% of the selling price.

Companies can offset or reduce tax as provided by Section 15 of the Capital Gains Tax Act when transferring property between companies under the same control. Further, in terms of  section 10 of the Capital Gains Act receipts and accruals of a licensed investor from the sale of a property forming the whole or part of the investment to which his investment licence relates are exempt from payment of CGT. A licensed investor is a foreign investor who has obtained a licence from the Zimbabwe Investment Authority to invest in Zimbabwe.

In addition, in the event that the individual disposing of the property is over the age of 55 and the property is his or her principal private residence then the proceeds from the disposal of the sale may are exempt in terms of section 10 of the Capital Gains Tax Act.

The amount of CGT payable may also be reduced by expenditure incurred on the acquisition or construction of properties that are sold during that year of assessment. Further expenditure incurred on additions, alterations or improvements to properties which are not deductible from gross income in terms of the Income Tax Act [Chapter 23:06] may be deducted from CGT.