How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?
In Angola, the income arising from a property lease (rents) is not subject to corporate or personal income tax. Rents are subject to property tax. Property tax is levied on the income from properties (ie rental income) situated in Angola at a rate of 25 percent (tax payable may not be lower than 1 percent of the value of the property that generates the rent). The taxable amount of the property tax is the annual rent minus 40 percent of expenses related to the property.
Income arising from real estate investments may be subject to income tax. The treatment will differ according to whether the subject is a foreign beneficiary or a resident.
The rate to be applied ranges from 25% to 35% of the net income. To obtain the net income, the costs and expenses necessary to obtain and/or maintain the source of income can be deducted from the gross revenue.
The costs and expenses necessary to obtain and maintain the source of taxed income may include: other taxes, such as Lighting, Sweeping and Cleaning Tax (ABL for its acronym in Spanish), Personal Goods Tax; interests, costs and expenses on debts, their creation, renewal, and cancelation; insurance expenses; donations to federal, provincial, or municipal states, political parties, and certain institutions related to scientific research or social care; retirement contributions; amortization; mandatory medical contributions; extraordinary losses due to force majeure; losses due to proven crimes and felonies against taxpayer´s goods; transportation expenses.
Deductible costs and expenses may be capped, and certain limitation rules may apply.
Income tax losses from up to five years prior may be used to offset Income Tax.
Gross Revenue Tax is a provincial tax that applies to gross revenue, and it is not allowed to deduct expenses or costs. Each province can set the rate, which varies from 2.9% to 5% of the gross revenue. No deductions are admitted.
As a general rule, the rental of real estate is subject to VAT at a rate of 21%.
However, the leasing of properties exclusively intended for the tenant and their family's residential use, rural properties used for agricultural activities, and properties leased by the National Government, Provinces, Municipalities, or the City of Buenos Aires, their centralized or decentralized entities are exempt from VAT.
VAT on the sale of real estate where construction works have been done may apply if these works have been done on one’s own property or on someone else’s property, only if they have been carried out by construction companies.
If the investor directly holds real estate, the investor will be taxed at their marginal tax rate in respect of the income received. The rate applicable (maximum 51 percent, including the Medicare levy surcharge, for Australian resident investors and 47 percent for non-Australian investors) depends on the type of investor and the amount of taxable income derived during the income year.
Income received by a company is taxed at the corporate tax rate of 30 percent after allowing for deductions.
Australian resident investors are taxed at their marginal tax rates on distributions (dividends) received from a company and offsets (referred to as ‘franking credits’) may be available to Australian resident investors for the tax already paid by the company on the profits from which the distributions are paid. Due to the availability of the offsets, effectively, Australian resident investors pay tax in respect of the distributions on the difference between their marginal tax rate and the 30 percent tax already paid by the company.
Payments of fully franked dividends (that is, dividends fully paid out of profits which have already been subject to taxation in Australia) from a company to non-Australian resident investors are not subject to further Australian income or withholding tax. Payments of unfranked dividends (that is, dividends which have not been subject to taxation in Australia) from a company to non-Australian resident investors are generally subject to Australian withholding tax of 30 percent. This withholding tax rate may decrease (to between 0 percent and 15 percent) where the non-resident investor resides in a country with which Australia has a double tax agreement.
For flow through or tax-transparent entities (such as certain trusts and partnerships), Australian resident investors are taxed at their marginal tax rates in respect of their share of the income derived by the entity. Non-Australian resident investors are subject to Australian withholding taxes in respect of certain distributions (such as, dividends and interest) and are generally taxed at their own marginal tax rates (up to 47 percent) in respect of other taxable distributions. For trusts, the Australian trustee generally withholds the tax payable from distributions made to non-resident investors. As discussed above in respect of dividends, the rate of Australian withholding tax may be lowered in respect of distributions of dividends where the non-Australian resident investor resides in a country with which Australia has a double tax agreement. Certain concessions allow distributions from qualifying withholding managed investment trusts (MIT) to non-Australian resident investors who reside in an effective tax information exchange country (such as the US, UK etc) of rental income and capital gains to be taxed at 15 percent or 10 percent if the MIT owns newly constructed energy efficient/environmentally sustainable commercial buildings. Otherwise, a 30 percent tax rate applies for distributions by qualifying MITs.
The flow through entity itself is generally not subject to taxation.
The owner of real estate may reduce or offset the taxes payable by claiming deductions for capital allowances (effectively a depreciation allowance) or interest or other related expenditure. The amount of capital allowance able to be claimed depends on the type of asset and its estimated effective life. However, the cost of land cannot be depreciated. Interest costs may also be deductible subject to the restrictions imposed by the thin capitalization rules and certain other integrity provisions (eg transfer pricing).
Further, the owner of real estate may realize losses which may be carried forward in certain circumstances, if certain tests are satisfied, to offset future income.
Rent received is generally subject to Goods and Services Tax (GST) (the equivalent of VAT). However, residential rent (as opposed to commercial rent) is input taxed. Dividends and distributions do not attract GST.
The taxes relating to income derived from real estate located in Belgium are as follows:
Immovable withholding tax on real estate amounts to 1.25% (in Brussels or Wallonia) or 3.97% (in Flanders) of the deemed rental income (revenu cadastral/kadastraal inkomen) attributed to the property, as indexed on 1 January of the relevant tax assessment year.
Additional provincial and municipal surcharges are levied on top of the (regional) immovable withholding tax, which may increase the effective tax rate to around 30% to 50% of the cadastral income, depending on the province and municipality where the real estate is located.
Belgian immovable withholding tax is not refundable and cannot be credited against corporate tax. However, it is fully deductible from a company’s taxable income.
For companies using or exploiting real estate, taxable income is determined on the basis of the accounting profit or loss realized.
The taxable income can be reduced by deducting the expenses associated with the real estate, such as the depreciation of buildings (depreciation of land is not possible), repairs, maintenance, renovation and similar costs, and interest on loans taken out to finance the acquisition of the real estate (with some limitations). In certain cases the company is also entitled to a deduction of an extra depreciation in the year of acquisition of a new building (investment tax deduction)
Corporate income tax, advance payments and withholding tax on income included in the tax base, are not deductible. This is also the case with interest on late payments, fines and any associated prosecution expenses.
Generally, taxes, fees and public service charges payable to the regions, as well as surcharges, penalties and other similar charges, are not deductible, but immovable withholding tax, registration duties on the transfer of the real estate and mortgage duties are tax deductible.
Capital gains from the sale of property (buildings as well as land) are subject to normal corporation tax. However, a system of deferred and spread taxation applies where the property sold was held for at least 5 years and the proceeds are entirely reinvested within three to five years in depreciable intangible or tangible fixed assets 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 40% 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.
Resident companies are subject to a standard corporate income tax rate of 25%. The first income band of €100,000 of small companies is subject to a lower rate of 20% (subject to certain conditions).
The company is subject to corporate income tax at the rate of 10%. Under corporate income tax law, non-residents are also liable to pay income tax on capital gains from the sale of property in the Federation of Bosnia and Herzegovina.
Both limited and unlimited partnerships are subject to corporate income tax at the rate of 10%.
Income from rental income is subject to income tax by the individual owner. Income tax on rental income received by individuals or from a foreign source will be collected monthly by Carnê-Leão. If the rent is paid by a Brazilian legal entity, the income will be subject to withholding income tax on payment. The income tax withheld in this case can be used as a credit on the individual’s income tax return, which must include the rental income.
If the rent is received by a non-resident, it will be subject to a 15% withholding income tax upon payment, or at another rate provided by an applicable tax treaty.
Capital gain tax is due on the sale or transfer of real estate by an individual or non-resident.
Individuals and non-residents are subject to capital gains tax at the following rates:
In this case, the taxpayer will be the seller.
Specific treatment for Brazilian resident individuals:
Under Section 39 of Law No. 11.196/2005, the seller of a real estate is exempt capital gain tax if they use the proceeds of the sale to acquire another real estate within 180 days. This benefit can only be used once within a five-year period.
Moreover, there are two other hypotheses for exemption:
Entities are subject to corporate income taxes (ie IRPJ and CSLL) on the sale of real estate. Corporate Income tax is generally due at a rate of 34% on taxable income, which is due on net profit, after legal adjustments in the case of the Actual Profits Regime. A more simplified regime (deemed profits) is explained below.
In addition, taxes on gross revenues (ie PIS and COFINS), which are contributions levied on revenues earned by companies, are due on the sale of real estate by a legal entity at the rate of 3.65% or 9.25% depending on the regime elected by the entity. PIS and COFINS are exempt on the sale of fixed assets. Deemed Profit Regime can be used to obtain a lower effective tax rate. In general, the Deemed Profits Regime is a simplified regime intended to reduce the compliance burden for small companies. This regime must be elected by the taxpayer, and is only available to companies with gross receipts of less than approximately USD15 million (BRL78 million) per year. Additionally, financial institutions and companies recording income from investments outside Brazil cannot opt for the Deemed Profits Regime.
To calculate taxable income under the Deemed Profits Regime, a profit percentage is applied to gross revenues. The profit percentage is determined based on the taxpayer’s business activities, such as whether they are a service provider or seller of goods and is intended to be a proxy to the typical industry profit margin smaller companies would earn. For example, in the case of rental income, the effective rate applicable will be 14.53% and on sales revenues 6.73%, already including PIS and COFINS due on gross revenues at 3.65%.
Additionally, non-operational income such as capital gain, at the rate of 34%, is added to the resulting amount to obtain taxable income. Corporate Income Tax at a rate of 34% will be applied to the net income obtained.
See the Income tax section.
The following taxes are payable by the owner on income from real estate:
VAT is payable on lease income at 9% of gross rental. If the leased premises are acquired by the owner before 30 April 2016, then the owner may opt for a simplified tax method, ie apply a reduced VAT rate of 5% on the rental income without claiming input VAT credit.
Since 1 January 2008, foreign invested enterprises (FIEs) and domestic enterprises have been subject to a new enterprise income tax (EIT). EIT laws govern the taxation of FIEs that directly own and realize rental income and gains from Chinese real estate. The rate is 25% as of 1 January 2008 (reduced from 33%) and no additional local income tax will be levied. Foreign enterprises not maintaining establishments in China are taxable on their income and gain on a gross withholding basis. The rate is 10% under the new EIT law.
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In the case of companies, tax is payable at the rate of 18% (or 12%) of the rental income after the deduction of expenses (including interest, depreciation and administrative costs).
An individual's rental income from real estate in Croatia is subject to personal income tax at the rate of 25%. Tax is payable on rental income after deducting 50% to cover expenses. This deemed amount applies irrespective of the actual expenses incurred. If the individual is not a VAT payer (ie has no registered business that is subject to VAT), the income tax payable on rental income may be determined by the tax authority as a flat rate.
No other taxes apply to the ownership of real estate.
In the case of taxation of income from the ownership of real estate via a corporate vehicle, one must differentiate between taxation of the income of a partnership and that of a corporation. When investing through a partnership (either a special limited partnership or an unlimited partnership) the partnership is considered to be a transparent entity and any income generated by the partnership (for example, profit or rental income) is divided between individual general partners and treated as personal income (whereas in respect of limited partners of a special limited partnership, the income is subject to taxation on the partnership level, as for a standard corporation).
If a natural person is a partner in a partnership, his/her share in rental income, less any tax deductible expenses (for example tax losses, expenses on research and development), is deemed to form part of his taxable income as a natural person. Such income is taxed at a rate of 15%, or 23% if their taxable income exceeds 48 times the average wage (this limit will equal to approximately EUR 80,000 per year in 2022).
If a legal entity is a partner in a partnership, its share in rental income, less any tax deductible expenses (for example tax losses, expenses on research and development), is deemed to be part of its taxable income and is taxed at a rate of 19%.
The same applies for a non-partnership corporation owning real estate: its rental income, or any other income generated by real property, less any tax deductible expenses (for example tax losses, expenses on research and development), is deemed to be part of its taxable income and is taxed at a rate of 19%
Investors may be interested in investing through special funds, known as Real Estate Funds or Funds for Qualified Investors. Both these types of fund give an investor an advantage in the form of a 5% income tax rate.
Taxable income from of real estate in Denmark is calculated on a net income basis. For corporate owners such income is taxed at the corporate tax rate of 22%.
For individuals the income is taxable as ordinary income, however, special rules apply to individuals carrying on business activities, who may select a preliminary taxation similar corporation tax, until the income is made available for private spending.
Owning a property in France does not itself constitute a permanent establishment. If a permanent establishment exists, current income is fully taxable in France at the rate of 25% on top of which miscellaneous contributions are added. The effective tax rate is 25.83% for corporate taxpayers whose turnover exceeds €7,630,000.
Foreign owners are generally subject to French tax on rental income (i) under the individual income tax regime at a progressive rate ranging from a minimum of 30% up to 45% (increased by additional contributions), or (ii) under the corporate income tax regime at the standard rate of 25% (increased by additional contribution) (the effective tax rate is 25.83% for corporate taxpayers whose turnover exceeds €7,630,000). The same applies to property owned by a transparent entity. Depending on the applicable tax treaty, tax paid in France may generate a tax credit or otherwise be taken into account in the owner’s country of residence.
If property is owned directly by a French corporation, income will be subject to corporate tax in France at the normal rate of 25% in the hands of the French corporation on top of which miscellaneous contributions are added. If the property is owned by a French transparent entity, the shareholders will be taxed on their personal income.
The individual shareholders will be taxed on their personal income.
Below is an overview of applicable rates of corporate income tax for the coming fiscal years as resulting from the French Finance Law for 2022 (not including the 3.3% social contribution to corporate income tax which applies to corporate taxpayers whose turnover exceeds €7,630,000).
|
Taxable income (EUR) |
FY as from 2022 |
|
0 to 42,500 |
15 % (1) |
|
> 42,500
|
25 % |
* Provided that the conditions to benefit from the reduced rate provided for in Article 219, I-b of the French General Tax code are met.
Deductions
It is normally possible for any interest paid on debt used to finance the acquisition of property to be deducted against income generated by the property. There is no mandatory debt to equity ratio (except in the case of loans from related companies) but the tax authorities may disallow interest deductions if this exceeds the borrower’s repayment capacity.
Moreover, the French Finance Law for 2019 transposing the anti-avoidance Directive (UE/2016/1164) has introduced, as from 1 January 2019, new interest deduction limitations.
This text, provides in particular that net financial charges may be deductible up to the higher of the following two amounts:
(i) €3 million; and
(ii) 30% of the adjusted taxable income, before offsetting of tax losses.
Specific rules apply in the case where a company is considered to be thinly capitalized, which is the case when the average amount of sums left or made available by all affiliated companies, directly or indirectly within the meaning of Article 39.12 of the FTC, during a financial year, exceeds one and a half times the amount of its net equity which it can assess, at the beginning or end of the financial year.
In such a case, the limit on the deductibility of net financial expenses is to be assessed taking into account (i) the interest on debt to third-parties and related-party debt inferior to 1.5 times the net equity of the company which are subject to the same threshold of €3 million pro-rated or 30% of the pro-rated tax EBITDA if higher and (ii) the interest on the debt owed to related parties exceeding 1.5 times the net equity of the company, which deduction is then limited to 10% of the pro-rated tax EBITDA or to €1 million pro-rated if the latter amount is higher.
In addition, interest deductibility is subject to certain limitations regarding inter-company loans under the maximum deductible interest rate provision: related-party debt may be deductible for a rate that is higher than the maximum deductible interest rate provided that the taxpayer evidences the arm's length nature of such rate.
In addition, the Finance Act for 2020 has transposed into French law the provisions regarding hybrid mismatches of Directive (EU) 2016/1164 of 12 July 2016 (ATAD I) as amended by Directive (EU) 2017/952 of 29 May 2017 (ATAD II).These provisions aim at neutralizing the tax effects of hybrid mismatch arrangements, which exploit differences in the tax treatment of an entity or instrument under the laws of two or more EU Member States. ATAD II extends the scope of these provisions to arrangements involving non-EU countries.
No withholding tax on arm’s length interest expenses applies in France, except when they are paid in a non-cooperative state, in which case a 75% withholding tax is triggered.
Depreciation
If the owner of the property is a company subject to French corporate income tax, depreciation is allowed (on a straight-line basis) on the acquisition value of the buildings but not of the land (generally at rates between 2% and 5% per year for commercial buildings). Accelerated tax depreciation is possible for industrial buildings if their expected lifespan is less than 15 years.
If some elements of the building are expected to have a shorter lifespan than the building as a whole then the depreciation value is broken down into different categories of asset, each with its own depreciation rate.
Depreciation on land is not permitted (unless the land contains a quarry in which case the value of materials to be sold after treatment can be depreciated).
A participation in an SPV holding real estate cannot be depreciated.
No depreciation is deductible under the individual income tax regime.
The income tax regime applicable depends on the legal status of the investor, on whether he operates, or is deemed to operate, a trade or business and on whether he has a permanent establishment in Germany.
Income from long-term lettings is, in principle, exempt from VAT, but an investor may opt to waive the VAT exemption in some circumstances. This is likely to be the case, for example, if input VAT has been paid on the cost of acquisition, or maintenance and repair costs, and the investor would otherwise be unable to recover it. However, one can only opt for VAT if the lessee is a taxable person for VAT purposes, leases the real estate for its business and does not itself carry out activities which might exclude a VAT deduction.
If an investor invests directly in German real estate, the applicable tax regime depends on whether the investor operates, or is deemed to operate, a trade or business. Only if the investor is deemed to operate a trade or business or actually operates a trade or business can he have a permanent establishment in Germany.
In the scenarios below the investor operates, or is deemed to operate, a trade or business:
If the investor is a corporate entity with a permanent establishment in Germany, profits generated by the permanent establishment, including income from letting real estate located in Germany, are subject to corporate income tax at the rate of 15% plus 5.5% solidarity surcharge thereon, resulting in an effective tax rate of 15.825%. Expenses incurred from letting real estate are deductible and reduce the taxable income. This includes administration costs, maintenance costs, real estate tax and amortization. Amortization only applies to buildings, including the cost of acquisition and related expenses (such as notary's fees, legal fees, experts' fees etc), but not to the land itself. The annual amortization rate for buildings varies between 2% and 3% of the acquisition or construction costs. In certain cases higher amortization rates apply.
Deductions can be claimed for interest subject to the 'interest cap rule'. Under the interest cap rule all interest expenses are, in general, fully deductible as business expenses in an amount equal to the interest income of the 'business unit' (Betrieb). If interest expenses in excess of interest income (net interest expenses) exceed €3,000,000, the deductibility of interest paid on debt will be limited to 30% of EBITDA (earnings before interest, taxes, depreciation and amortization). Exemptions from this interest cap rule may apply.
Trade tax rates depend on the municipality where the permanent establishment is located and generally range between 7% and 19.25%. Trade tax is not deductible against taxable income. However, in certain circumstances there is – upon application - a trade tax-exemption available for investors carrying on asset management only, ie their activities are limited to letting and management of real estate. Allowable corporate income tax deductions generally apply for trade tax purposes.
In relation to trade tax, to the extent – among other things – that 100 percent of all interest on debt payments (as far as interest payments have previously been deducted from taxable income) and 25 percent of expenditure on temporary usage rights (for example licences and concessions) exceed a threshold of €200,000, 25 percent of such amount must be added back into taxable income.
If an individual investor operates, or is deemed to operate, a trade or business he can have a permanent establishment in Germany. If the investor generates income through a permanent establishment (as defined by the applicable double tax treaty) in Germany, including income from letting real estate located in Germany, this is subject to income tax at the individual tax rate of the investor.
The income tax rate for individuals ranges from 14% to 42%. An additional tax bracket of 45% applies to taxable income in excess of around EUR 277,000 for individuals and around EUR 555,000 for married couples subject to joint taxation if the income qualifies as leasing income. An additional solidarity surcharge of 5.5% applies to taxable income of EUR 65,516 or more per year for individuals and EUR 131,032 for married couples. For allowable deductions and trade tax, see above on corporate investors. Income tax relief is available to compensate for the additional trade tax exposure. Repatriation from the permanent establishment to a foreign investor is not subject to additional income tax.
Individual investors may become subject to German trade tax which can – in some circumstances – be credited against personal income tax liability. Repatriation from the permanent establishment to a foreign investor is not subject to additional trade tax.
Direct investment without a permanent establishment
If the investor is a corporate entity generating income from letting real estate in Germany, this income is subject to corporate income tax at the rate of 15 percent (plus 5.5 percent solidarity surcharge thereon). Therefore, the rate of corporate income tax is effectively 15.825 percent of the taxable income.
German resident corporate investors are subject to trade tax but may (upon application) qualify for a special tax exemption if they are exclusively engaged in long term letting and management of real estate. In the absence of a permanent establishment in Germany no trade tax is payable by foreign corporate investors.
If the investor is an individual generating income through letting real estate in Germany, this income is subject to German income tax at the individual tax rate. The income tax rate for German investors is determined by their worldwide income. No trade tax is payable.
All profits generated worldwide by a German corporate entity are subject to 15 percent corporate income tax (plus 5.5 percent solidarity surcharge thereon), resulting in an effective corporation tax rate of 15.825 percent, and to trade tax of generally between 7 percent and 19.25 percent. For potential deductions and trade tax exemptions see above.
If property is let in the course of business, then the rental income will be subject to profits tax.
If the property is let and rent is collected then property tax is payable. The exact amount payable is calculated at a percentage of the Net Assessable Value. This percentage has been set at 15% from 2008/09 onwards. The Net Assessable Value is calculated by taking the annual rental income less irrecoverable rent, rates and statutory allowance for repairs and outgoings.
However, if the rental income from property chargeable to property tax is included in the profits for profits tax purposes, or if the property owner occupies the property for producing chargeable profits, the amount of property tax paid will be set off against the amount of profits tax payable. This may result in greater deductions in the amounts payable as allowances with respect to repairs and maintenance to the property; interest paid in respect of the cost of acquiring the property (subject to anti-avoidance provisions) and the costs of maintaining the corporation are permitted.
Income generated by a Hungarian company or by a limited or unlimited partnership from letting real estate is, in general, subject to tax at a rate of 9%. Corporate taxpayers are also subject to the local business tax of up to 2%, which is based on the net sales revenues after tax deductions (costs of goods sold, value of mediated services, sums paid to subcontractors, material costs, R&D costs) and adjustments have been made.
Real estate investment funds, however, are not subject to direct taxation. In general, the letting of Hungarian real estate by a non-resident company creates a permanent establishment in Hungary. Income generated by a permanent establishment is also subject to tax at the general rate of 9%. Local business tax at a rate of up to 2% also applies.
REITs and their wholly owned special purpose vehicles are, as a rule, exempt from corporate income tax and local business tax.
Rental income is taxable on the basis of when the income is earned, rather than when it is actually received.
Deductions allowed when calculating taxable net rental income include:
Pre-letting expenses, other than property fees before first renting out a property cannot be deducted. Deductions should be possible for expenditure incurred between lettings. Where interest costs are incurred by a company prior to the first letting these may be added to the base cost of the property in calculating a gain or loss on disposal where the costs have been capitalized by the company in its accounts.
From 1 January 2019, the deduction available for interest on borrowings used by a landlord to fund the purchase, improvement or repair of a residential property increased from 85% to 100%.
Depending on the use to which the property is put and the trade, if any, carried on in the property capital allowances in the form of industrial buildings allowances may be available. An "industrial building or structure" is broadly defined and includes buildings and structures used for a great variety of commercial purposes.
There have been many capital allowances schemes in existence in Ireland over the past 30 years, for example, hotel capital allowance schemes, schemes for the provision of student accommodation, urban renewal relief schemes, rural renewal relief schemes and rented residential accommodation schemes. Most of these schemes have now been abolished or are currently being phased out.
Capital allowances may continue to be available on expenditure incurred on the acquisition of a property on which capital allowances have been claimed where the tax life of the property has not yet expired. A full review of the capital allowances position of a property should be conducted prior to its acquisition.
If the property is let with fixtures and fittings and the landlord bears the burden of the wear and tear of such fixtures and fittings, capital allowances should be available.
Where deductible expenses exceed rental income, a rental loss results, which can be offset against net Irish rental profits for the same period. Any residual losses can be carried forward indefinitely and offset against future rental profits.
Where an Irish PE carrying on a trade in Ireland is in receipt of rental income in respect of a property used by, or held by or for, the branch, it will be subject to Irish tax on the net rental profits (ie rental income after the deduction of expenses and rental losses). The current rate of tax for a company is 25%. There may be double-taxation relief if a double-taxation treaty applies.
Depending on the use to which the property is put and the trade, if any, carried on in the property capital allowances in the form of industrial buildings allowances may be available. A full review of the capital allowances position of a property should be conducted prior to its acquisition.
If the property is let with fixtures and fittings and the landlord bears the burden of the wear and tear of such fixtures and fittings, capital allowances should be available.
Rent payments made to a non-resident landlord may be subject to withholding tax at the rate of 25% unless the landlord has appointed an Irish collecting agent.
A non‑resident investor (whether a company or individual) is generally subject to Irish income tax on rental income from an Irish source (less deductible expenses) at the standard rate of income tax, currently 20%. The deductible expenses are the same as those which apply to Irish resident persons, ie:
Double-taxation relief may also be available.
Rent payments made to a non-resident landlord may be subject to withholding tax at the rate of 25% unless the landlord has appointed an Irish collecting agent.
A non‑resident investor (whether a company or individual) may incur a liability to capital gains tax, currently at the rate of 33%, if a gain arises on the sale of Irish investment property. 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 net rental profit of an Irish resident company is subject to Irish corporation tax at the rate of 25%.
The remarks above in relation to capital allowances are also relevant for an indirect investment through a corporate entity.
Interest costs incurred on the acquisition of shares in an Irish property holding company may qualify for relief as a charge where certain conditions are met and anti‑avoidance rules do not apply. These conditions can broadly be summarized as follows:
If the real estate is leased to tenants, any rental income generated is subject to corporate tax (IRES) at the rate of 24% and regional tax (IRAP) at the rate of 3.9%.
Taxable income for IRES purposes is the net revenue after the deduction of costs, as shown in the annual profit and loss account. With some minor exceptions, all costs relating to the activities of a company can be deducted, including interest (as long as this exceeds interest receivable), up to an amount equal to 30% of “fiscal” EBITDA not including depreciation and financial lease payments (ie EBITDA net of depreciation and financial lease payments, computed considering only taxable and deductible items).
Property tax (IMU) paid on commercial property (as for FY 2022), 10% of IRAP paid and IRAP due on the cost of employees are deductible for the purposes of IRES. Depreciation of property is deductible to the extent allowed by law (ordinary depreciation rate for real estate properties is 3%). In certain circumstances, taxable income can be mitigated for IRES purposes by using appropriate leverage. In particular, interest due on loans which are secured by mortgages over real estate for ’letting’ is not subject to the 30% EBITDA threshold and is therefore fully deductible.
The income subject to IRAP is the amount of revenue after the deduction of costs, as shown in the annual profit and loss account. However, not all costs related to the company’s activities can be deducted, including interest payments, certain cost of employees, IMU and IRES payments.
An Italian partnership is a transparent entity for tax purposes. Consequently, income deriving from investments is taxed at the level of individual partners, even if this is not distributed as dividends.
In the case of non-resident corporate partners, the income is taxed as business income at the level of the partner at the rate of 24%.
Regional tax (IRAP) at the rate of 3.9% applies at the level of the partnership. The income and allowable deductions for the purposes of IRAP are the same as for corporate vehicles.
In the case of investment of a foreign corporate entity without a permanent establishment in Italy (please note that, in contrast to the position in some countries, owning Italian real estate does not automatically give rise to a permanent establishment in Italy), the income derived from letting property is subject to corporation tax (IRES) payable at the rate of 24%. 95% of the gross income derived from letting is taxable and no depreciation or other costs can be deducted.
Interest on loans secured on the property is not deductible for tax purposes.
Real estate investment funds are not subject to IRES or IRAP.
Listed real estate investment companies (SIIQs) are not subject to corporate income taxes (IRES and IRAP) on income from letting property, or on the dividends paid by another SIIQ, if those dividends are related to letting property.
When an offshore acquisition entity or investor receives rental income (except when the lessee is an individual and the property is used by the lessee or his/her relatives) or income from TBI, the income will be subject to withholding tax on payments in accordance with the applicable tax treaty between the offshore acquirer’s home jurisdiction and Japan.
Separately, the acquisition of property or TBI in property located in Japan by an offshore operator creates a potential risk of creating a permanent establishment (PE). If the offshore investor creates a PE in Japan, it will be subject to ordinary corporate tax at an effective tax rate (ETR) of 30.62% on its net income. While acquisition of real estate in and of itself does not necessarily create a PE since it is common to hire asset managers and the investor may be receiving ongoing payments from its holdings in Japan, the risk of creating a PE may be heightened.
The income of a GK is subject to corporate tax at an ETR of 30.62%. A GK does not enjoy preferential tax treatment on real estate investments available to GK-TKs and TMKs.
A GK is subject to corporate tax for taxable income. However, under the GK-TK structure when a GK makes distributions to investors pursuant to a TK agreement, such distributions can be treated as deductions against the GK's income (as defined by the National Tax Agency’s published regulations) and could reduce taxable income (‘Pay-Through’). To qualify for this treatment, the TK agreement should specify that the TK Partners’ role is limited to passive investment. In practice, it is common for the management of the GK operator to be outsourced or handled by an affiliate of the TK Partners.
A TMK is also subject to corporate tax. If a TMK is ‘tax qualifying’ it may take a deduction against taxable income for any dividends paid to its members (‘Pay-Through’). This means that, in theory, if the TMK distributes all of its taxable income it will not have any income that would be subject to corporate tax. A TMK must satisfy certain criteria to be considered a tax-qualifying TMK.
The ownership of real estate by a foreign corporate investor is deemed to constitute a permanent establishment in the Netherlands. Dutch Corporate Income Tax (CIT) is payable on net income after the deduction of expenses. Any net income attributable to the deemed permanent establishment is subject to corporate income tax at the following rates:
|
Year |
Tax rate applicable to first bracket taxable profits |
Tax rate applicable to profits in second bracket taxable profits |
|
2024 |
19% (up to €200,000) |
25.8% |
Non-resident investors can generally deduct expenses attributable to the activities of their permanent establishment in the Netherlands. However, please note the following limitations.
Interest expenses are only deductible within the limits of the Dutch implementation of the European Anti-Tax Avoidance Directive's interest deductibility rule. As a result, net interest expense is deductible up to the highest of 20% of the Company's EBITDA or €1 million. Typically for intragroup loans, other interest non-deductibility rules may apply as well.
The Netherlands levies a conditional withholding tax on interest paid by a (deemed) permanent establishment to related entities that are residents for tax purposes in a so-called low tax jurisdiction, are on the EU blacklist or in certain abusive and hybrid situations. The rate of the conditional withholding tax is linked to the highest corporate income tax rate, i.e. 25.8% in 2024.
Real estate transfer tax is non-deductible for CIT purposes but is capitalized on the tax book value of the Dutch real estate asset (in case of an asset deal). Dutch real estate may be depreciated for tax purposes, generally based on a linear method taking into account a residual value and a depreciation method based on the useful life, until a certain floor value (bodemwaarde) for tax purposes is reached. Such floor value is set at 100% of the value for the purposes of the Value of Immovable Property Act the so-called 'WOZ-value').
For foreign individuals acting as a passive investor in Dutch real estate, reference is made to Ongoing taxation above.
General rules on taxation for Dutch corporate entity.
The Dutch company's worldwide profits (including the profits realized on the Dutch real estate held) are subject to Dutch corporate income tax at:
Dutch corporate entities can deduct expenses relating to the real estate held by such entity. However, please note the following limitations.
Interest expenses are only deductible within the limits of the Dutch implementation of the European Anti-Tax Avoidance Directive's interest deductibility rule. As a result, net interest expense is deductible up to the highest of 20% of the Company's EBITDA or €1 million). There is an intention to abolish or limit the €1 million for companies leasing real estate to third parties as of 2025 (i.e. interest is only deductible up to 20% of the company's EBITDA). This is, however, not legislation yet. Typically for intragroup loans, other interest non-deductibility rules may apply as well.
The Netherlands levies a conditional withholding tax on interest and dividend paid to related entities that are residents for tax purposes in a so-called low tax jurisdiction, are on the EU blacklist or in certain abusive and hybrid situations. The rate of the conditional withholding tax is linked to the highest corporate income tax rate, i.e. 25.8% in 2024.
Real estate transfer tax is non-deductible for CIT purposes. Dutch real estate may be depreciated for tax purposes, generally based on a linear method taking into account a residual value and a depreciation method based on the useful life, until a certain floor value (bodemwaarde) for tax purposes is reached. Such floor value is set at 100% of the value for the purposes of the Value of Immovable Property Act for passive investors (the so-called 'WOZ-value').
Taxpayers can opt to make use of the fiscal investment institution (FII) regime (fiscale beleggingsinstelling) for direct and indirect investments in (Dutch) real estate (as of 2025 only indirect investments), when, inter alia, a number of shareholder, distribution and financing requirements are met. FIIs are subject to CIT at a rate of 0%.
In the case of a tax-transparent partnership (such as for example partnerships that are comparable to the commonly used closed mutual fund (fonds voor gemene rekening) or closed limited partnership (commanditaire vennootschap), the (foreign) partners or participants are taxed in the Netherlands on their share of the participation as if they were directly investing in the real estate (refer to the tax treatment under 'direct investment from abroad'). Tax transparent partnerships are not taxed as corporate entities.
To the extent an owner of real estate derives rental income from their real estate asset, tax, up to 39%, could be charged on income derived. The amount of taxable income can be reduced by the amount of expenditure incurred in deriving assessable income or in the course of carrying on a business.
For completeness, special rules relate to residential property, which ring-fence residential property tax losses. The effect of this ring-fencing is that deductions relating to residential land for an income year must not exceed the amount of income derived from that land. Property owners are unable to offset excess expenditure or loss linked to their residential properties against their other income (such as salary, wages, or business income) to reduce their income tax liabilities. The excess expenditure may be used in future years against income derived from the properties or, if the person is taxed on disposal under the land sales provisions, when the land is disposed of.
The income from real estate is subject to the applicable tax laws and rates in the country. A company that owns real estate pays income tax from the profits on the rent based on the applicable rates under the Companies Income Tax Act Cap C21 LFN 2004. The income of an individual owner of real estate is also taxed based on the Personal Income Tax Act Cap P8 LFN 2004. The income tax rates for companies are up to a maximum 30% depending on turnover of the company in the relevant period and for individuals, between 7% and 24%.
Please note that small businesses with an annual turnover of less than N25 million are exempt from paying an income tax and a lower income tax rate of 20% applies to medium-sized companies with an annual turnover of between N25 million and N100 million. The maximum income tax rate of 30% is applicable to companies with an annual turnover of above N100 million.
Furthermore, medium- and large-sized companies are entitled to a bonus of 2% and 1% of tax payable respectively, for early payment of income tax.
By the provisions of the Finance Act 2019 and the Federal Inland Revenue Service Circular on taxation of Real Estate Investment Companies, rental or dividend income due to real estate investment companies (duly registered with the Securities and Exchange Commission) are exempt from company income tax where at least 75% of the income is to be distributed to its shareholders within 12 months following the financial year end. The rentals and dividends of a Real Estate Investment Company are exempt from withholding tax. However, withholding tax is applicable on any further distribution to the shareholders of the real estate investment company.
The owner of a property on whose behalf withholding tax deductions were made from rental income and remitted to the appropriate tax authorities is entitled to utilize the tax credit note thereof to offset the income tax liabilities for the year.
The Finance Act 2021 expanded the definition of Real Estate Investment Companies to include Real Estate Unit Trust and it also provides that withholding tax which had been deducted from interest payments to unit trusts and paid to the FIRS would be the final tax due from such unit trust.
The basis for calculating the annual taxable income is the gross (rental) income. As a general rule, all expenses connected to the business of the taxpayer are deductible, including financial and operating expenses, such as insurance, maintenance and repairs, heating, consultancy fees, employee costs, service costs and travel expenses. Certain exceptions apply:
Any income generated from real estate is subject to general income tax rules in Poland:
Taxable income is defined as the taxable revenue earned on the capital gains and earned from other revenue sources after the deduction of costs. Tax-deductible costs are any costs aimed at generating or securing taxable revenues.
The amendments of the CIT Act which have been in force since 1 January 2018 introduced a distribution of the earned revenue into two sources:
Tax law specifies over 60 categories of cost that cannot be deducted for tax purposes but the rules are complex and specialist advice should be sought on this matter.
The costs of acquiring real estate may be deducted for tax purposes only by way of depreciation write-offs, however starting from 2023 depreciation write-offs on residential buildings and residential apartments must not be deducted for CIT purposes. This limitation does not apply to ‘commercial’ projects (hotels, student housing etc). With respect to other types of real estate, the annual depreciation rate ranges from 1.5% to 10%. Land cannot be depreciated and the cost of land acquisition can only be deducted for tax purposes when it is sold.
In 2024 the Polish legislator introduced into the CIT Act the possibility for micro-, small- and medium-sized entrepreneurs to individually determine the depreciation rates for self-generated fixed assets that are non-residential buildings (premises) and structures classified in categories 1 and 2 of the Classification of Fixed Assets (buildings and premises, as well as the cooperative right to commercial premises and the cooperative ownership right to residential premises, as well as civil engineering objects) entered for the first time into the fixed and intangible asset register of a given taxpayer, where that fixed asset is located in the territory of a municipality:
Where the fixed asset referred to above is located in a municipality located in a county where the average unemployment rate is:
CIT is payable at a flat rate of 19% on net income (small taxpayer under certain income thresholds can qualify for 9% rate). Entities resident in Poland normally pay CIT in Poland on their worldwide income. In the case of foreign entities (including companies) all income generated in Poland is taxed in Poland. However, double-tax treaties may modify this.
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 are treated as if they held the real estate themselves. Generally, PIT rates are progressive. The rates are 17% and 32% (since 1 July 2022, 12% and 32%). However, individuals carrying out business activities may opt to pay income tax at a flat rate of 19%. 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. Since 1 January 2021, limited partnerships were also made subject to corporate income tax.
The amendments of the CIT Act, which have been in force since 1 January 2018, introduced an additional income tax (an income tax on commercial properties) that is to be payable on certain commercial properties (fixed assets). The tax is applied in respect of office buildings, shopping malls, department stores, and other retail and service buildings with an initial value of more than PLN 10 million. The value of PLN 10 million regards all buildings of a given taxpayer or, under certain circumstances, all buildings owned by a certain taxpayer and its related parties. The tax is payable on a monthly basis and the rate is 0.035% of excess of the building's initial value over the amount of PLN 10 million. The tax so calculated will reduce the standard corporate income tax.
Moreover, the new provisions that has entered into force retroactively as from 1 January 2018 allows to apply for refund of the tax on commercial properties if it exceeds amount of standard corporate income tax.
Starting from 1 January 2019, a minimum tax applies to all buildings subject to lease regardless of their type except residential buildings put into use under government or local government social housing programs. The exemption threshold of PLN 10 million applies regardless of quantity or individual value of the buildings held by the taxpayer. The possibility to apply for a refund of the excess minimum tax on the condition that the tax authority does not find any irregularities in the amount of "regular" CIT liability was also introduced.
From 1 July 2021, an introduction of a new type of company to polish legal system was made – simple joint-stock company (prosta spółka akcyjna). However, the same rules of taxation applies. CIT is payable at a flat rate of 19% on net income (small taxpayers under certain income thresholds can qualify for 9% rate). The differences from the other types of companies lies in minimal share capital which is 1 PLN or in a possibility of establishing the company online.
The Act on specific arrangements related to the prevention, counteraction and control of COVID-19, other communicable diseases and emergencies caused by them provided the commune councils with the possibility of releasing the resolutions granting an exemption from tax on income from commercial properties determined for the part of the year 2020 and chosen months of the year 2021 as well as granting an additional time to pay the tax installments for the entrepreneurs, whose financial liquidity worsened because of pandemic.
Rents from urban, rural or mixed properties are classified as taxable income for the purposes of Portuguese corporate income tax (IRC). If the investor is private, individual rents will be treated as taxable income for Personal Income Tax (IRS) purposes.
Whether generated through a resident corporate entity, a permanent establishment in Portugal or without a permanent establishment, rents from real estate located in Portugal are always subject to income tax. However, there are some peculiarities:
The income of resident corporate taxpayers is subject to IRC at the general rate of 21% (on the Portuguese mainland). A reduced rate of 17% may be applicable to the first €50,000 of taxable income (if the company is recognized as a small or medium-sized company, or as a small mid cap). To be recognized as small or medium-sized, the company must have fewer than 250 employees and its annual turnover must not exceed €50 million or its annual balance sheet total must not exceed €43 million. To be recognized as a small mid cap, the company must have less than 500 employees.The reduced rate mentioned above should be of 12.5% if the company qualifies as a start-up entity in accordance with the applicable Portuguese requirements.
The income of resident corporate taxpayers is also subject to a municipal surcharge of up to 1.5%, which is levied by many Portuguese municipalities, and a state surcharge of 3% applies to income varying between €1.5 million and €7.5 million. For income between €7.5 million and €35million the surcharge rises to 5%. Above €35 million the surcharge rises to 9%. The municipal surcharge and the state surcharge are applied on the income determined prior to deduction of losses.
A corporate entity is entitled to deduct costs related to maintenance and repairs, as well as general costs and municipal property tax (IMI), and other specific costs such as those incurred in connection with the construction or acquisition of the property and depreciation (excluding land).
Income attributable to a permanent establishment (PE) in Portugal is liable to IRC in the same way as a Portuguese-resident company at the rates mentioned above for resident corporations.
If the investor does not have a permanent establishment in Portugal, Income Tax (IRC or IRS) is only payable on income generated in Portugal.
Income derived from rents, is subject to Corporate Income Tax, at a rate of 25% for non-residents. As to the Personal Income Tax, the rate is of 28% for non-housing leases and 25% for housing leases (with potential reductions). The costs incurred by the taxpayer to obtain the rental income are tax deductible, except with respect to the following costs: financial costs, depreciation, furniture, fixtures, equipment and décor items, and the AIMI. A withholding tax of 25% may apply to non-resident individuals or corporations, if the lessee is an entity or individual required to prepare and to maintain audited accounts in Portugal, as is typically the case with a commercial lease.
Foreign investors must file an annual tax return with The Portuguese Tax Authority.
Decree-Law No. 7/2015 of 13 January 2015, which came into force on 1 July 2015, introduced the current tax regime for undertakings for collective investment (UCI), applicable to following entities:
Following a major trend in the taxation of investment vehicles in Europe, this law adopts the “exit taxation method”, whereby the taxation of income in the main is applied to the investors rather than the fund.
The SIGIs (a special type of real estate investment company, subject to a significantly relaxed regulatory framework) are also subject to the income tax regime applicable to UCIs (the SIGIs’ regime entered into force on February 1, 2019). The tax comments made below with reference to REIFs/REICs should also be read as applying to SIGIs.
In respect of income derived from REIFs/REICs, Non-resident Investors without a local PE will be subject to a withholding tax in Portugal at a rate of 10%.
Income derived from units in real estate investment funds and from shares in real estate investment companies are classified as income deriving from property for the purpose of this regime.
The fiscal regime governing REIFs can be summarized as follows:
Resident investors:
Individuals – are subject to IRS at a withholding tax rate of 28% for non-housing leases and 25% for housing leases (potentially reduced). This is generally a final withholding tax, which settles the investor’s tax obligation, provided that the income in question is obtained outside the scope of a commercial, industrial, or agricultural activity, unless the investor chooses to aggregate his or her income, in which case the general progressive tax rates (from 14.5% to 48%, plus solidarity surcharges) apply;
Non-resident investors who:
are subject to withholding tax at definitive rates of 25%, 28% or 35% – being the rates prescribed for the regime applicable to resident investors.
Certain reductions in the rates of Municipal Property Tax (IMI) may also apply.
As a general rule, the taxable income of a company is subject to the standard tax on profits at a rate of 16%. The taxable profit is the difference between income from any source and expenses incurred for the purpose of obtaining income, from which non-taxable income is deducted and to which non-deductible expenses are added.
The Romanian legislation also contains provisions covering a tax system for micro-companies which are taxed on their income derived from any source (to which certain adjustments are made). This tax system is optional as of 1 January 2023 and the possibility to opt for it is conditioned upon fulfilment of several conditions. Under this regime, companies pay a tax of (i) 1% of their income if the level of the total income (with certain adjustments) is below or equal to EUR 60,000 and the company does not perform certain activities listed by the Romanian Fiscal Code or (ii) 3% of their income if the level of the total income (with certain adjustments) exceeds EUR 60,000 or if it performs certain activities listed by the Romanian Fiscal Code.
If, due to changes occurring during the tax year, the micro-company changes the tax rate it falls under, the appropriate tax rate is applicable from the quarter in which such situation occurs. Additionally, if micro-companies that carry out certain activities referred to above also obtain income from other activities, the 3% tax rate shall also apply to income from these other activities.
Also, Romanian tax legislation specifically mentions that all revenues derived by non-residents from real estate located in Romania (including from the sale of real estate or from the right to use such properties) are subject to tax in Romania at the general rate of 16% for corporate entities and 10% for natural persons. This includes the sale of shares held in local entities whose assets mainly consist of real estate.
The Romanian tax legislation provides a tax exemption for capital gains derived from the sale of shares held in a Romanian legal entity by a Romanian corporate entity or a non-resident corporate entity which is resident in a double-tax treaty jurisdiction, provided a minimum holding criteria is met (ie 10% for at least one year at transaction date), the right to tax such transaction is not allocated to Romania and supporting documentation is available at local level to sustain the fiscal residence of the alienator.
Provided that the conditions mentioned by the Romanian legislation are not met (i.e. the minimum holding criteria), the taxation of capital gains derived by non-residents can also be reduced in accordance with the provisions of the relevant double-tax treaty between Romania and the country of residence of the beneficiary of the income, provided that a valid fiscal residence certificate is made available and the relevant treaty does not allocate the right to tax the transaction to Romania.
Since a partnership is considered to be transparent for income tax purposes, any profits generated by the partnership are deemed to be the profits of each individual partner and are therefore treated as personal income.
Tax is payable on rental income, less any tax-deductible expenses (for example depreciation, administrative costs and financial charges).
The tax rate is 19% (but 25% on that part of the income which exceeds 176.8 times the current subsistence level as prescribed by the government). Where the partner is a legal entity, a tax rate of 21% applies or 15% for the companies regarded as a micro taxpayer.
Tax is payable on rental income, less tax deductible expenses (for example depreciation, administrative costs and financial charges).
The corporate income tax rate is 21% or 15% for the companies regarded as a micro taxpayer.
The tax base can be reduced by what is known as “book depreciation”.
With the exception of land, most tangible assets are depreciable. The basis for depreciation is generally the original acquisition cost, and the depreciation rate is usually based on the normal useful life of the asset. Tax depreciation rate is specific for different type of assets and may differ from accounting depreciations.
Slovak tax legislation also allows for “interruption” of tax depreciation.
Income generated from the ownership of real estate in Spain is taxed as follows:
Business profits generated by a permanent establishment in Spain are subject to Spanish non-resident income tax (Impuesto sobre la Renta de No Residentes) at a rate of 25% in 2022.
The taxable income is the net profit after deducting costs, as shown in the annual profit and loss account. With some minor exceptions, all costs relating to the activities of the permanent establishment are tax deductible, apart from interest, royalties or commission paid to the head office in exchange for technical assistance or for the use of other goods or rights.
Many of the management and general administration expenses are deductible.
Depreciation of property is tax deductible to the extent permitted under the relevant regulations.
If the investor does not have a permanent establishment in Spain, income derived from letting property is subject to Spanish non-resident income tax at the standard rate of 24% (19% if the taxpayer is resident in the EU or in the European Economic Area). The basis for calculating taxable income is the gross income received. However, if the taxpayer is resident in the European union expenses are deductible in accordance with the Spanish corporate income tax law, provided that the taxpayer proves that they are linked to the economic activity developed in Spain.
Note that investment in real estate, could create a permanent establishment, in which case income generated from letting is taxed as above.
Income from letting is subject to Spanish corporate income tax (Impuesto sobre Sociedades) at 25%. Taxable income is the net income after the deduction of expenses, as shown in the annual profit and loss account.
Since a partnership is deemed to be transparent for tax purposes, any profits generated by the partnership are attributed to the individual partners.
Income derived from letting property is taxed as above, depending on whether or not the property is deemed to constitute a permanent establishment in Spain.
Rental income, or any other income, is treated as business income and is taxed at a rate of 20.6% (2023) (for corporations). A general reduction of net interest deduction corresponding to 30% of EBITDA applies. However, the reduced interest deduction applies only if negative net interest exceeds SEK 5 million (simplification rule). The amount is measured on a group level. Certain additional restrictions apply to the deduction of interest on intercompany loans. For corporations, depreciation of a building for tax purposes is currently allowed at 2% to 5% annually for industrial premises, 3% for retail property and 2% for offices. Speeded up depreciations — additional 2% the first six years — are available for newly produced apartment houses. Certain options to postpone taxable income are sometimes available but detailed advice should be sought on this matter.
Partnerships are transparent for income tax purposes. The tax rate is currently 20.6% for corporate partners, and there is a progressive tax rate of between 47% and 65% for individuals.
Rental/lease income and capital gains would be treated as income subject to personal income tax (if the recipient of the income is an individual) or to corporate income tax (if the recipient of the income is a corporation).
As far as personal income tax is concerned, the owner is subject to progressive tax rates ranging from 5 percent to 35 percent. An allowance of 30 percent of total rental/lease income may be deducted from the taxable income. However, if the owner can substantiate that the cost is actually higher than the 30 percent threshold, the actual expenses evidenced by supporting documents may be deducted from the taxable income in computing the personal income tax.
For owners that are corporate entities, the normal corporate income tax rate is currently 20 percent of net profit. Some companies may be subject to progressive tax rates at 15 percent and then 20 percent provided that such companies have registered capital of not more than THB 5 million and total revenue of not more than THB 30 million per year.
If investment is made through a qualifying property fund, real estate investment trusts (REITs) or other relevant tax rules, the net profit is not subject to tax.
Most of the individual Emirates have issued income tax decrees with maximum tax rates as high as 55%. While these decrees are in principle applicable to all (respective) entities, in practice corporate tax is currently only enforced against oil and gas companies, certain petrochemical companies and branches of foreign banks.
The enforcement practice may change at any time and corporate tax could be enforced, potentially even retroactively, on a larger population of corporate entities. Companies established in one of the Emirate level instated free zones could enjoy a temporary exemption from corporate tax, granted by the relevant free zone authority.
Strictly speaking, all companies in the UAE are required to pay corporation tax on their earnings of up to 55%. However, in practice, the enforcement of corporation tax legislation has been restricted to enforcement against:
The enforcement practice may change at any time and corporate tax could be enforced, potentially even retroactively, on a larger population of corporate entities. Companies established in one of the Emirate level instated free zones could enjoy a temporary exemption from corporate tax, granted by the relevant free zone authority.
The UAE Ministry of Finance have announced the introduction of a federal corporate income tax for financial years commencing on, or after, 1 June 2023. The standard tax rate will be 9% and the first AED 375,000 of taxable income will be subject to a 0% rate. Under the new corporate income tax regime, it is expected that individuals and businesses which operate and exploit real estate as an active business enterprise will be subject to the new tax, whereas individuals who generate passive real estate income may be exempt. It is expected that further clarification will be provided regarding the taxation of real estate income under the new regime through separate cabinet decisions.
All entities or persons receiving income from UK property will be subject to UK tax and will generally be required to file a UK tax return.
The tax position will depend upon the type of entity that holds the English or Welsh real estate and whether the real estate is held as an investment or for the purposes of a trade. The following can be noted in relation to certain types of vehicles holding UK real estate as an investment.
If the property is held in a limited partnership, a limited liability partnership or a “bare” trust (that is a trust in its simplest form), the entity will generally be treated as transparent for UK tax purposes and so the partners or members or beneficiaries of the trust (as applicable) will be directly subject to UK tax on income arising from the property. A non-UK unit trust is normally structured so that income is treated as accruing directly to the unit holders and not to the trustees of the unit trust in which event the unit holders will also be taxed directly on any income arising. Different taxes will apply depending on the circumstances of the individual partners, members, beneficiaries or units holders (as the case may be); for example relevant circumstances include:
Since 6 April 2020, non-UK tax resident companies have been subject to UK corporation tax on rental profits made from the ownership of UK real estate. From that date non-UK companies are taxable on rental income in the same way as UK companies (see below).
If the property is held by a UK tax resident company the company will be subject to UK corporation tax on any income or gains from the property at a rate of 25%. A lower rate applies to companies with profits of less than £250,000.
Generally, a tax deduction can be claimed for any costs or expenses that are “wholly and exclusively” incurred in connection with a UK property letting business. Subject to UK transfer pricing rules and other anti-avoidance principles, deductions may be available for interest costs on borrowings to fund the purchase of property in England and Wales.
Where the benefit of any rental income (from a property in England or Wales) is paid to or attributed to a non-UK person, then the income may be required to be paid after a 20% withholding of tax under the UK's “non-resident landlord scheme”. However, the requirement for a withholding of tax may be avoided if the person or persons entitled to the income make an application to the UK tax authorities for the right to receive gross rents.
If this application is successful, then rental income will be received without any tax withholding but the persons receiving the rent will be required to file UK tax returns and account for tax at the appropriate rate. If a 20% withholding is incurred then credit for that tax will be obtained when subsequently filing any UK tax return in relation to the same income.
All entities or persons receiving income from UK property will be subject to UK tax and will generally be required to file a UK tax return.
The tax position will depend upon the type of entity that holds the Scottish real estate and whether the real estate is held as an investment or for the purposes of a trade. The following can be noted in relation to certain types of vehicles holding UK real estate as an investment.
If the property is held in a limited partnership, a limited liability partnership or a 'bare' trust (that is a trust in its simplest form), the entity will generally be treated as transparent for UK tax purposes and so the partners or members or beneficiaries of the trust (as applicable) will be directly subject to UK tax on income arising from the property. A non‑UK unit trust is normally structured so that income is treated as accruing directly to the unit holders and not to the trustees of the unit trust in which event the unit holders will also be taxed directly on any income arising. Different taxes will apply depending on the circumstances of the individual partners, members, beneficiaries or units holders (as the case may be); for example relevant circumstances include:
Since 6 April 2020, non-UK tax resident companies have been subject to UK corporation tax on rental profits made from the ownership of UK real estate. From that date non-UK companies are taxable on rental income in the same way as UK companies (see below).
If the property is held by a UK tax resident company the company will be subject to UK corporation tax on any income or gains from the property at a rate of 25% (a lower rate applies to companies with profits of less than £250,000).
Generally, a tax deduction can be claimed for any costs or expenses that are “wholly and exclusively” incurred in connection with a UK property letting business. Subject to UK transfer pricing rules and other anti‑avoidance principles, deductions may be available for interest costs on borrowings to fund the purchaser of property in Scotland.
Where the benefit of any rental income (from a property in Scotland) is paid to or attributed to a non‑UK person, then the income may be required to be paid after a 20% withholding of tax under the UK's 'non‑resident landlord scheme'. However, the requirement for a withholding of tax may be avoided if the person or persons entitled to the income make an application to the UK tax authorities for the right to receive gross rents.
If this application is successful, then rental income will be received without any tax withholding but the persons receiving the rent will be required to file UK tax returns and account for tax at the appropriate rate. If a 20% withholding is incurred, then credit for that tax will be obtained when subsequently filing any UK tax return in relation to the same income.
Income from real estate is included in taxable income and taxed at the standard corporate profit tax (CPT) rate which currently is 18%.
The taxable profit of the company is equal to the accounting profits calculated in accordance with either local or IFRS standards subject to certain adjustments established by the Tax Code.
Income may be reduced by deducting allowable expenses (costs) including depreciation charges.
The rate of depreciation applicable to real estate depends on the depreciation method chosen by the taxpayer as well as on the period of useful life of the real estate defined in accordance with the applicable legislation, except in the case of plots of land which cannot be depreciated.
The rental income of a non-resident derived from Ukrainian real estate is subject to withholding tax at the rate of 15% and, in most cases, may not be avoided under double tax treaties.
Starting from 2021, if the non-resident receives rental income from Ukrainian resident and such transaction is treated as ‘controlled’ for transfer pricing purposes, the part of the non-resident's rental income exceeding the market value (which is determined under the arm's length principle) should additionally be taxed at 15% unless otherwise stipulated by the relevant double tax treaty.
The tax system in the US is a complex web of various taxes imposed by different governing authorities. The multi-layered tax system reflects the US constitutional structure of overlapping federal and state governments, with the result that taxes may be imposed at any one or more of the following levels:
While US federal taxes apply uniformly throughout the country, state and local taxes vary widely from jurisdiction to jurisdiction.
Taxable net income (ie the excess of income over deductions) derived from the ownership and operation of real property is treated as ordinary income and is subject to federal income tax at graduated rates. Effective January 2018, the maximum income tax rate on ordinary income has been reduced to 21 percent for corporations and 37 percent for individuals (note, however, the maximum income tax rate on ordinary income for individuals is set to sunset after 2025 and return to 39.6 percent). In addition, individual taxpayers holding interests in ‘pass-through entities’ such as partnerships and limited liability companies may be entitled to a deduction of up to 20 percent of ‘qualified business income’, subject to certain restrictions, income limitations, and exclusions. As of 2013, US individuals, estates and trusts are potentially subject to an additional tax known as the Net Investment Income Tax (NIIT), which applies at a rate of 3.8 percent on the lesser of net investment income (including, amongst other items, gain from the sale of investment real estate) or the amount by which modified adjusted gross income exceeds a statutory threshold (ranging from US$125,000 – US$250,000 depending on filing status); non-resident aliens, however, are not subject to the NIIT.
Generally, a limited liability company or other unincorporated business entity that has a single owner is disregarded for US tax purposes. The tax consequences of owning real property indirectly through a disregarded entity are substantially the same as if the property were held directly by the single owner of the disregarded entity.
Real property that is owned by an entity that is classified as a partnership for US tax purposes generally is not subject to US federal income tax. Instead, the taxable income from the ownership and operation of the property ‘flows through’ the partnership to the partners, who are subject to tax on the share of that income which is distributed to them.
If real property is owned by an entity that is classified as a corporation for US tax purposes, net income from the ownership and operation of the property is subject to two levels of federal income tax. First, the corporation is subject to tax on any net income 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.
US tax law provides a tax-efficient treatment for a corporation (or trust) that qualifies for and elects to be taxed as a real estate investment trust (REIT). To qualify as a REIT, a corporation (or trust) must principally own interests in real estate and satisfy other highly technical organizational, income and ownership requirements. The governance and tax treatment of such entity is very complex. A REIT, assuming that it complies with various REIT requirements, will not be subject to US federal income tax.
In computing taxable income from the ownership and operation of real estate, the owner generally is entitled to deduct interest expense on borrowings to acquire, own and operate the property, which may be capped at 30% of ‘adjusted taxable income’ of the applicable year, as well as the ordinary and necessary costs of owning and operating the property. An owner of buildings and other improvements to US real estate is also generally entitled to reduce taxable income by deductions for depreciation or cost recovery deductions.
No depreciation deductions may be claimed with respect to the cost of land. Under current law, the cost of building improvements is generally depreciated on a straight-line basis over 27.5 years for residential rental property, and 39 years for other types of non-residential real property. Electing to extend the depreciation recovery period may result in a more beneficial interest expense deduction if the 30% cap applies.
Generally, corporate taxpayers can use taxable losses generated from the ownership and operation of the corporation’s other properties and other business activities to offset current and future taxable net income derived from the ownership and operation of real property owned by the corporation up to 80 percent of such taxable income in a given year. The ability of an individual taxpayer to use taxable losses generated from the ownership and operation of other properties and other business activities to offset taxable net income derived from the ownership and operation of real property owned by the individual is much more restricted, in light of various complex limitations imposed by federal income tax laws.
Most (but not all) states impose income tax on the net income generated from the ownership and operation of real property owned and business activities conducted within that state. Income taxes may also be imposed at the local (city and county) level.
Income derived from letting property is subject to income tax, levied at the rate of 24% in terms of the Income Tax Act [Chapter 23:06].
