Acquisition of SPV Company (s.r.o.) or EU card for personal property purchase |
Why might a company be required?
According to the 'Devizový zákon' [Foreign Exchange Act] a resident who is not a citizen of the Czech Republic may acquire ownership title to real estate in Czech Republic only:
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By inheritance |
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For the purposes of diplomatic representation of a foreign state on condition of reciprocity |
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If the real estate comes into undivided co-ownership of spouses, one of whom is a non-resident |
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By exchange of lands in Czech Republic |
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Under a pre-emption right ensuing from a title to apportioned co-ownership |
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If it contains a building which a non resident has erected on the land |
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If the entity is authorised to undertake a business activity in Czech Republic |
Hence non residents usually acquire property through a limited company (s.r.o.) or ‘SPV' (Special Purpose Vehicle). Property is often held in a corporate structure for other reasons also, such as:
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To ring fence assets from litigation. Litigations can be lengthy and can result in the freezing of personal assets until settlement. Thus, assets subject to such action are protected, particularly if in foreign ownership. |
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For tax reasons. Property is often subject to significant capital gain which is crystallised on change of ownership. Hence the ownership in companies is often transferred rather than the property itself. |
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Lease protection – transfer of ownership of buildings can result in a tenant being able to nullify his tenancy agreement with his landlord. In these circumstances the ownership of the company, not the property is transferred to prevent this from occurring. |
There are several different types of company in Czech Republic, although by far the largest numbers in existence are private limited liability companies described as Společnost s ručením omezeným (s.r.o.).
The minimum capital investment for a private company is currently 200,000 Kč (no actual share capital is issued). The extent of the capital invested is the total amount the investor is liable for in the event of bankruptcy (assuming the investor has not also lent monies to the company also).
The requirement for a company is due to be dropped in a few years time, which will clearly make it easier for non residents to purchase property in Czech Republic at that time.
In Slovakia, non resident entities have been able to acquire property since accession to EU in 2004. However a buyer of property may still consider having a company if considered warranted for protection of assets or for tax reasons.
In order to avoid the need for a company to buy in Czech Republic (other than waiting for the rules to be relaxed) what can be done?
There are exceptions to the above rule:
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EU citizens, who have established residency in Czech Republic, may buy property. This is usually achieved on the grounds of being employed here or undertaking business activity in Czech Republic. Effectively EU cards are issued to persons who are contributing to the economy and are living in the country. Such persons are required to register to pay tax here. EU cards may be acquired by making an investment in a Czech company, by becoming employed in the Czech Republic, or by applying for a trade licence here (to trade in their own right as sole trader). It is relatively easy to manufacture a situation so to fall into one of these categories. |
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When a foreigner has been resident for over 10 years. In such circumstances they are able to apply for a ‘green card' (Povolení k trvalému pobytu) – thus becoming permanent residents of Czech Republic. |
We believe obtaining an EU card in order to acquire property should be handled carefully, as doing so can fall outside the spirit of the legislation, if the sole intention is only to acquire property. If the qualifying reason as to why the applicant became eligible for the EU card is disregarded when the EU card has been obtained, this may be subject to challenge. Furthermore, if ever the authorities were to challenge the method under which a property was acquired, the contract under which the property was acquired may become null and void. Title to property is considered very carefully in these countries and as part of due diligence procedure when you come to sell, the buyer will also consider the method by which the property was acquired. When buying property a buyer is obliged to declare that all information in the contract to buy is correct. Whilst we do not recommend this route, we will discuss all client requirements in detail on request.
Branches of foreign companies registered on the Commercial Register in Czech Republic are also able to purchase property directly.
What service do we provide?
Overseen by a qualified lawyer, we are able to form or acquire clean companies [companies which have not entered into transactions previously] specially created for the purpose of acquiring property for clients. These are either entirely created for the client on an individual order basis or an 'off the shelf' company (one already created and waiting to be used) can be sold to the client. The costs are similar in doing each method, although buying an 'off the shelf' company will be much quicker. With either method, the companies are guaranteed as clean.
We are delighted to able to quote for incorporating a company for you or for supplying a clean ready made company. Please call us to discuss your requirements and to obtain a highly competitive quotation.
The above notes comprise a general synopsis of requirements. There are exceptions in the detail of the legislation (such as for agricultural land and forestry) and thus you should take legal advice before taking action. Legislation is subject to regular amendment and we are unable to confirm that the contents of our site are in accordance with legislation at all times.
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Czech before you buy s.r.o. – Converting requirements into reality |
