BNP PARIBAS REAL ESTATE GUIDE TO
INVESTING IN CZECH REPUBLIC
2014
IN COLLABORATION WITH
PARTNER
BNP Paribas Real Estate
ABOUT BNP PARIBAS REAL ESTATE...
BNP Paribas Real Estate is the market leader in commercial
real estate services across Europe with €716 million of gross turnover,
€164 million of gross operating profit and 3,700 employees.*
More than
35.8 million sqm
in commercial real estate
across Europe managed
2014 – INVESTING IN CZECH REPUBLIC
3
Contents
INTRODUCTION
Czech Republic by numbers
4
Close to
€18 billion
Foreword
5
of assets under management
across Europe
GUIDE TO CZECH REPUBLIC
Top 10 reasons to invest in Czech Republic
Close to
311 million sqm
valued
305,000 sqm
of commercial
property
under construction
A dedicated team
present in
7 Countries
4,200 commercial real estate
France, Germany, Gulf, Ireland,
Jersey, Spain, United Kingdom;
transactions completed in 2013.
One transaction every 15 minutes.
* 2013 key figures
6
Czech Republic: Big Four
10
Advice corner
16
INVESTOR TOOLKIT
Need to know: Key legal terms
18
Need to know: Tax clinic
28
HOT SPOTS
Selected investment opportunities
36
BNP Paribas Real Estate has local expertise on a global scale through its presence in
38 countries with more than 180 offices and 3,700 employees. BNP Paribas Real Estate is
a subsidiary of BNP Paribas.
Investing in Czech Republic is edited by BNP Paribas Real Estate
with the contribution of Dentons Europe CS LLP
PROFESSIONALS s.r.o. is a limited company
registered in the Czech Republic with registered number 257 20 724.
Headquarters:
Professionals s.r.o. Real Estate Consultants
V Celnici 1031/4, 110 00 Prague 1, Czech Republic
Tel.: +420 224 934 680, [email protected]
www.professionals.cz, www.investiciivprage.cz
All rights reserved. This Guide is protected in its entirety by copyright. No part of this publication may be reproduced, translated, transmitted,
or stored in a retrieval system in any form or by any means, without the prior permission in writing of BNP Paribas Real Estate.
Front cover picture: Prague
BNP Paribas Real Estate APM ÈR s.r.o. currently manages more than 63,000 sqm of office
and retail premises. BNP Paribas RE expanded its range of services thanks to a partnership with Professionals s.r.o. in 2012. The partnership covers Transaction, Valuation and
Consulting services in the office, retail, industrial and residential real estate. BNP Paribas
Real Estate successfully completed and achieved the ISO 9001 certificate in the field of
office buildings and shopping retail parks (property management). This certificate proves
that BNP Paribas RE has implemented and maintains a quality management system meeting the requirements of ÈSN EN ISO 9001:2009 standards. Obtaining of ISO 9001 is an
important fact, thanks to which BNP Paribas RE demonstrates its ability to consistently
provide services in accordance with the relevant rules and customers’ requirements and
thus constantly aims at maximizing customers’ satisfaction.
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INVESTING IN CZECH REPUBLIC – 2014
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BNP Paribas Real Estate
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INTRODUCTION
Czech Republic
by numbers
€13.5bn
9th consecutive trade surplus
€14,600
Foreword
Perspective location for
investment activities
Population
10.5m
The highest population
density in CEE
Investment turnover
€1.3bn
The highest GDP per capita in CEE
Significant increase y-o-y
Ustí
nad Labem
Liberec
Hradec
Králové
Karlovy Vary
Prague
Pardubice
Pilsen
Olomouc
Ostrava
Jihlava
České
Budějovice
Brno
Zlín
Harmonised CPI
1.4%
below EU average
CZK / EUR
Prime office rent
20
(€/sqm/mth)
Long-term stability
27.48
High street rent
180
(€/sqm/mth)
Long-term exchange rate
stability
Most expensive retail street in CEE
(Na Příkopě, Prague)
The Czech Republic enjoys the highest GDP
per capita (€14,600 in 2012) in the CEE
region which makes the country a strong
economic player. It is no coincidence that
the country features well established
and perspective real estate investment
market. Expressed into numbers investment
transactions concluded in 2013 totalled
€1.3bn which represents a notable rise
compared to 2012.
There is no doubt that the Czech Republic
is one of the most successful countries in
CEE in terms of attracting FDI. The Czech
Republic maintains its position and is one
of the leaders of the region. Significant
advantage of the Czech Republic is its
strategic position in central Europe.
The Czech Republic is by many investors
considered as a favourable gateway to
other European markets. Substantial is also
cultural proximity to Western Europe as
well as to the states of North Europe.
There are many reasons why to invest in
the Czech Republic: membership in the
European Union and Nato, economic and
political stability, transparent legislation,
Source: CZSO (Czech Statistical Office),
CNB (Czech National Bank), Professionals s.r.o.
stable business environment, simple tax
system, developed infrastructure, developed
property market and effective labour market.
Most of the above mentioned positive
factors are outlined in the chapter Top
ten reasons of this guide. This material
also sets out detailed description of the
Czech Republic regions and Prague’s future
hotspots. Investment opportunities and
market potential are pointed out in the
section called Advice Corner.
In cooperation with the international
Law firm Dentons the brochure provides
a summary of key legal and other significant
facts investors and developers need to know
about the Czech property market before
their investment activity.
Thank you for taking the time to read this
guide and I wish you much success in
the Czech Republic.
Tomáš Duda
CEO, Professionals s.r.o.
An alliance member of BNP Paribas
Real Estate
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INVESTING IN CZECH REPUBLIC – 2014
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Top 10
reasons
to invest in
Czech Republic
1
W
Well
eestablished
property
p
market
m
At the end of 2013 Prague’s office market
reached 2.9m sqm followed by the second
most important office market in Brno with
432,000 sqm of modern office space.
New office development in Prague is keeping
to a similar speed to the years 2011 and
2012 with total area of 85,000 sqm being
accomplished during 2013. Overall, Prague’s
property market is characterized by its stability
in terms of amount of newly constructed office
space. Steady delivery of new office buildings
has undoubtedly positive influence on the
Prague’s office market as a whole. The Czech
Republic can be proud of having stable and
well established property environment which
continues to attract attention from domestic and
foreign real estate investors.
2
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3
Strong
S
iinvestment
activity
a
The Czech Republic has established itself
as one of the leading investment markets in
Central and Eastern Europe. The current real
estate investment climate in the Czech Republic
remains positive with numerous investors
searching for suitable opportunities.
The country enjoys high levels of investment
prime yields which are still more than 200
basis points higher than in Western European
countries. The commercial property investment
in 2013 stood at circa €1.3bn, which is also a
3-year average of annual investment volumes
in Czech Republic. The 2011 investment figure
reached over €2bn, which was the second
strongest after the record-breaking 2007 when
around €2.5bn was transacted.
Attractive investment prime yields and the
steadiness of the property market make the
Czech Republic regions strongly attractive for
both international and domestic investors
planning to invest in the CEE area.
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S
Stable
lleasing
eenvironment
Prague’s office market shows long-term
stability for investors also thanks to the
steady prime rental levels which had been
oscillating between €20.00-21.00 sqm/mth.
The levels of office prime rents had been
basically unchanged for five consecutive
years. A minor CBD rental decline occurred
only in the second half of 2013 when prime
rents dropped slightly by €0.5 sqm/mth.
Generally, the Czech real estate market
is known for having a steady property
environment experiencing a long period of
rental stability.
4
Czech Republic
Slovakia
STANDARD
AND POOR’S
MOODY’S
FITCH
AA-
A1
A+
A
A2
A+
Poland
A-
A2
A-
Russia
BBB
Baa1
BBB
Bulgaria
BBB
Baa2
BBB-
Romania
BB+
Baa3
BBB-
Hungary
BB
Ba1
BB+
Source: Ministry of Finance of the Czech Republic 2013
Attractive
A
investment
in
climate
c
The Czech Republic is a parliamentary
democratic republic which is considered as
one of the most advanced new EU members.
The economic policy of the country is
consistent and predictable. An open
investment climate played a crucial role in
the Czech Republic’s economic transition.
The Czech Republic has been the most
successful transition country with regard
to FDI per capita attracting a significant
amount of foreign direct investment (FDI)
since 1990. The country’s investment grade
ratings from international credit-rating
organizations and its early participation
in the OECD are the proof of the country’s
positive economic basics.
CZECH CREDIT RATINGS
COUNTRY
7
8
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INVESTING IN CZECH REPUBLIC – 2014
I
Investment
protection
p
The Czech Republic is a member of the
Multilateral Investment Guarantee Agency
(MIGA), which is an international organisation
for protection of investments. The MIGA
is part of the World Bank-IMF group. The
Czech Republic has closed several bilateral
contracts which support and protect foreign
investment activities, e.g. with the United
States, Germany, the United Kingdom, France,
Austria, Switzerland, Italy, Belgium, Luxembourg,
the Netherlands, Finland, Norway, Denmark
and China. The Czech Republic has also signed
agreements in order to avoid double taxation.
7
W
Well-educated
and skilled
a
workforce
w
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Healthy
H
banking sector
b
According to the Czech National Bank
the domestic banking sector is stable and
profitable. Total surplus of deposits over loans in
the system provides banks with sufficient cash
reserves and ensures that the domestic banking
system is not dependent on external financing.
The ratio of loans to deposits in the Czech
banking sector is around 80%, which is one of
the lowest results in the European Union. Czech
banks are mostly net creditors of European
banking groups, who are the owners of most
Czech banks. In international comparison the
Czech banking system is well capitalized, and
the results of the Czech National Bank stress
tests demonstrate that it is able to withstand
very adverse economic development. Czech
banks have remained in very good liquidity
position, with the current level of protection of
customer deposits banks by very liquid assets
of more than 45%. The CNB conducts yearly
rigorous tests of banks liquidity, documenting
the ability of banks to withstand very adverse
liquidity shocks.
The Czech education system meets the needs of a competitive economy, according to
the 2013 World Competitiveness Yearbook published by the Institute for Management
Development. According to a 2012 OECD study, the Czech Republic has a very
strong position in terms of the percentage of students graduating in engineering,
manufacturing and construction fields. In 2012/2013 academic year, there were more
than 56,000 students in technical fields at Czech universities. The number of university
students increased from 203,000 in 2001/2002 to 381,300 in 2012/2013, due not only
to changes in the education system but also to a demographic bulge of 18- to 26-yearolds that represent a promising group of potential employees for foreign investors.
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Favourable
Fa
costs
llabour
a
9
C
Central
location in
Europe and advanced
E
iinfrastructure
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The Czech Republic location in the central Europe and easy accessibility by all means of
transportation and presence of well-educated workers is supported by the low cost of work
force which is significantly cheaper than in western countries. Although the country’s labor
costs are still higher than in some Asian countries, location of the Czech Republic and quality
of its workforce outweigh any negative aspects and make the Czech Republic an attractive
destination for foreign investors. Differences in wages among Czech regions reach approx. 20%.
Employees in Prague are generally paid more than in other regions (currently 25% above
the Czech average).
The Czech Republic has excellent strategic
location in the centre of Europe with very
good access to both western and eastern
markets. Due to its well develop highway and
railway system is the Czech Republic one of
the most important transit hubs in Central
Europe. The road and motorway network
(total 55,717 km, of which motorways and
expressways comprise 1,193 km) is already
one of the densest in Central and Eastern
Europe and several rail modernisation projects
are currently underway. Prague is also only
a two-hour flight from most other European
capitals which enables fast and comfortable
international business activities. The significance
of the Czech Republic as a transit hub has grown
since the Czech Republic became a member of
the Schengen Area.
10
Prague
P
The Prague real estate market is strongly
characterised by being capital city of the Czech
Republic. Therefore, all the ministries and the
most important public authorities have their
seat in Prague. Prague is also main business hub
of the Czech Republic. Prague’s office market
represent absolute majority of total office
market in the Czech Republic.
Prague is home to a number of famous cultural
attractions, many of which originate in middle
ages. Since 1992, the extensive historic centre of
Prague has been included in the UNESCO list of
World Heritage Sites. Its rich history makes it a
popular tourist destination, and the city receives
more than 5.4 million international visitors
annually, as of 2012. In 2012, Prague was
traditionally the most visited city of the Czech
Republic.
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GUIDE TO CZECH REPUBLIC
Prague
Czech Republic:
Big Four
Key facts*
Population
1.24m
Unemployment rate
5.1%
Average monthly salary
in enterprise sector
The Czech Republic is one of the most developed
countries in the CEE Region. The population
is 10.5m people. GDP per capita represents
approximately 80% of the EU average.
There are four main cities: Prague, Pilsen,
Brno and Ostrava.
35,298 CZK
(€1,289)
No. of universities
Prague
33
The Czech Republic is a state based on the freemarket economy.
The Czech Republic is located in Central Europe.
It is surrounded by Germany to the northwest,
Poland to the northeast, Slovakia to the southeast and Austria to the south.
The external trade balance has been positive
since 2005 mainly due to automotive industry. In
2013 the surplus of external trade balance was
€13.5bn. Country wise, the Czech Republic’s most
significant trading partner is Germany.
The traditional Czech brands that successfully
survived the transition process to a market-based
system and are still operating on the market are
e.g. Škoda cars, Bohemia Glass, Tatra trucks, Zetor tractors, Pilsner Urquell, Budvar, Becherovka,
Baťa shoes or Petrof pianos.
The Czech Republic is divided into thirteen administrative regions and includes three historical
territories – Bohemia and Moravia, as well as a
small part of Silesia. Bohemia is situated to the
west, Moravia to the southeast, and Silesia to the
northeast.
The capital city of Prague is located slightly to
the country’s northwest on the Vltava River
and with 1.24m inhabitants (more than 10% of
the country´s population) is the largest city of
the country. Prague has been an economic, political, cultural and education centre of the country.
Prague is one of the most attractive historical European cities and is often called a heart of Europe.
25% of the Czech Republic’s GDP making it the
highest performing region of the country. GDP
per capita of Prague in comparison with the
country’s average is more than double and it also
exceeds the average of the whole EU. The biggest
share on the Prague’s economy has the sphere of
services and on the contrary the share of production industries is decreasing.
Since 1992, its historical centre has joined
Unesco´s World Heritage List. Most of the headquarters of economic entities, subsidiaries of international companies, institutions and offices
are based here. The city of Prague is also an important centre of research.
Prague office market
Prague is the major business hub of the country and has a unique position within the Czech
Republic. Prague’s economy accounts for almost
Prague’s office market is a country major player.
For research purposes, it can be divided into nine
business hubs, namely Stare Mesto – Vinohrady
(CBD), Karlin, Smichov, Holesovice, Vysocany, Dejvice, Stodulky – Nove Butovice, Pankrac – Michle
and Chodov.
Total office stock in Prague is about to hit 3m sqm
very soon reaching 2.96m sqm at the end of 2013.
*Source: Population, Number of universities – CZSO; Unemployment rate – Ministry of Labour and Social Affairs;
Avarage Salary – Ministry of Labour and Social Affairs; 2013
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2014 – INVESTING IN CZECH REPUBLIC
Brno
Key facts*
Prague office market generated around 100,000
sqm of new office area yearly in the last three
years, the impressive outcome was registered in
2008 when three times higher amount of space
was supplied to the market.
Prague office development is significant and
growing, experiencing a notable increase in 2013.
The office space under construction as of the last
quarter 2013 stood at 312,000 sqm with the estimated completion during the years 2014 and
2015. Recent trends show that the vast majority
of buildings are constructed on speculative basis.
On the whole, there was recorded growing interest in green buildings in the last years. Also
Prague’s construction environment is rapidly
moving towards sustainable and environmentfriendly development meeting investors’ high
expectations in terms of their increasing interest
in low-energy office projects offering well-being
and a healthy work environment. In line with this
Total modern stock (sqm)
Supply (sqm)
Prime rents (€/sqm/mth)
Vacancy rate (%)
Office prime yield (%)
2.8% 
-1.9% 
0%

10bp 
0bp 
Source: BNP Paribas Real Estate; Notes: 1. As at the end of 2013
384,000
Unemployment rate
8.9%
Average monthly salary
in enterprise sector
In terms of office leasing activity, the capital experienced one of the greatest results in history
of Prague’s modern market as overall Prague office take-up exceeded 300,000 sqm. Recent gross
take-up outcomes continue previous rising trend
in office leases on the Prague’s market.
Central Business District (CBD) office prime rental levels had been steady at €20.00-21.00 sqm/
mth since 2009. A slight drop occurred in the
last quarter of 2013; the current CBD prime rents
stand between €19.50-20.50 sqm/mth. Prime
office rental levels in the Inner city the Outer
city stayed at their long-term levels of €15.00–
17.50 sqm/mth and €13.00–14.50 sqm/mth respectively.
KEY FACTS ABOUT PROPERTY MARKET IN PRAGUE1
 Y-on-Y 2011-12
Population
fact, green buildings certifications become nowadays of high importance in Prague too and set
the standard for best practice to fulfil long-term
commitments.
 Y-on-Y 2012-13
2013

2.96m
-13.2% 
85,400
2.7%
-2.4 %

110bp 
0bp

19.5 -20.5
13
6.25
25,277 CZK
(€923)
No. of universities
11
Brno is after Prague the second largest city of
the country and the largest city of Moravia.
The city is home for almost 400,000 inhabitants. Brno is administrative, economic and with
several universities also educational centre of
the South Moravian Region. It is also very important centre of judicial power. Brno is the seat
of Constitutional Court, the Supreme Court, the
Supreme Administrative Court and the Supreme
Public Prosecutor’s Office. Brno Exhibition Centre
belongs among the largest exhibition centres in
Europe. Many large exhibitions and fairs trades
with international representation and long tradition take place here. We can find here also one
historical sight from Unesco´s World Heritage
List represented by Villa Tugendhat. The whole
South Moravia region is well-known winegrowing
area. Almost all vineyards in Czech Republic are
situated here.
Brno office market
Brno office market is considered as the second
largest market in the Czech Republic. The office
area totals 432,000 sqm of which almost 80% is
of A class quality. Modern office space in Brno is
representing circa 15% of the Prague total stock.
There were several projects completed in 2013
which delivered more than 30,000 sqm of new office space on the Brno’s market. The prime office
rents fluctuate between € 13.00–14.00 sqm/mth.
KEY FACTS ABOUT OFFICE MARKET1
Total modern stock (sqm)
Vacancy rate (%)
Prime rents (€/sqm/mth)
432,000
19
13.5
Source: BNP Paribas Real Estate; 1. As at 2013
*Source: Population, Number of universities – CZSO;
Unemployment rate – Ministry of Labour and Social Affairs;
Avarage Salary – Ministry of Labour and Social Affairs; 2013
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Ostrava
Ostrava is with 302,000 inhabitants the third
largest city of the Czech Republic and the largest
city of the Silesian region. It is situated close to
the border with Poland. The history of the city
is closely connected with the black coal mining
and its processing and consequently with heavy
industry. Due to this fact the city features an industrial look. In the last years the city underwent
many changes of industry structure and shifted
away from heavy industry which improved the
polluted environment. We can find here the
University of Ostrava and the Technical University of Ostrava. Very well-known is the locality
New Karolina situated near to the city centre. It
is a place of former heavy industry. The factories were demolished and many new apartment
buildings, offices and shops were built in the
area. The New Karolina became second modern
city centre.
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Pilsen
Key facts*
Key facts*
Population
Population
302,000
168,000
Unemployment rate
Unemployment rate
10.5%
6.5%
Average monthly salary
in enterprise sector
Average monthly salary
in enterprise sector
24,379 CZK
(€891)
24,567 CZK
(€897)
No. of universities
No. of universities
3
1
Ostrava office market
Approximately half of the total Brno’s office space
(almost 200,000 sqm) is located in Ostrava, the
biggest city of the Silesia region. Around 70% of
office space in Ostrava is of class A quality. Similarly to the Brno’s market, there was recorded
a strong development activity in Ostrava nowadays. Another large office project (25,000 sqm)
was added to the stock in the first half of 2013.
The prime office rents remain at €12.5 sqm/mth.
KEY FACTS ABOUT OFFICE MARKET1
Total modern stock (sqm)
Vacancy rate (%)
Prime rents (€/sqm/mth)
195,000
27
12.5
Source: BNP Paribas Real Estate; 1. As at 2013
*Source: Population, Number of universities – CZSO;
Unemployment rate – Ministry of Labour and Social Affairs;
Avarage Salary – Ministry of Labour and Social Affairs; 2013
Pilsen is the fourth largest city of the country. It
is situated to the west of Bohemia less than one
hour away from the border with Germany. Plzeň
is not only economic and cultural centre of the
West Bohemia region, but due to the University
of West Bohemia also very important academic
and education centre. Plzeň is one of the most
prosperous cities in the country that create a significant part of the GDP of the whole West Bohemia Region. The city is worldwide famous for
traditional Pilsner beer which is also an export
article. We can find there also the biggest Czech
distillery Stock. The Škoda company is other very
important company in the region which was established already in 1859. Nowadays the company has two main divisions. ŠkodaTransportatioon
is manufacturing locomotives, underground
trains and trams and Škoda Power is manufacturing turbines.
Pilsen office market
Pilsen office market is considered as an office centre of the West Bohemian Region comprising circa
60,000 sqm of modern office space. There are
no office buildings currently under construction,
however, a number of office projects are planned
to be accomplished in the city. Pilsenshows high
potential for further development. Prime office
rents stand roughly at €9.50 sqm/mth.
KEY FACTS ABOUT OFFICE MARKET1
Total modern stock (sqm)
58,000
Vacancy rate (%)
17.5
Prime rents (€/sqm/mth)
9.5
Source: BNP Paribas Real Estate; 1. As at 2013
*Source: Population, Number of universities – CZSO;
Unemployment rate – Ministry of Labour and Social Affairs;
Avarage Salary – Ministry of Labour and Social Affairs; 2013
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GUIDE TO CZECH REPUBLIC
Advice corner
As recorded, the Prague office stock in comparison with other regional centres like Vienna, Munich, Frankfurt or Warsaw, offers significantly
lower offer expressed like office stock per capita.
Compared to Vienna it is more than two times
less and six time less than Munich. Despite a
specific position of Munich or Frankfurt markets
there is still big potential for growth, similarly
to Warsaw.
Prague
PETR ČERNOVSKÝ
Associate Director
Professionals s.r.o.
Taking into consideration significance of Prague
market, sustainable supply, relatively stable take
up together with stability of prime rents, then a
“gap” for new grade A modern projects, corresponding with current users and also investors
requirements, is there.
There is a potential for Prague
office market growth as an investment
opportunity.
This opportunity is also encouraged by more optimistic signals coming from the real economy
and improvement of macroeconomic data.
Office stock per capita (sqm)
Together with reasonable new supply delivered
on office market over last years, representing
roughly 50% of new deliveries on the above mentioned markets, and respecting current level of
the market take up it creates an interesting opportunity for further growth.
Such a growth will form an interesting investment opportunities on the office market for both
international and local investors focused not
only on prime assets but also for added value
opportunities.
Supply 3 year average (2010-2012)
Prague
Prague
Warsaw
Warsaw
Vienna
Vienna
Munich
Munich
Frankfurt
Frankfurt
sqm
0,0
5,0
10,0
15,0
20,0
sqm
0
50000
100000
150000
200000
250000
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NEED TO KNOW
Key legal terms
CADASTRE
Properties in Czech Republic are registered in the Cadastre (katastr nemovitostí), which
is a public register that reveals the legal status of the property. Based on the Cadastre,
the purchaser of a property may examine the seller’s legal title and discover whether
there are any encumbrances (e.g. mortgage, pre-emption rights, easements or even in
some cases lease agreements). The Cadastre as a public register enjoys ‘public warranty’, which means that rights registered in the register are presumed to be valid are
publicly known and have priority before rights which are not registered in the Cadastre.
According to this rule, a purchaser will become the owner of the property even if it
transpires that the seller is not the correct owner, as long as the seller was registered
in the Cadastre, and provided that the purchaser was acting in good faith. However, the
above-mentioned rule will be fully applicable as of January 1, 2015. In the meantime, it
is advisable that the purchaser conducts due diligence and obtains title insurance when
purchasing real estate in Czech Republic.
VARIOUS TYPES OF REAL ESTATE INTEREST
There are various legal titles to real estate under Czech law. The most essential ones of
them are the following:
• freehold (výlučné vlastnictví), which comprises the full right to use, manage and
dispose of property;
• building right (právo stavby), which entitles other persons to have a building on or
under the land of different owner and is considered as an immovable thing (real
estate) in a legal sense and thus can be subject to various dispositions and legal
transactions; the builder (stavebník) is allowed to benefit from building it constructs
on someone else’s land, as such building will form part of the building right and not
the land it is built upon. The building right can be established only as a temporary
right with a maximum duration of 99 years;
• condominium ownership (bytové spoluvlastnictví), i.e. exclusive ownership of a part
of a building (i.e. a flat or a non-residential unit) combined with joint ownership of
common parts and land together with the community of co-owners;
• other rights in rem over the property, which are limited in scope and/or time, e.g.
easements (which encumber a property for the benefit of another property or person, e.g. right of way, passage, limitation in the building capacity).
SUPERFICIES SOLO CEDIT PRINCIPLE
The Civil Code effective as of January 1, 2014 returns to a classical principle know as superficies solo cedit, which is applicable in most European and other foreign jurisdictions,
and provides that buildings and other structures located on and connected to the land
are not separate things, but form part of the land. Prior to January 1, 2014, the opposite
principle was applied, under which buildings and other structures located on and connected to the land were separate immovable things (real estate). However, transition
from the old principle to the new one will take some time, as many buildings have an
owner different from the owner of the land on which the building is located and the
separate ownership of such land and building will remain (however, these owners have
a statutory pre-emption right to the building or land, and vice versa).
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NEED TO KNOW
FORM OF ACQUISITION
OF A PROPERTY
Undertaking to sell real estate and the transfer
of the freehold requires the sale and purchase
agreement to be in writing. Moreover, the sale
and purchase agreement should have certified
signatures of the parties (e.g. the agreement has
to be signed before notary public or attorney at
law), as it speeds up the process of registration of
rights in the Cadastre, otherwise the Cadastre has
to verify that the signatures of the parties are true
and genuine. It is advisable to fulfill the abovementioned requirements when selling real estate
in Czech Republic since failure to do so may result
in impossibility of registration of rights in the Cadastre or prolongation of the registration process.
It is common to sign a preliminary or conditional
sale agreement containing conditions precedent
upon fulfillment of which the parties sign the final
agreement.
AGRICULTURAL LAND
As a rule, no development of non-agricultural
character should take place on agricultural land,
except for that which is classified as exemption
under the law or if the state authorities grant
their approval for such exclusion from agricultural land protection. Therefore, in order to construct a building on agricultural land and before
applying for a zoning/development permit, one
must obtain an approval allowing for its exclusion
from agricultural land protection. It may impose
certain fees on the landowner (a one-off fee or
annual fees payable for as long as the exclusion from agricultural land protection lasts), the
amount of which depends on the class of protection, i.e. quality of land depending on its purpose
(e.g. agricultural land, meadow, forest have a different quality of land and thus belong to different
classes of protection), together with area, location
and classification of soil.
RESTRICTIONS ON BUYING PROPERTY
Foreigners do not need consent to purchase real estate in Czech Republic (including
agricultural or forest land). However, foreigners and foreign entities from outside the EU,
EEA and Swiss Confederation cannot directly acquire agricultural land owned in the state
ownership of Czech Republic.
The state or local authorities have right of first refusal or other rights regarding some
real estate, e.g. agricultural land previously acquired by the seller from the state (however, such right of first refusal ceases to exist if the purchase price is paid in full or with
expiration of 5 years after purchase), a right of first refusal to property beneficial for
public use (if such property is marked as beneficial for public use in the corresponding
master plan or regulation plan for area, in which the property is located), or property
entered in the register of historic monuments. An unconditional sale entered into in
a way preventing the exercise of the pre-emption right may affect the validity of the
sale agreement.
Purchase of real estate from a public entity (e.g. municipalities, the state) is generally
only possible by tender or with a prior approval of government or Ministry of Finance.
However, these requirements must be met, because any sale without a tender or approval may affect the validity of the sale agreement.
FINANCING OF REAL ESTATE
INVESTMENTS
Real estate investments in Czech Republic are
generally financed by an equity contribution and
bank finance. Real estate bank financing is usually structured as mortgage backed loans (secured
by a mortgage over the financed property and/or
other security interests over the borrower’s assets, e.g. rent receivables, insurance receivables,
and over the shares of the borrower). This enables the lender to gain priority ranking over the
borrower’s assets and cash flows.
ENVIRONMENTAL LAWS AFFECTING
THE INVESTMENT PROCESS
Czech environmental law provides for specific
rules affecting the construction process with respect to investments that may have a high impact on the environment, e.g. power plants, wind
farms, natural gas production, waste treatment
plants, industrial plants, housing developments,
shopping centers, car parks etc. For these investments specific authorizations and/or administrative approvals are required by environmental
legislation.
REMNANTS OF THE COMMUNIST
LEGAL SYSTEM
After the Word War II through the period of communism many
private real estates in Czech Republic were nationalized or expropriated under various regulations, decrees and/or administrative decisions. Some of the nationalized or expropriated
properties were subsequently transferred to private or public
entities under various legal basis. After the collapse of communist regime, legal remedies were available to challenge in court
some of the unlawful legal acts committed during the period
of communist regime and many previous owners or their heirs
used this path. The time limits for the most of these restitution claims have lapsed, however, litigation related to these
restitutions claims may still be pending. As a consequence, a
purchase of the property should be preceded by analysis the
legal status of the property, including verification if any restitution claims were raised.
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NEED TO KNOW
MAIN PERMITS DURING THE INVESTMENT PROCESS
A zoning/development and building permits are generally required for construction, reconstruction or renovation of a building or facility. A building
permit may be issued only if the application complies with the local master
plan (or regulation plan, if applicable) and zoning/development permit, environmental decision (if required) and after all technical, environmental (if
applicable) and other requirements have been met. Most investments must
be preceded by environmental impact assessments or environmental decisions, to be obtained prior to the building permit.
More complex investments as specified in law require an use approval at the
end of the construction process. Where investments are of a specific nature,
atypically located or have other specific features, certain additional decisions may have to be obtained before commencement or upon completion
of the investment.
Investments completed in violation of applicable provisions, in particular
those without the required building permit or which are contrary to the
terms and conditions specified in the building permit, may be legalized only
if the conditions set out in the Construction Act are met. In most cases, high
legalization fees apply.
BUILDING PROCESS
If there is a local master plan, the design must be (i) in strict compliance
with the terms and conditions set out in the plan and (ii) the zoning/development permit and following building permit should be issued directly on the
basis of the plan. If there is no local master plan, only buildings allowed by
the Construction Act may be built in the area with no local master plan (e.g.
building for agriculture and family residential purposes).
An investor usually signs a construction works contract, in which the contractor undertakes to render services in accordance with all of the design
and the technical requirements specified in the contract. The investor must
prepare and deliver the site, deliver the designs and permits and pay the
agreed fee. The construction works contract must itemize the scope of work
to be performed by the contractor and the work to be subcontracted. FIDIC
model contracts can be used in Czech Republic.
PROTECTION OF HISTORIC MONUMENTS
Special regulations apply to real estate listed in the register of historic monuments. Any demolition, reconstruction or renovation of such real estate requires separate
approval from the state authority responsible for historic
preservation.
In some cases, the Ministry of Culture has a pre-emption
right with respect to a real estate entered into the register
of historic monuments.
SHARE DEALS OR ASSET DEALS
An existing business may be acquired through a
share deal, acquisition of a going concern or purchase of separate assets. Each of those scenarios
has considerably different liability and tax effects. A share deal means acquiring the liability
and “history” of the company (certain indemnities
may be obtained from the seller). Acquisition of
assets depending on circumstances may be subject to 21% VAT or exempted from VAT. It needs to
be verified that the VAT is duly charged and could
be recovered.
LEASES
There are two main lease types, commercial leases and residential leases. Residential leases are in
principle largely regulated by tenant protection
provisions of the Civil Code with the clear objective of protecting tenants as the weaker party
to the contract, whereas commercial leases are
more based on market principles and they are often concluded business-to-business. If the parties
choose not to specify the terms and conditions of
the lease in detail, they will be bound by a statutory set of rules.
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NEED TO KNOW
(I) TERM
(V) RENT REVIEW
Lease agreements may be for a fixed or indefinite term, whereas commercial leases
are generally for a fixed term. An indefinite lease can be terminated by either party
with notice of termination, but this is more problematic with residential leases
due to many compulsory tenant protection provisions. A fixed term lease may be
terminated as a rule only in cases provided for in the lease (subject to statutory
termination rights). The maximum term of a fixed lease is not set. However, the
Civil Code provides that if the lease was entered into for more than 50 years, it is
deemed as to be entered into for an indefinite period of time (nevertheless, in the
first 50 years the lease could be terminated only for reasons set out in the lease
agreement). In addition, any lease entered into for more than 10 years without
any reasonable cause could be terminated after expiration of 10 years (in addition,
court may terminate such agreement if change of circumstances occurred).
Rent may be paid in foreign currencies, e.g. EUR or USD. The market standard
is that commercial leases include provisions on automatic adjustment of the
rent (usually annually) according to the percentage change of a previously
agreed index (e.g. Consumer Price Index or index published by the Czech
Statistical Office). There are no statutory provisions limiting the parties’ right
to include provisions on indexation in the lease agreements. Notwithstanding the contractual clauses, the Civil Code provides for a provision entitling
the landlord to increase the rent (however, statutory provisions apply for
residential leases only), serving the tenant a notice, and if the tenant accepts the increase, it is effective as of the third calendar month after delivery
of such notice. Commercial leases include collaterals as security for payment of rent and other payments due under the leases (e.g. service charges).
There is also a statutory right of retention on the tenant’s movables placed
in the subject of lease.
(II) ACQUISITION OF A LEASED PROPERTY
If leased real estate is acquired during the term of the lease, the acquiring party
enters into the lease relation in place of the selling party. The acquiring party cannot terminate the lease agreement by notice (unless it is provided otherwise by
the parties to the lease). The acquiring party may terminate the lease contract if
it was not aware that the acquired property was leased (provided that it was not
reasonable for it to expect that the property is leased). Moreover, only mandatory
provisions provided by law are binding on the acquiring party, unless the acquiring party was aware of any provisions which are not deemed mandatory by law.
(III) FORM OF LEASES
A lease agreement may be made in any form, even oral (however, lease agreement
for residential purposes requires written form). Oral form is generally deemed as
unsuitable for commercial leases. The written form for commercial leases is a
widely-accepted standard.
Signing the lease agreement with certified signatures enables information on the
lease agreement to be registered in the Cadastre, but only with the owner’s consent.
(IV) SUBLEASE & ASSIGNMENT
Under Czech law the tenant cannot sublease or allow third party use of the leased
premises without the landlord’s consent (however, this does not apply to residential leases, as the tenant may sublease part of the premises without landlord’s
ds
consent if he resides in the flat permanently).
(VI) MAINTENANCE AND REPAIRS
Under the Czech law it is the landlord who is generally responsible for repairs to the premises. The tenant should maintain the premises in good
working condition, look after their appearance and perform only minor repairs. In commercial leases it is common practice to deviate from this rule
and to shift responsibility for maintenance and repair onto the tenant.
(VII) ENERGY PERFORMANCE REQUIREMENTS
FOR BUILDINGS
Following
ng EU legislation Czech Republic adopted regulations on energy performancee requirements, under which an energy performance certificate is
to be created
e
following the construction or significant redevelopment of a
building.
g. W
When selling or leasing the building, this certificate should be presented
d to
o the
th other party of the agreement. In specific situations Czech law
provides
d forr exceptions to the energy performance requirements, e.g. for
o
m
nu
historic
monuments,
churches. Additionally, entities hiring employees are
bj
o withholding
h
subject
to
obligations with respect to personal income tax (PIT),
oc security
c
a
social
and healthcare contributions on employee remunerations.
25
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NEED TO KNOW
Acquisition – specifications in Czech law
compared to its european neighbours
How can real estate be held?
•
•
•
freehold ownership;
building right;
condominium ownership.
What rights over real
property are required to be
registered
Rights in rem over real estate require registration in the Cadastre in order to be binding on third
parties, including ownership rights, building right, encumbrances (e.g. easements, pre-emption
rights) and security rights (e.g. mortgages).
What property
documentation do you need
to register?
In order to register a respective right in the Cadastre documents transferring or encumbering real
estate (agreements, decisions or statements) must be presented to the Cadastre.
Are there nationality
restrictions on land
ownership?
As a matter of general principle under Czech law, acquisition of a real property by foreigner does
not require a permit or approval (however, foreigners and foreign entities from outside the EU, EEA
and Swiss Confederation cannot directly acquire agricultural land owned in the state ownership of
Czech Republic).
Who usually produces the
documentation in real estate
transactions?
Usually legal counsel of one of the parties prepares the first draft, which is subsequently
negotiated between the parties and notarized by a notary public or the signatures are certified by
an attorney at law.
What are the main usual documents in real property
acquisition?
•
•
•
•
Heads of terms / LOI;
Due diligence report, including verification of legal, environmental, technical, tax
and commercial aspects of the real estate done by advisors of the investors;
Preliminary (or conditional) sale agreement;
Final sale agreement.
What different types of real
property leases exist?
•
•
Commercial leases, including warehouses;
Residential leases.
Are commercial lease
provisions freely negotiable?
In principle commercial leases are freely negotiable, subject to certain mandatory provisions that
cannot be excluded by the parties.
Is there a maximum term for
commercial leases?
Commercial leases between businesses do not have a statutory maximum term. However,
the lease for more than 50 years is deemed to be for an indefinite period of time after expiration
of 50 years and may be terminated by observing the statutory notice period.
How are commercial rents
reviewed?
Commercial rents may include provisions on automatic annual indexation.
What are usually the basic
obligations of landlords?
•
•
•
•
What are usually the basic
obligations of tenants?
•
•
•
•
Delivery of the premises to the tenant;
Ensure that the tenant may use the premises in accordance with the agreed use throughout
the entire lease term;
Repair the premises, excluding minor repairs;
Insure the premises/property.
Pay rent and service charges;
Provide relevant collaterals;
Keep the premises in good working condition and look after their appearance and perform
only minor repairs (unless agreed otherwise);
Insure its belongings, merchandise and goods in the lease of premises.
KEY LEGAL TERMS AUTHORS
Jiří Stržínek
Partner, Prague
Co-Head of Real Estate, Czech Republic
D: +420 236 082 207
[email protected]
Michal Hink
Counsel, Prague
Co-Head of Real Estate, Czech Republic
D: +420 236 082 217
[email protected]
© 2014 Dentons. Dentons is a global legal practice
providing client services worldwide through its member
firms and affiliates. This publication is not designed to
provide legal or other advice and you should not take, or
refrain from taking, action based on its content. Please
see dentons.com for Legal Notices.
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NEED TO KNOW
Tax clinic
Other Forms of Operations
on the Czech Real Estate Market
Repatriation of Cash
1. Dividends
Foreign investors may also operate in the Czech
Republic through a branch. However, the most
commonly used investment vehicle for investing on the Czech real estate market is a limited
liability company. Thus, below we comment on
investing in the Czech Republic through a Czech
limited liability company (společnost s ručením
omezeným). A Czech joint-stock company (akciová společnost), in general, has the same tax status and characteristics, thus, what follows below
largely applies to joint-stock companies as well.
Dividends and advance dividends distributed by
a Czech company to its foreign owner are generally subject to a 15% withholding tax in the Czech
Republic, unless a Double Tax Treaty (DTT) provides otherwise. The Czech withholding tax forms
a part of the CIT and is governed by the CIT Act;
it is not a separate withholding tax. Usually the
withholding tax rates on dividends under DTTs
signed by the Czech Republic range between 5%
and 15%. If the recipient of the dividend is not a
resident in an EU or EEA member country or in a
country or jurisdiction that has an effective DTT
or tax information interchange treaty with the
Czech Republic, the applicable withholding tax
rate is raised to 35%.
The Czech Republic applies a participation exemption based mainly on the EU Parent-Subsidiary Directive 2011/96/EU, so dividends received
by parent EU companies (including Czech companies) from their Czech subsidiaries are exempt
from the CIT, provided that at least 10% of the
shares in their Czech subsidiaries are held for
an uninterrupted period of 12 months and certain other formal requirements are met. This
12-month holding period requirement does not
have to be met upfront. This exemption also applies to Norwegian, Icelandic and Swiss parent
companies under similar conditions, including
in particular their holding of at least 10% shareholdings in their Czech subsidiaries.
The Czech CIT participation exemption applies
in some cases also to capital gains realized by
Czech, EU-member country, Norwegian or Icelandic parent companies from the sale of their
shares in Czech subsidiaries. In other cases, for
2. EQUITY FINANCING
Legal persons investing in Czech real estates
may generally be subject to the following
taxes in the Czech Republic:
• Corporate Income Tax (CIT)
• Value Added Tax (VAT)
• Real Estate Tax (RET)
• Real Estate Acquisition Tax (REAT)
Additionally, entities hiring employees are subject
to withholding obligations with respect to individual income tax (IIT), social security and health
insurance premiums, and in some cases pension
savings contributions on employee remunerations.
1. INVESTMENT VEHICLES IN
THE CZECH REPUBLIC
Companies
A company is a Czech tax resident if it has its
registered office or place of management in the
Czech Republic. A resident company is subject
to 19% Czech Corporate Income Tax (CIT) on its
worldwide income. Non-resident companies are
taxed only on taxable income sourced in the
Czech Republic, unless a specific double tax treaty
provides otherwise.
Investment Funds
A company or another investment vehicle qualifying as an investment fund within the meaning
of the Czech Act on Investment Companies and
Investment Funds (including in particular investment funds of qualified investors) is subject to a
reduced 5% rate of CIT. In combination with the
participation exemption providing for no taxation
of dividends (as mentioned below), the investment fund structure provides an attractive and
tax-efficient vehicle for real estate and other investments.
General Comments
For Czech tax purposes it is relevant to make a
distinction between equity financing through (i)
a cash contribution followed by the issuance of
shares or (ii) additional payments without issuing
shares. Although the corporate treatment of these
two types of contributions may be different, their
tax treatment is almost identical. An increase in
capital via a cash contribution is CIT neutral both
for the shareholder and the company. The receipt
and repayment of additional payments to a company’s capital where no shares are issued is also
neutral from a CIT perspective, provided that the
payment is made in accordance with the rules of
the Act on Corporations. A Czech company may
pay interest on additional payments to its shareholders, but the interest cannot be recognized as
a tax deductible cost for the company, and it will
be taxable for the shareholder.
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structuring an exit from a real estate investment
through a share deal it is important to select a jurisdiction for the shareholder of the Czech limited
liability company that provides for sufficient capital gains tax protection under the relevant DTT.
In this connection it should be noted that about
half of the DTTs binding on the Czech Republic
prohibit taxation in the Czech Republic of capital
gains realized from the sale of shares in Czech
real estate companies.
proceeds over the proven share acquisition costs
is taxed), without the application of the participation exemption, though. Consequently, the taxation of proceeds from liquidation may vary from
15% to 35% CIT with further alternatives based
on the DTTs.
2. Redemption of Shares
Debt financing is only effective if the tax burden
of the lender in connection with the debt is lower
than the tax deduction in the Czech Republic. This
primarily leads to the comparison of the tax rates
applicable on the interest income of the lender
and the tax rates applicable on the income of the
Czech borrower.
Redemption of shares may be used as an alternative for remitting funds to an investor. The formal
procedure related to the redemption of shares
is however usually time-consuming and the tax
treatment of the proceeds from the redemption
differs depending on whether or not the redemption is made in order to decrease registered capital and whether or not it has been preceded by an
increase of registered capital from the company’s
own resources (retained profits). Consequently,
the taxation of proceeds from the redemption of
shares may vary from tax exemption to 15%, 19%
or even 35% CIT with further alternatives based
on the DTTs. Proven share acquisition costs decrease the base for the taxation.
3. Liquidation
Investors considering the liquidation of a subsidiary should take into consideration that liquidation proceedings are time-consuming in the
Czech Republic. They usually last approximately
15 months for joint stock companies and 8-10
months for limited liability companies. Liquidation proceeds are taxed under the same rules as
dividends (although only the excess of liquidation
3. DEBT FINANCING
Withholding Tax on Interest
Interest paid from the Czech Republic to a foreign
lender is generally subject to 15% withholding tax
(CIT withheld at source) , unless the relevant DTT
provides otherwise. If the recipient of the dividend is not a resident in an EU or EEA member
country or in a country or jurisdiction that has
an effective DTT or tax information interchange
treaty with the Czech Republic, the applicable
withholding tax rate is raised to 35%. The withholding tax is remitted to the tax administrator
by the borrower when interest is paid in any form
(including set-off and compounding of interest) or
becomes due even if unpaid.
Usually the withholding tax rates on interest under the relevant DTT range between 5% and 10%.
Some of the Czech Republic’s DTTs provide for
a 0% withholding rate on interest (e.g. with the
BNP Paribas Real Estate
United States, Netherlands, Luxembourg, Ireland
and Israel). In order to apply a withholding tax
rate resulting from a DTT, a certificate confirming
the tax residence of the foreign lender should be
obtained.
The Czech Republic has implemented EU Directive 2003/49/EC on a common system of taxation
applicable to interest and royalty payments made
between associated companies of different Member States. Therefore, interest payments made by
a Czech corporate borrower to a lender who is tax
resident in another EU member country, Switzerland, Norway or Iceland and who is either a direct
parent of the borrower or a direct sister company
of the borrower, are free from withholding tax.
The tax exemption applies under certain conditions, including the direct capital relationship of
at least 25% existing for at least 24 months (this
condition may be met also retrospectively), and
prior confirmation of the tax exemption by the
relevant tax authority.
Thin Capitalization Restrictions
Interest on loans is generally tax deductible for
the borrower with some exceptions. Among such
exceptions primary role is played by the thin capitalization rules. Czech thin capitalization rules
put restrictions on the ability of corporate taxpayers to deduct interest and other costs of financing (such as arrangement or commitment fees)
on loans granted by lenders who are associated
with the borrower. Such association can be established by direct or indirect capital participation
of at least 25%, management or control, personal
relation, or otherwise. Interests and other costs
of loans from associated lenders that exceed the
debt-to-equity ratio of 4:1 are not deductible ex-
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31
pense for CIT purposes. Interest-free loans are
not included in the thin capitalization calculation
formula.
Furthermore, interests on loan instruments that
are dependent (as to their amount, due date and
other terms of payment) wholly or predominantly
on profit of the borrower, are also non-deductible
for CIT purposes.
4. ON-GOING TAXATION
Taxable Income and Tax Losses
With respect to a limited liability company, its
taxable income that is subject to 19% CIT on
lease or sale of real estate is calculated as the
difference between taxable revenues and tax
deductible costs. The annual tax liability should
be finally settled by the end of the third (or, in
some cases, the sixth) month after the end of the
tax year. Tax losses may be carried forward for
5 consecutive years and fully set-off against taxable profits during that time. Tax losses cannot
be carried back.
Tax Depreciation of Real Estate Assets
Costs incurred for the acquisition or construction
of real estate including purchase price, transactions costs, constructions costs are recognized
through depreciation write-offs or upon sale.
Land is not subject to depreciation. Buildings
and other structures are subject to tax depreciation in one of the two depreciation methods
(even depreciation and accelerated depreciation)
to be chosen by the taxpayer when the depreciation commences. Hotels, administrative buildings and shopping malls are depreciated over 50
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INVESTING IN CZECH REPUBLIC – 2014
years. Wooden and/or plastic buildings and other
structures are depreciated over 20 years. Most of
other buildings, structures, apartments and nonresidential units are depreciated over 30 years.
Application of VAT
Rental of real estate is generally exempt from VAT.
In rentals for economic activity by tenants who
are registered for VAT the landlord may choose to
apply the VAT at the rate of 21% VAT. Such choice
is entirely at the discretion of the landlord and
is usually driven by the possibility of input VAT
recovery.
Sale of real estate is exempt from VAT if
1. the real estate is an undeveloped plot of land
and is not a plot of land which is authorized
for development upon an issued building permit or consent with building notification;
2. the real estate is not a plot of land (i.e. it is
a building or other structure, apartment or
non-residential unit) and at least 5 years
have expired from the earlier of (a) the issuance of the first usage (occupancy) permit
and (b) the date of the first actual commencement of usage of the real estate.
Input VAT Recovery
A VAT taxpayer registered in the Czech Republic is entitled to recover the excess of input VAT
over output VAT reported in its VAT return, provided that the taxable inputs have been used for
taxable (and not VAT exempt) outputs. The VAT
recovery entitlement must be asserted generally
within 3 years from the end of the taxable period
(usually a calendar month) when the entitlement
came to existence.
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Real Estate Tax
Real estate tax (RET) generally applies to the
owners, builders (persons having a right to use
land based on the building right) and freeholders
of properties. RET applies to (i) land and (ii) buildings or parts thereof (apartments and non-residential units). RET is payable to tax authorities,
however, the proceeds therefrom are transferred
to the municipalities and the local authorities
may set a RET local coefficient which will multiply the RET in selected municipalities (this local
coefficient could be 2, 3, 4 or 5). In addition, the
RET rate is subject to another RET rate coefficient
based on the population in municipalities (cities)
in which the real estate is located. Such coefficient ranges from 1 in municipalities with population of up to 1,000 citizens, up to 5 in Prague (the
capital city of the Czech Republic). Moreover, the
RET rate for buildings is increased by CZK 0.75 per
square meter for every additional above-ground
floor, provided that the total area of such floor
exceeds 1/3 of the total built-up area. The RET
rates further vary depending on the nature of the
land and purpose of the real estate.
Examples of actual RET rates applicable in 2014
are as follows (including the coefficients as applicable):
• for land used for industrial business purposes
in Prague– CZK 10 per sq.m. (CZK 50 with the
local coefficient);
• for a 5-storey building used for business activity in Prague – CZK 40 per sq.m. of built-up
area (CZK 200 with the local coefficient).
Real Estate Acquisition Tax
Real Estate Acquisition Tax (REAT) is payable by
the transferor (the seller) of real estate, i.e. (i)
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land, (ii) buildings and parts thereof (apartments
and non-residential units), and (iii) building
rights. The transferee (the buyer) is a guarantor
of payment of the REAT if the transferor fails to
pay it. However, parties to a purchase agreement
may agree that the REAT will be paid directly by
the transferee in which case the transferor ceases
to be liable for the REAT. The taxable base is usually the higher of the purchase price of the real
estate and the comparable tax value (determinable, among other, as 75% of the assessment by a
court-sworn expert), decreased by the fees and
costs paid to the court-sworn expert for the price
assessment. The rate of the REAT is flat 4% of the
taxable base, and the transferor (or the transferee, if the parties have agreed that the REAT will be
paid by the transferee) must file the tax return by
the end of the third month following the month,
in which the real estate transfer was registered in
the real estate cadastre. The REAT is tax deductible for the purposes of CIT.
2014 – INVESTING IN CZECH REPUBLIC
33
be subject to VAT unless an exemption applies as
mentioned above in Section 4. On the other hand,
if the object of the transaction is classified as an
enterprise or part thereof (also including real estate), the transaction falls outside the scope of
VAT.
The classification of a given transaction for VAT
purposes as a supply subject to 21% VAT or exempt from VAT should always be made on a caseby-case basis, based on a detailed analysis of the
underlying factual circumstances.
A transaction that is subject to VAT is in most
cases more favorable for the parties to the transaction. On the other hand, if the VAT is charged on
the transaction and it is not certain whether the
object of the transactions constitutes assets or a
going concern, the buyer may bear the risk of not
being able to recover the input VAT paid on the
assets purchase.
6. EXIT THROUGH SHARE DEAL
5. EXIT THROUGH ASSET DEAL
The sale of assets produces taxable income for
the seller, being the difference between the sales
price and net tax value of assets (historical cost
less depreciation write-offs).
For the purpose of VAT treatment of the transaction, the initial question arises as to whether the
object of the sale constitutes:
• assets, or
• enterprise as a going concern (i.e. a business
of the seller or its organized part).
If the object of the transaction is classified as
real estate assets, the transaction will generally
Capital gains derived by a foreign investor from
the alienation of a Czech investment may be
taxed in Czech depending on the structure and
legal form of the investment. Where the investment takes the form of a shareholding in a Czech
company, the disposal of the shares in the capital of such a company may be subject to 19% CIT,
unless a relief under a DTT can be applied. The
CIT is generally payable by the seller on the basis of the tax return filed by it. However, in cases
of non-Czech sellers who are not residents in an
EU or EEA member state a special tax security of
1% (in the case of sale of shares in a joint stock
company) or 10% (in the case of sale of shares in
34
INVESTING IN CZECH REPUBLIC – 2014
a limited liability company) of the gross income
(the purchase price) must be withheld and paid
to the tax authority by the Czech seller. Such tax
security is then subject to settlement (and possibly even partial or full refund) on the basis of the
tax return filed by the seller.
Under certain DTTs (e.g. treaties with the Netherlands, Luxembourg, the United Kingdom, etc.)
capital gains from the disposal of shares in Czech
companies by foreign tax residents are exempt
from taxation in the Czech Republic. However,
other DTTs (e.g. treaties with the USA, France, Ireland, Canada, etc.) provide that capital gains from
the alienation of shares in a real estate company
(i.e., a company owning mainly real estate assets)
or any Czech company (under the treaties with
Germany and Israel) may be taxed in the Czech
Republic.
As mentioned above in Section 2, the Czech CIT
participation exemption applies in some cases
also to capital gains realized by Czech, EUmember country, Norwegian or Icelandic parent companies from the sale of their shares in
Czech subsidiaries. Conditions for the application
of such exemption are generally the same as for
the tax exemption of dividends, i.e., primarily the
holding of at least 10% of the shares in the Czech
subsidiary for an uninterrupted period of at least
12 months.
BNP Paribas Real Estate
BNP Paribas Real Estate
2014 – INVESTING IN CZECH REPUBLIC
35
TAX CLINIC AUTHORS
Petr Kotáb
Head of Tax, Prague, Czech Republic
T: +420 236 082 111
[email protected]
Michal Hink
Counsel, Prague
Co-Head of Real Estate, Czech Republic
D: +420 236 082 217
[email protected]
© 2014 Dentons. Dentons is a global legal practice
providing client services worldwide through its member
firms and affiliates. This publication is not designed to
provide legal or other advice and you should not take, or
refrain from taking, action based on its content. Please
see dentons.com for Legal Notices.
36
INVESTING IN CZECH REPUBLIC – 2014
BNP Paribas Real Estate
BNP Paribas Real Estate
2014 – INVESTING IN CZECH REPUBLIC
37
HOT SPOTS
Selected investment
opportunities
Prague
•
•
The Zizkov railway station brownfield was the largest freight station from 1930’s.
There is only one building situated on-site and that is the old large terminal.
Apart from this building there are parking lots and a few warehouse businesses
located in the area.
The main idea of Zizkov freight station revitalisation is building an urban center in Prague 3 with a total area of approximately 331,000 sqm. The developer
planned to build a new modern multifunctional area with office, commercial and
residential buildings in the southern part of the freight station of approximately
163,000 sqm.
Smichov Railway Station, Prague
Examples of the Prague brownfields are Zizkov
freight railway station, Smichov railway station,
Waltrovka or Rohansky ostrov.
SMICHOV RAILWAY STATION
Prague
•
Zizkov Freight Railway Station, Prague
There are several previously developed but no
longer active areas within Prague with a high
potential for quality redevelopment into an office or mixed use development. The brownfields
sites here are so large that they could be turned
into extensive new modern districts with environmentally friendly architecture attracting European interest.
ZIZKOV FREIGHT RAILWAY STATION
•
The Prague district Smichov is located in the south west of the Prague CBD.
The area enjoyed the highest prosperity during the industrial revolution and was
the location of car manufacture, train production and brewing industry.
Smichov City is a project of comprehensive Smichov freight railway station revitalization. New modern office, retail and residential centerSmichov will be developed on an area of about 210,000 sqm. Reconstruction will also affect the actual
station; bus terminal and the car park will be situated on-site. The developer
ensures in the plans that new development should not exceed the dimension of
existing buildings.
38
INVESTING IN CZECH REPUBLIC – 2014
WALTROVKA
BNP Paribas Real Estate
BNP PARIBAS REAL ESTATE
IN THE CZECH REPUBLIC
Prague
•
•
Waltrovka located in Prague Jinonice (Prague
5) is the site of a former factory for aircraft
engines. Developer company acquired Q3
Waltrovka project in 2012 and is planning to
build on the 169,000 sqm brownfield an area
with apartments, shops and offices and redevelop it into a new neighbourhood.
The original complex was mostly demolished
and the ground cleaned up. The first phase of
the development (administrative center Aviatica with circa 27,000 of office space) started
its construction already in autumn 2013. Next
phases of construction in Waltrovka will include further administrative and residential
developments.
At the end of 2012 Professionals s.r.o. became an alliance member of BNP Paribas Real Estate.
We are very proud in having an opportunity to be an alliance member in the Czech Republic in
terms of transactions, consulting, valuation and market research. All our clients and partners
can benefit not only from our deep knowledge of the local market but also from global presence of BNP Paribas Real Estate and global network of clients and partners.
The company actively acts on the market since 1993 as an independent real estate agency
with Czech capital only. It offers complete services across all real estate segments. Nowadays
Professionals Ltd. is one of the top real estate and advisory companiesoperating on the Czech
market in both commercial and residential property segments.
Our aim is to provide our clients and partners with the highest quality level of consulting
services in all main sectors of the commercial real estate market. Our clients are major multinational development companies, investment funds and international companies, and extensively also local owners, landlords, developers and occupiers.
CONTACTS
ROHANSKY OSTROV
Prague
•
Rohansky ostrov lies on boundary of the districts Karlin, Invalidovna and Liben in Prague
8. Property developer is planning to build
here a new city district of area 202,000 sqm.
This project will create a modern office, retail
and residential center. The first phase of the
development should comprise 6 residential
buildings and 2 office buildings with approximately 25,000 sqm. According to the developer’s plans the construction should be initiated
already in 2014.
Tomáš Duda
Patrick Delcol
Chief Executive Officer
Chief Executive Officer CEE
[email protected]
[email protected]
Petr Kozojed
Del Chandler
Head of Investment
Managing Director Capital Markets CEE
[email protected]
[email protected]
Petr Šula
Grzegorz Dudziak
Head of Residential
Director, Property Management CEE
[email protected]
[email protected]
Petr Černovský
Anna Staniszewska
Associate Director
Director, Research & Consultancy CEE
[email protected]
[email protected]
Ján Brotan
Ondřej Kadlec
Head of Agency
Head of Research
[email protected]
[email protected]
www.realestate.bnpparibas.com
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