Z Plakat Russland - Sorainen · B Income Tax 3 Whatarethecorporatean dthepersonal incometaxrates?Areth ereanyparticipation exemp tions? ¬ C orporateincometaxrate: ¬ 20% ¬ Personalincometaxrate:

leitnerleitnerreal estate investment in CEE2009

2 leitnerleitner real estate investments

real estate investments leitnerleitner 3

LeitnerLeitner

LeitnerLeitner is one of the leading tax consultingand auditing companies in the CEE/SEE countriesand has been offering advice by combiningnational and international tax law with economicconcepts and solutions. Regardless if the adviceis given to international corporations, medium-sized companies, financial institutions, real estatefunds, insurance companies, professional ornon-profit-organisations, LeitnerLeitner offers toa wide range of clients individual and innovativesolutions. Competence, reliability and quicknessare principles that have been given distinctionto LeitnerLeitner.

Thus LeitnerLeitner has become one of the lead-ing tax consulting and auditing companies with600 employees working across nine offices inseven different countries (Austria, Croatia, CzechRepublic, Hungary, Romania, Slovak Republic andSlovenia). In order to offer you the best possibleadvice, our teams work together on an interdisci-plinary basis and are organized in practice groups.Our professionals ensure an efficient and up-to-date advice for your business.

The practice groups operate cross-border. Theoffered range varies due to different legal situa-tions of each country and includes amongstothers banking & finance, mergers & acquisitions,real estate, sme, succession planning, tax audit,transfer pricing and vat.

Real estate investment in CEEThis booklet should provide our clients andbusiness partners with a quick overview of thebasics concerning real estate investment in thir-teen CEE states and should serve information onmajor tax and legal issues that may be relevantwhen acquiring real estate in these countries.Various questions with focus on real estate areanswered for every state. In particular we providecountry-specific information about legal aspects,relevant corporate and personal income tax facts,possible acquisition strategies, the existence ofreal estate taxes and value added tax conse-quences.

We thank our partners for providing relevantinformation. Additional information regarding realestate investment in the selected jurisdictionsmay be obtained by contacting the competentoffice/company listed below.

Yours sincerely,

DR ANDREAS DAMBÖCKHEAD OF REAL ESTATE

E [email protected] +43 1 718 98 90-579

Austria Andreas DamböckLeitnerLeitnerwww.leitnerleitner.com

Croatia Pavo DjedovicLeitnerLeitnerwww.leitnerleitner.com

Czech Republic Lucie VorlíckováVorlíčkováLeitnerwww.leitnerleitner.com

Estonia Edgars KoskinsSorainenwww.sorainen.com

Hungary Márta SiklósLeitnerLeitnerwww.leitnerleitner.com

Latvia Edgars KoskinsSorainenwww.sorainen.com

Lithuania Edgars KoskinsSorainenwww.sorainen.com

Poland Magdalena SajaDGA & Sajawww.dgasaja.pl

Romania Bogdan VoinescuLeitnerLeitnerwww.leitnerleitner.com

Serbia Ivana BlagojevicIS Tax Consultingwww.serbiantaxation.rs

Slovakia Anna FábryováLeitnerLeitnerwww.leitnerleitner.com

Slovenia Karmen JanezicLeitnerLeitnerwww.leitnerleitner.com

Ukraine Alexander MininKM Partnerswww.kmp.kiev.ua

As developments in tax legislation are rapid,we would like to draw your attention to the factthat the information given in this book reflectsthe tax legislation as of May 2009.


table of contents

real estate in …CROATIA

CZECHREPUBLIC

HUnGARY

ROMAnIA

SLOVAKREPUBLIC

SLOVEnIA

UKRAInE

AUSTRIA

ESTOnIA

LATVIA

POLAnD

SERBIA

LITHUAnIA

13

18

28

44

48

50

52

07

24

32

42

46

36


austriacroatia

czech republic

hungary

romania

slovakia

slovenia

estonia

latvia

lithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Austria? Does the acquisition have to be carriedout by an Austrian corporation?

Foreigners may acquire real estate in Austria, though suchacquisition is subject to approval by land transfer authorities.Austria’s nine provinces have the respective legislative compe-tence. Acquisitions by individuals and legal persons from theEuropean Economic Area (EEA) are generally not subject tosuch approval.

The acquisition of Austrian real estate does not have to beeffected by using an Austrian acquisition company. However,also a domestic legal person may be treated as foreigner inthe sense of these regulations if the majority of the shares areheld by foreigners.

2 Which importance does the Austrian landregister have?

Rights with respect to real estate are to be recorded in theAustrian land register as such rights usually only come intoexistence upon registration.

For the registration of property rights and construction rights aregistration fee of 1% falls due, the taxable base of the real es-tate transfer tax is applicable.

The required registration of a mortgage in the land registertriggers a registration fee of 1.2 % of the secured amount.


B Income Tax

3 What are the corporate and the personal incometax rates? Are there international participationexemptions?

¬ Corporate income tax rate:¬ 25 %¬ Minimum tax level:

¬ first year EUR 1,092¬ from the second year EUR 1,750 (limited

company) or EUR 3,500 (joint stock company)¬ Personal income tax rate:

¬ Marginal tax rate:¬ Up to EUR 11,000: 0 %¬ From EUR 11,001 to EUR 25,000: 36,5 %¬ From EUR 25,001 to EUR 60,000: 43,124 %¬ From EUR 60,001: 50 %

¬ PARTICIPATION EXEMPTIONSUnder the domestic participation exemption regime, any income(e.g. dividend distributions) derived by a resident GmbH or AGfrom a participation in another Austrian corporation is exemptfrom corporate income tax, regardless of the capital ownershippercentage and the holding period. However, the domestic par-ticipation exemption does not apply to capital gains of a GmbHor AG resulting from the alienation or liquidation of the domes-tic participation in another Austrian corporation.

The international participation exemption applies to specificincome (see below) derived from a participation in a foreigncompany. The international participation exemption is applica-ble under the following conditions:

¬ direct or indirect (e.g. via an intermediate transparentpartnership) equity participation of at least 10% in aforeign corporation for a minimum uninterrupted periodof one year;

¬ a comparable EEA corporation, provided that an overallmutual administrative and enforcement assistanceexists (Sec 10(1)(6) CITA)

The international participation exemption is also granted toAustrian permanent establishments of companies resident inanother EU Member State if the companies fulfill the above-mentioned requirements.

Within the scope of the international participation exemption,dividends and capital gains are, in general, tax-exempt. Capitallosses (except losses in the event of insolvency or liquidation)and other write-downs of the participation are basically non-deductible. The parent company may, however, exercise anoption to have capital gains and losses from the participationbe treated as taxable or tax-deductible, as the case may be.The option must be exercised in the year of acquisition and isbinding on any group company holding or acquiring that parti-cipation. Write-offs and capital losses must be spread over aseven year period. The international participation exemptiondoes not apply in the case of suspected tax avoidance or abuseof law, which is assumed if the foreign subsidiary mainly derivespassive income and its profits are subject to an effectivecorporate income tax, which is not comparable to the Austriancorporate income tax.

The Austrian Ministry of Finance has proposed certain changesregarding the international participation exemption.

¬ TAX GROUPIf an Austrian corporation or a permanent establishment of anEU corporation registered in Austria holds a (direct or indirect)participation of more than 50% of the capital and the majorityof the voting rights in a domestic or foreign corporation, a taxgroup may be established. The minimum holding requirementcan also be met together with other companies, provided theshareholding of one corporation amounts to at least 40% andthe shareholding of the other corporations amounts to at least15%.

A tax group has the effect that all profits and losses of domes-tic group members (subsidiaries) will be allocated for taxpurposes to the group leader.

The group may also include foreign first tier subsidiaries.Losses of foreign group members may be deducted from thetax income of the group in proportion to the amount of the di-rect shareholding of the group in the foreign entity. However,such losses are recaptured and taxed in Austria in subsequentyears if and to the extent they can be offset against profits ofthe foreign entity under its domestic tax regime or if the foreignentity drops out of the group (e.g. due to sale of the participa-tion). Profits of foreign group members are not to be includedin the tax group.

A write down of participations in the share capital of groupmembers is not deductible for tax purposes. A tax-deductibledepreciation of goodwill over 15 years is applicable to acquisi-tions of participations in domestic corporations running anoperating business. The depreciation is limited to 50% of thepurchase price of the shares; the acquisition costs of theparticipation will be reduced accordingly.

Providing that all requirements are fulfilled, the group leadermay opt for group taxation simply by filing an application formwith the tax authorities (subject to certain time constraints).The tax authorities approve the tax group by official notice. Thetax group has to remain in existence for at least three full fiscalyears. If the tax group is terminated earlier, all benefits from thegroup taxation will be lost and each member of the group willbe taxed as a separate entity with retroactive effect.

4 What is the tax depreciation period for real estatein Austria? Are there depreciation categories?Which depreciation method is used?

For business premises the following depreciation rates areavailable for tax purposes in Austria depending on the use ofthe building (without evidence of the actual useful life; half ofa percentage for the year of acquisition or disposal if the utiliza-tion of the real estate is less than six months):

¬ up to 3% (33.3 years) for production buildings andstorehouses,

¬ up to 2.5% (40 years) for bank and insurance buildings,¬ up to 2% (50 years) for other business premises

(eg office buildings).

In case of commercial tenancy the depreciation rate dependson the usage of the tenant. Thus commercial tenancy does notautomatically entitle to the higher depreciation rate of 3%.

If the rented building is held as private property by the lessor,only a depreciation of 1.5% of the assessment basis may be de-ducted as tax allowable expenses, if no shorter useful life canbe proved.


In case of residential buildings maintenance costs have to besplit up into repair expenses (immediately allowable expenses,an application for a deduction over a 10 year period is possible)and maintenance expenses (allowable only over a 10 year pe-riod), whereas in case of business premises also maintenanceexpenses are immediately tax allowable expenses. Mainte-nance expenses are expenses that increase the utility value orthe useful life of the building.

For buildings without solid construction the authorities allow adepreciation rate of 4%.

Outside a business certain production costs (in particular ex-penses according to the MRG – Act on Tenancy Law, WSG –Restoration Act for Residential Buildings and the DMSG – Acton Protection of Historical Buildings and Monuments) may bededucted over a 15 year period upon application. Such deduc-tion of certain production costs over a 15 year period has the ef-fect that the speculation period in relation to the real estate is15 years instead of 10 years.

A plot of land is not depreciable. Tax-effective write down to thelower market value is required if the market value is perma-nently below the tax book value.

5 When is a foreign investor subject to limited taxliability in Austria?

An individual having neither a domicile nor habitual place ofabode in Austria (hereinafter non-resident) is subject to limitedtax liability only. Tax liability is limited to Austrian-sourceincome as listed in Sec. 98 ITA.

A non-resident individual may carry on a business in Austriaas sole entrepreneur through an Austrian permanent establish-ment or as a partner of an Austrian partnership (an Austrianpartnership basically constitutes a permanent establishmentof the partners to the partnership).

Income derived from the activities listed in Sec. 98 ITA is sub-ject to income tax at the same rates as applicable for residenttaxpayers. In the course of an annual tax assessment, the in-come of non-resident individuals (and partners to Austrian part-nerships) is increased by a deemed additional amount of EUR9,000. Under certain conditions, citizens of an EU MemberState who are non-residents within the meaning of Austrian taxlaw may also apply for treatment as a resident (»Schumackerdoctrine«).

A non-resident corporation (i.e. neither the place of manage-ment nor legal seat is in Austria), which is comparable to anAustrian corporation, is subject to limited corporate tax liabilityif it carries on a business in Austria through an Austrian perma-nent establishment or an Austrian partnership. In this case, taxliability is limited to the income attributed to that permanentestablishment or partnership. Further, income from Austrianreal estate is subject to the limited tax liability if it belongs tothe business of the foreign corporation.

Capital gains in connection with the sale of Austrian real estateare subject to limited taxation in Austria, if the property is beingsold within the speculation period of 10 years after acquisition(in certain cases a longer speculation period of 15 years is ap-plicable, please see previous question). If the foreign seller iscomparable to an Austrian corporation or if the foreign seller isan individual, holding the real estate in its foreign business as-sets, such capital gain is also taxable after expiration of the

speculation period. If Austria has the right of taxation (in case ofinternational transactions) it has to be examined according tothe applicable tax treaty.

Moreover subject to limited tax liability is income from rentingout real estate if the immovable property is located in Austriaand income from interest earned if the loan is secured by Aus-trian real estate.

6. Are share deal and asset deal possible in Austria?What are the main consequences?

The real estate investor can acquire Austrian real estate by wayof an asset deal (e.g. direct acquisition of real estate or acquisi-tion of tax-transparent partnerships owning real estate) or ashare deal (e.g. acquisition of a corporation owning real estate).In a share deal, further reorganization steps to achieve a debtpush-down may be required.

ASSET DEAL¬ DIRECT ACQUISITION OF REAL ESTATE

An Austrian corporation may directly acquire Austrianreal estate. Interest expenses for a debt-financedacquisition may be deducted from income from realestate if the real estate is rented out or used for itsown business.The acquisition of real estate is subject to real estatetransfer tax of 3.5% of the consideration.

¬ ACQUISITION OF PARTNERSHIP INTERESTIf the seller holds the real estate via an Austrian part-nership, the acquirer may purchase the Austrian part-nership interest. Austrian partnerships are tax trans-parent and the partnership's income is taxed at thepartner’s level. Interest expenses for the debt-financedacquisition of a partnership interest should be de-ductible from the income of the partner.Real estate transfer tax can be avoided if a partnershipinterest is acquired.

SHARE DEALThe acquisition costs of the shares must be capitalizedand are generally not deductible. However, under theAustrian group taxation regime a goodwill can be de-preciated over 15 years. The depreciation amount islimited to 50% of the purchase price.Interest on the debt-financing of the acquisition of aparticipation in a (resident or non-resident) corporationis tax deductible regardless of the fact that the partici-pation exemption provides for a tax exemption on in-come from the acquired participation.Avoidance strategies for real estate transfer tax whenacquiring the Target corporation are available.

For other tax consequences (VAT, capital tax, property tax etc.)see the questions below.


7. Are thin capital rules applicable? Are there otherlimitations of interest deductions applicable?

THIN CAPITAL RULESpecific rules on thin capitalization do not exist in Aus-tria. The Austrian Administrative Court has establishedvarious principles to determine under which conditionsdebt financing is not to be recognized for tax purposes.For instance, if the equity is inadequate, a loan may beregarded as hidden equity. However, there are no de-fined debt-equity ratios to comply with. Hidden equitymay also be assumed if the loan agreement is not inline with the arm's length principle. Interest paid onloans that are regarded as hidden equity will be treatedas a constructive dividend and may not be deductedfrom the taxable income.

TRANSFER PRICING RULESAustrian tax law does not provide for specific provi-sions on the documentation of transfer pricing in con-nection with the inter-company supply of goods andservices. The documentation has to comply with thegeneral provisions of the Austrian Fiscal Code, takinginto account the OECD Transfer Pricing Guidelines. Inpractice, however, setting up a proper transfer pricingdocumentation is to be recommended.

8 Can acquisition costs/financing fees/interest be deducted?

If real estate activity qualifies as business income, the generalprinciples of business taxation apply. Expenses (e.g. ongoing ex-penses and maintenance) are, in general, tax deductible.Acquisition costs must be capitalized and for buildings such ac-quisition costs may be depreciated over the useful life. Thesame is applicable for production costs (costs incurred by theland owner for the construction of a building or major exten-sions of existing buildings) of real estate.

Financing fees for loans must be capitalized and depreciatedequivalent to the corresponding duration of loan. If related totax exemption (e.g. dividends) deduction may be denied.

9 Are there possibilities to allow pooling ofdebt financed interest with income of target(dept push down)?

If the real estate is held by an Austrian corporation (Target) andthe purchaser acquires the Target, Austrian law allows severalstrategies to generate a debt push-down. Common debt push-down concepts are a merger of the Austrian Target (the corpo-ration holding the real estate) with an Austrian newCo (a corpo-ration acquiring the shares in the share deal), a conversion ofthe Target into a (tax-transparent) partnership and the settingup of a tax group between the newCo and the Target.

MERGERA (corporate income tax-neutral) merger of the Target with thenewCo leads to the result that acquisition debt and businessactivity is on the same level. Banks generally prefer that bankdebt and real estate is on the same level to allow a pledge ofreal estate as security of the bank loan. Thus, banks often grantan interest rate reduction after a merger (margin step-down).Before the merger, up-stream securities, which are limited bycreditor protection rules and which require compensation atarm's length, are required. Legal restrictions have to be consid-ered for merger due to creditor protection rules.

An up-stream merger leads to real estate transfer tax. In adown-stream merger, real estate transfer tax can be avoided ifnewCo did not own other real estate before the merger.

CONVERSIONThe Target is converted into a tax-transparent partnership un-der universal succession. newCo often acts as a 100% limitedliable partner (limited liability with equity injected). A secondcompany acts as managing partner without an equity interest inthe partnership that has unlimited liability (unlimited liabilityfor all debts of the partnership).

An Austrian partnership is transparent for income tax purposes.Therefore, income generated at the Target level is character-ized for tax purposes as directly earned by the partners (ac-cording to their partnership interest) and taxed at the partnerlevel. Thus, interest expenses of acquisition debt of newCo aredeductible from Target’s income.

A conversion triggers real estate transfer tax.

TAX GROUPAn Austrian Corporation sets up a tax group with the Target.The majority of shareholding and voting rights is required andcompanies have to enter into a tax group allocation agreement.With the setting up of the tax group, the taxable income of thetax group member (Target) is taxed in the hands of the head oftax group. Therefore, interest expenses of acquisition debt ofthe Austrian Corporation are pooled with the income of the Tar-get. In addition, if the activity of the Target qualifies as businessactivity, a goodwill amortization is typically granted.

Avoidance strategies for real estate transfer tax when acquiringthe Target are available. The setting up of a tax group does nottrigger real estate transfer tax.

10 Is there a withholding tax on interest paymentspaid by local company to creditor?

Interest income of a non-resident taxpayer (corporation and in-dividuals) is not subject to tax in Austria unless the underlyingloan is secured by immovable property located in Austria. In thelatter case, however, double tax treaties usually protect fromAustrian taxation if the treaty contains a OECD-model type ofprovision on interest.

If the interest income is to be attributed to a permanent estab-lishment of the non-resident recipient, that income is taxable asbusiness income in Austria.

Domestically, interest paid on loans (excluding bonds) is notsubject to withholding tax . In addition, interest that are paid toassociated companies or to their permanent establishments lo-cated in a Member State other than Austria are exempt fromthe withholding tax due to the implementation of the EC Inter-est and Royalty Directive in Austrian law. The exemption is sub-ject to the conditions that (i) the recipient qualifies as beneficialowner of such payments, (ii) the parent company has a formlisted in the Annex to the Interest and Royalty Directive and (iii)the parent company is subject to regular income tax in its resi-dence state (confirmation issued by the competent tax author-ity is necessary). A company is deemed to be associated if itholds directly at least 25% in the capital of the subsidiary for anuninterrupted period of one year. Furthermore, the exemptionrequires a confirmation from the recipient that it qualifies asbeneficial owner of the payments and that it fulfills the partici-


pation requirements. In the case of tax avoidance, abuse oflaw and royalties exceeding the arm’s length amount arerecharacterized as constructive dividends and are subjectto withholding tax.

11 Is a Loss Carry Forward granted and whatare the restrictions?

Losses from business activities that could not be deductedfrom other positive income in the same year may be carriedforward without time limit, provided the loss was computedaccording to generally accepted accounting principles.

If for business income of individuals the tax base was to bedetermined on a cash basis, losses may be carried forwardfor a period over three years.

Loss deduction is limited to 75% of the positive yearly income ofeach year. If the unused losses are higher, the remaining lossesmay be carried forward.

Basically, losses of corporations are treated tax-wise similiarlyto losses of sole entrepreneurs and partnerships. Moreover,corporate income tax law provides for loss trafficking rules ac-cording to which the loss carry-forward may no longer be usedin case the company has lost its identity in the meaning of Sec.8 (4) CITA. This is to be assumed if the ownership as well as theorganizational and business structure has substantiallychanged. Apart from that, the Austrian Reorganization Tax Actprovides for further loss-trafficking rules applicable to certaintypes of reorganizations (e.g. mergers).

C Real Estate Taxes

12 Does Austria levy a real estate transfer tax onsale of real estate or shareholdings?

TRANSFER OF REAL ESTATE AND COMPARABLE RIGHTSReal estate transfer tax is levied on transfers of immovableproperty (land and buildings) located in Austria. Taxable trans-actions include – inter alia – the sale and exchange of immov-able property as well as transfers without a legal title andtransfers of beneficial ownership.The taxable base is the value of the consideration (e.g. pur-chase price and assumed liabilities). In case the considerationcannot be determined, three times the assessed value for taxpurposes of the immovable property constitutes the tax base,or, if lower, on application the fair market value. The assessedvalue for tax purposes is a special tax value determined for realestate that is generally considerably lower than the fair marketvalue.The general tax rate is 3.5%. A reduced rate of 2% applies fortransfers between close family members.

TRANSFER OF SHARESReal estate transfer tax is also levied if all shares of a companyowning Austrian immovable property are held in the hands of orare taken over by one shareholder (one shareholder or severalshareholders deemed to be one shareholder if they meet thecriteria for a VAT group).The taxable base is three times the assessed value for tax pur-poses of the immovable property, or if lower, on application thefair market value. The general tax rate is 3.5%. A reduced rateof 2% applies for transfers between close family members.

13 Is real estate subject to any real estate tax?At which rate?

Real estate tax is levied on Austrian immovable property, i.e.agricultural, forestry, business and private immovable property.The tax is assessed at a basic federal rate (generally 0.2%) andis multiplied by a municipal coefficient (up to 500%, dependingon municipality); therefore the tax rate amounts up to 1%. Thetaxable base is the assessed value for tax purposes of the prop-erty.

Undeveloped land plots are subject to an additional 1% unde-veloped land tax of the tax assessed value exceeding EUR14,600.


D Value Added Tax

14 What are the VAT consequences of a saleof real estate?

The sale of real estate is VAT exempt. The seller may, however,opt for VAT liability. As such, the sale of business premiseswould be subject to 20% VAT. The seller is only entitled forfull input VAT deduction for services received related to theacquisition of real estate and the acquisition costs when hesells with application of VAT. The same holds for VAT on certainmajor repairs undertaken within ten years before sale. If inputVAT was deducted, a VAT-exempt sale within ten years leadsto a pro-rata reversal of input VAT deduction (in case theasset is used for business and private use, the period may beextended to 20 years).

15 What are the VAT consequences of renting/leasing of real estate?

The leasing out of real estate for business purposes is, ingeneral, VAT exempt. The lessor may opt for VAT liability;in that case the lessor would charge VAT of 20% on the rent.The lessor is only entitled to input VAT deduction for servicesreceived that are related to the renting activity if he leasesout with VAT.

Rental income from residential buildings is subject to VATat the lower rate of 10%, rental income from office/businessbuildings is exempt from VAT (thus no deduction of input VAT),optionally subject to VAT at a rate of 20%.

E Other Taxes

16 Is there a capital tax for equity injected into alocal company?

Contributions of capital to Austrian companies (i.e. the AG,GmbH and a specific type of a partnership – the GmbH & CoKG) by the shareholder trigger a capital tax of 1%. The tax baseis the amount of the contribution or the value of shares being is-sued in exchange for the contribution, as the case may be. Thefollowing transactions are subject to capital tax:¬ the initial acquisition of shares upon foundation of the

company or a subsequent increase of its capital;¬ mandatory contributions by shareholders;¬ voluntary contributions by shareholders that increase

the value of their shares;¬ contributions made by a non-resident company to its

Austrian branch or permanent establishment, exceptfor contributions made by companies resident in an-other EU Member State;

¬ the transfer of seat or place of management to Austria,except for transfers by companies resident in anotherEU Member State.

»Indirect« capital contributions, e.g. contributions made by aperson/company other than the direct shareholer, are basicallytax-free subject to the constraints set by Austrian case law.

Capital contributions in the course of a reorganization withinthe scope of the Reorganization Tax Act (RTA) – which is basedon the EC Merger Directive (90/434/EEC) – may also be exemptfrom capital duty.

Moreover, the Capital Transfer Tax provides for a capital dutyexemption of the contribution of (i) all assets and liabilites or (ii)a business or (iii) a part of a business of a corporation into anAustrian corporation in exchange for shares.

17 Is there a stamp duty on debt granted to a localcompany?

Loan agreements are in general subject to stamp duty of 0.8% –1.5% of the loan amount. In addition, surety agreements (1% ofamount), assignment agreements (0.8% of consideration),mortgage agreements (1% of value of liability) and lease agree-ments (1% of the agreed consideration) are in general also sub-ject to stamp duty. Strategies to avoid or reduce Austrian stampduty are however available and need detailed planning.


austria

croatiaczech republic

hungary

romania

slovakia

slovenia

estonia

latvia

lithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Croatia? Does the acquisition have to be carriedout by a Croatian corporation?

The most complicated aspect of foreign investment in Croatiais that related to the acquisition of real estate (both land andbuildings). In addition to the complicated legal restrictions,problems also exist with outdated land ownership and land useregistries.

However, in case that Croatia will enter the European Union, theCroatian government commenced several projects of updatingand computerizing both land use and land ownership registriesin order to simplify investments for domestic and foreigninvestors.

Foreign investors (both individuals and entities) may acquireproperty with the prior approval of the relevant governmentbodies based on the reciprocity principle. Therefore, it is essen-tial that real estate acquisition rights given by a foreign countryto its own citizens and to commercial companies established inforeign countries according to the laws of these countries arealso given to the citizens and commercial companies of Croatia.For European Union citizens, no approval is required as of1 February 2009.

The respective approval process still valid for foreign investorsthat are not European Union citizens can be time-consuming,and the Croatian authorities have the discretionary right toreject requests for acquisition.

For companies that own only real estate, there are no provi-sions that restrict a foreign investor from owning shares inthe company.

In addition, a Croatian company can be established by a foreigninvestor for the purpose of land acquisition, as there are noformal approval requirements to be obtained from relevantgovernmental bodies.

2 Which importance does the Croatian landregister have?

Property rights should be registered with the Croatian LandRegistry. The ownership right according to civil law of realestate may only be acquired with the incorporation of theproperty right in the land register. However, the law regardingproperty and other real property rights contains an importantdivergence of this principle in the case of acquisition of realestate that is not yet registered in the land register.

In this case, the ownership right will be acquired by deposit ofan appropriate accredited certificate at the land register office.This exception is still of importance in Croatia as not all realestate is registered in the land register yet. Furthermore, therecould exist restitution claims, so that at present no completelegal security from the status of the legal register can be de-rived.

Where shares in a Croatian company that owns real estate inCroatia are acquired, there are no registration requirementsto be fulfilled with the Croatian Land Registry in respect ofthe real estate.


B Income Tax

3 What are the corporate and the personalincome tax rates? Are there any participationexemptions?

¬ Corporate income tax rate:¬ 20 %

¬ Personal income tax rate:¬ Marginal tax rate:

¬ Up to HRK 43,200: 15%¬ For the next HRK 64,800: 25%¬ For the next HRK 194,400: 35%¬ For all other amounts: 45%

¬ PARTICIPATION EXEMPTIONS:Dividends derived by resident corporations fromresident or non-resident corporations are exempt fromCorporate Profit Tax (CPT). Capital gains of a non-resident corporation (or individual) resulting from thealienation of a participation in a Croatian corporationare not taxable in Croatia.

4 What is the tax depreciation period for real estatein Croatia? Are there depreciation categories?Which depreciation method is used?

All real estate (except land) has a depreciation period of about20 years. The depreciation can be doubled by the taxpayer.

5 When is a foreign investor subject to limited taxliability in Croatia?

Foreign individuals with income from renting or alienation ofreal estate in Croatia are subject to limited income tax liability.Depending on the actual activity it has to be distinguishedbetween income from property and property rights or self-employment income, whereas these income types differ in themethods of income determination. The income is liable to theprogressive income tax rate. Individuals deriving self-employ-ment income can choose between taxation regarding theIncome Tax Act or regarding the Profit Tax Act. There is no de-duction of withholding tax. Annual tax returns have to be filed.

Foreign legal persons are subject to profit tax liability with theirprofit achieved in Croatia (e.g. from renting or alienation ofreal estate in Croatia) if they have a permanent establishment.A permanent establishment usually will be founded with theestablishment or renting of real estate. For this purposes theforeign legal person has to establish at least a branch office inCroatia. The profit tax rate is 20%. There is no deduction ofwithholding tax. Annual tax returns have to be filed.

6 Are share deal and asset deal possible in Croatia?What are the main consequences?

The real estate investor can acquire real estate in Croatia bythe means of an asset deal (e.g. direct acquisition of real estate)or by means of a share deal (e.g. acquisition of a corporationowning real estate).

ASSET DEALA Croatian company may directly acquire real estate in Croatia.Interest expenses for a debt-financed acquisition may bededucted from income of real estate if real estate is rented orused for its own business.

Capital gains derived by a domestic corporate taxpayer fromthe sale of real estate are subject to profit tax at the rate of20%.

On the other hand, capital gains derived by non-resident legalentities are not subject to profit tax (please note that thisscenario may have permanent establishment implications).

SHARE DEALCapital gains derived by a Croatian corporate taxpayer fromthe alienation of shares in a Croatian company that owns realestate are subject to profit tax at the rate of 20%.

Both realized and unrealized gains arising from the value ad-justment of financial assets are taxable if posted to the P&Laccount as normal business income. If the unrealized gains areposted to the balance sheet, they are not taxable.

Likewise, the gains derived by a non-resident from the alien-ation of shares in a company that owns real estate are notsubject to profit tax.

The real estate transfer tax burden can be avoided if a sharedeal option is utilized.


7 Are thin capital rules applicable? Are there otherlimitations of interest deductions applicable?

THIN CAPITALIZATIONThe Croatian Profit Tax Act (PTA) provides that interest onloans provided by shareholders with a 25% or more holding in aCroatian company is not deductible for profit tax purposes if theamount of the loan exceeds four times the amount of the equityholding for that shareholder (i.e. a 4:1 safe harbour). The Croat-ian PTA regulations clarify that the non-deductibility treatmentis applicable to interest that corresponds to the amount of ashareholder’s loan in excess of the safe harbour.

The thin capitalization provisions also apply to loans grantedfrom third parties that are guaranteed by a direct shareholder.

The above-mentioned thin capitalization rules do not apply toshareholders that are financial institutions (as defined by theCroatian legislation).

Therefore, to the extent that the Croatian company raises debtfinancing from its direct parent company, or if the Croatiancompany’s direct parent company guarantees any such debt fi-nancing, then interest on any such debt financing that exceedsfour times the Croatian company’s capital (capital for the pur-pose of thin capitalization calculations also includes reservesand retained earnings) will not be a tax-deductible expense forthe Croatian company.


TRANSFER PRICING RULESIn accordance with the PTA, interest that is paid or received bya profit taxpayer to or from a non-resident related party isconsidered to be at arm’s length (i.e. deductible for profit taxpurposes) up to the rate prescribed by the Minister of Finance.The default rate for the related party interest rate is set as thediscount rate published by the Croatian national Bank, whichis currently (as of 1 January 2009) 9% per year.

Following from the above, any interest charged to a corporateprofit taxpayer by a non-resident related party which is inexcess of the 9% rate would not be deductible for Croatiancorporate profit tax purposes.

Accordingly, if any related party provides debt financing to aCroatian company, any interest charged in excess of 9% peryear will not be a tax-deductible expense for the Croatiancompany.


Acquisition costs must be capitalized and for buildings suchacquisition costs may be depreciated over the useful life. Feesincurred in the transfer are deductible.Interest expenses for a debt-financed direct acquisition maybe deducted from income of real estate if real estate is rentedor used for its own business.

9 Are there possibilities to allow pooling of debtfinanced interest with income of target(dept push down)?

TAX GROUPIn general, each corporate entity is regarded as a separateentity for profit tax purposes. There is no possibility underCroatian tax law to be taxed on the basis of consolidated in-come or as a fiscal unity. Thus, neither profit and loss transferagreements nor control agreements result in taxation as afiscal unity.

MERGERThe PTA provides for a specific treatment of mergers anddemergers. In this regard, the PTA provides for basic definitionsof mergers and demergers that are in line with the CroatianCommercial Law (hereinafter CCL). A merger is defined as atransaction by which one company ceases to exist by transfer-ring all of its assets and liabilities to another existing companywithout liquidation, in accordance with the CCL.

CONVERSIONA conversion is also legally possible. In the case of a conversionthe acquisition interest expenses are deductable but the poolingof income is not allowed (partnerships are intransparent).


In accordance with the CPT Law, a withholding tax of 15% isgenerally required to be deducted in respect to the followingpayments to non-residents:¬ interest on borrowings (excluding borrowings from

financial institutions);¬ royalties and other intellectual property rights and¬ market research services, tax and business consulting

services and auditor services.

However, a valid Double Tax Treaty (hereinafter DTT) may re-duce or eliminate any withholding tax liability if the foreign en-tity is seated in a jurisdiction with which Croatia has a DTT ineffect.


Losses may be carried forward for a maximum period of fiveyears, unless otherwise provided in the PTA. If the right tooffset losses incurred in the process of mergers, acquisitions ordivisions is transferred to legal successors during a tax period,the right to carry forward the loss begins after the expiry of theperiod in which the legal successor acquired the right to carryforward the loss. There are no anti-avoidance provisions thatrestrict the carry-forward of losses. no carry-back is allowed.

Foreign losses are computed in the same way as domesticlosses. However, such losses may be set off only againstincome from the foreign source to which they are related.


C Real Estate Taxes

12 Does Croatia levy a real estate transfertax on sale of real estate or shareholdings?Is it avoidable?

Croatia does levy a real estate transfer tax. Subject to realestate transfer tax are real estate transactions. The Croatianlegislation defines real estate transactions as every acquisitionof ownership of property.Under the Croatian legislation real estate is defined as:¬ Land – whether used for business purposes or used

or agricultural purposes;¬ Buildings – residential buildings, business buildings

and other buildings.

Real estate transfer tax is paid at a rate of 5% and the taxpayeris the person who acquired the property (e.g. buyer or succes-sor). The real estate transfer tax paid is not recoverable andrepresents a final tax for the real estate acquirer.

The real estate tax is avoidable if a share-deal vehicle isutilized.


In Croatia no real estate tax is levied.

14 Is there a »real estate clause« in the case ofshare deals in the double taxation agreementbetween Austria and Croatia?

no, the right to taxation in the case of share deals lies withthe country of residence of the vendor.

D VAT


VAT is not payable on the transfer of land.As for buildings, it should be noted that the VAT Law makes adistinction between old buildings and new buildings. Accordingto the VAT Law, »new buildings« are defined as buildings builtand sold on or after 1 January 1998. new buildings are subjectto VAT. The tax rate is 22%. Buildings built and/or sold prior tothat date are considered to be »old buildings« and are onlysubject to real estate transfer tax. Therefore, VAT is paid on theacquisition of a new building erected after 1 January 1998when the seller is registered for VAT purposes.

If the acquirer of the building was not able to recover VAT uponacquisition, then each subsequent transfer of the new buildingwill be subject to real estate transfer tax..The taxable base for VAT is defined as the »consideration paid«for the building. The consideration price for the building andland on which the building is constructed would be required tobe detailed separately in a Sale and Purchase Agreement.


The VAT legislation makes a distinction between the renting ofreal estate that is used for business purposes as opposed to therenting of real estate that is used for residential purposes.Please note that the renting of real estate to tourists is deemedto be renting for business purposes.

RESIDENTIAL RENTALSThe Croatian VAT Law provides that the service of renting realestate that will be used for residential purposes is exempt fromVAT.

BUSINESS RENTALSThe rent charged on real estate used for business purposes issubject to VAT at the general VAT rate of 22%. With respect torenting of hotel and gastronomy business the reduced tax rateof 10% applies.


E Other Taxes

17 Is there a capital tax for equity injected into alocal company?n/A


Several different stamp duties are levied in Croatia. Stampduties are levied on documents and dealings involving bodiesof public administration, embassies and consulates, as well aslocal authorities.


austria

croatia

czech republichungary

romania

slovakia

slovenia

estonia

latvia

lithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein the Czech Republic? Does the acquisition haveto be carried out by a Czech corporation?

In the Czech Republic, solely (i) residents (i.e. individuals andlegal persons domiciled/seated in the Czech Republic), (ii)foreigners with the Czech citizenship/the residence permitfor the EU national and (iii) foreign legal persons that estab-lished an enterprise or a branch in the Czech Republic and areallowed to carry out their business activities therein may freelyacquire real estate.Other foreigners may only acquire real estate in the casesprovided by law, e.g. by inheritance, an exchange of real estate,in the joint-property of spouses, building-up on the own land.Other exceptions apply to agricultural and forest lands.All the above said implies that the foreigners are only entitledto acquire real estate in the Czech Republic if the requirementsgiven by law are fulfilled.

In the case of a legal person, the acquisition of real estate mustbe conducted through a Czech company or a branch registeredin the Czech Commercial Register established by the foreignentrepreneur.

2 Which importance does the Czech land registerhave?

The ownership to real estate that is transferred under the con-tract passes over to the buyer as soon as the ownership right isregistered with the Land Registry (“katastr ne-movitostí”). Theregistration of the ownership will be made by the Land RegistryOffice based on its decision with the retroactive effect as of theday on which the application for the ownership’s registration(charged with the administrative fee of CZK 500) has been sub-mitted.


B Income Tax


¬ Corporate income tax rate:¬ 20 % in 2009¬ 19 % as of 2010

¬ Personal income tax rate:¬ 15 %¬ employees have a significantly higher basis of

assessment (»super-gross« remuneration)¬ tax free income: CZK 165.600

¬ PARTICIPATION EXEMPTIONS:Under the domestic participation exemption regime,any income from a transfer of shares and profit distri-butions derived by a resident corporation (s.r.o. or a.s.)or a co-operative from a participation in another Czechcorporation or co-operative is exempt from corporateincome tax, provided that it holds the participation ofat least 10% (in share capital) for a minimum holdingperiod of 12 months. The 12-month period may be ful-filled subsequently. However, the domestic participa-tion exemption does not apply to income from a trans-fer of shares and to profit distributions where a Czechsubsidiary is in liquidation.

The international participation exemption applies to specificincome (see below) derived from a participation in a foreigncompany. The requirements differ depending on whether aforeign subsidiary is located in the EU or in a third country.

Requirements in the case of EU subsidiaries are:¬ An equity participation of at least 10% in the EU

subsidiary for a minimum holding period of 12 months;¬ listing of the legal form of the EU subsidiary in the

Annex to the EC Parent-Subsidiary Directive;¬ the Czech parent company is a beneficial owner of

the income.

As regards EU subsidiaries, the participation exemption appliesto dividends received by Czech parent companies and Czechpermanent establishments of companies resident in anotherEU Member State. Further, income from a transfer of sharesin EU subsidiaries derived by Czech parent companies is alsotax-exempt. However, the participation exemption does notapply to income from dividends, where the EU subsidiary isin liquidation.

The international participation exemption also covers profitdistributions and income from transfer of shares derived byan EU parent company in connection with its shareholding in aCzech subsidiary. In addition, the fact that a Czech subsidiaryis in liquidation does not preclude the application of participa-tion exemption rules to profit distributions (to the contrary,income from transfer of shares may not be tax-exempt if theCzech subsidiary is in liquidation).

Additional requirements (to the above-mentioned) in the caseof third-country subsidiaries are:

¬ the Czech Republic has concluded a tax treaty withthe third country;

¬ comparability of the legal form of the third-countrysubsidiary to Czech corporations (s.r.o. and a.s.)or co-operatives;

¬ the subsidiary is subject to corporate income tax ofat least 12% in its residence country and is not tax-exempt, or may not opt for tax exemption.

As regards third-country subsidiaries, the participation exemp-tion applies to dividends and income from a transfer of sharesderived by Czech parent companies. However, the participationexemption does not apply to income from dividends, where thethird-country subsidiary is in liquidation.

4 What is the tax depreciation period for real estatein the Czech Republic? Are there depreciationcategories? Which depreciation method is used?

Permanent buildings are to be depreciated over 30 years.From 1 January 2004, qualifying buildings such as office parks,shopping malls and hotels are to be depreciated over 50 years.A taxpayer may choose to use either the straight-line or theaccelerated depreciation method. The method chosen maynot be changed over the entire period of tax depreciation. Forpermanent buildings, a taxpayer is not obliged to claim depreci-ation and may even interrupt tax depreciation. In the case ofinterruption of the tax depreciation the useful life of the assetswill be automatically prolonged. When the taxpayer startswriting off again, it must be done as if the tax depreciationhad not been interrupted.

Plots of land may not be depreciated for tax purposes. Oncethe plot of land is sold, the possible loss realized upon thissale may not be deducted from the tax base.

5 When is a foreign investor subject to limited taxliability in the Czech Republic?

The foreigners (the non-Czech residents) that derive incomefrom Czech sources are subject to the limited tax liability in theCzech Republic. Income from Czech sources represents –amongst others – income from the Czech permanent establish-ment, capital gains from the sale of Czech real estate or fromthe sale of the share held in the Czech company and certainpayments received from Czech resident taxpayers, e.g. leasepayments.

This income derived by non-Czech residents (with limited taxliability) falls within the scope of the Czech Income Taxes Act.It must be, however, reviewed under the relevant double taxa-tion convention (e.g. the Czech Republic – Austria), whether asthe taxing right with respect to the particular cross-bordertransaction is attributable to the Czech Republic as the sourcestate. If the taxing right has the Czech Republic, the Czech-sourced income of the non-residents will be subject to eitherthe corporate income tax of 20 % (19 % from 2010) or to with-holding tax of 15 % (unless reduced under the relevant doubletaxation convention). The final taxation in Austria depends onthe method for avoidance of double taxation that is applied byAustria as the state of residence.


6 Are share deal and asset deal possible inthe Czech Republic? What are the mainconsequences?

The real estate investor can acquire Czech real estate by wayof an asset deal (e.g. a direct acquisition of real estate or theacquisition of a tax-transparent partnership owning real estate),unless this is not possible due to the restrictions for non-resi-dent individual investors under Czech law. Czech real estatecan also be acquired by way of a share deal (e.g. acquisition of acorporation owning real estate), whereby further reorganizationsteps to achieve a debt push-down may be required.

ASSET DEALDIRECT ACqUISITIOn OF REAL ESTATEA Czech corporation can acquire Czech real estate directly.Interest expenses for a debt-financed acquisition may bededucted from the income from real estate if the real estateis rented out or used in its own business. However, the tax-deductibility of interest is limited by the arm’s length and thincapitalization rules.

ACqUISITIOn OF A PARTnERSHIP InTERESTIf the seller holds the real estate via a Czech partnership (i.e. asa partner of a v.o.s. or a general partner of a k.s.), the acquirercan step into the Czech partnership in place of the seller. Czechpartnerships are in general tax transparent (except for incomeattributable to a limited partner of a k.s.) and the partnership'sincome is taxed at the partner’s level. Please note that incomederived by a partner of Czech partnership is considered to bederived through Czech permanent establishment and as suchis subject to Czech taxation. Interest expenses for the debt-financed acquisition of a partnership interest should be de-ductible from the income of the partner being a legal entity.Partners who are individuals are not entitled to deduct anyexpenses related to their Czech permanent establishment con-stituted by reason of their participation in Czech partnerships.

SHARE DEALAll financing costs, including interest on loans for the acquisi-tion of shares, are non-tax deductible. Any loan taken out sixmonths prior to the acquisition of shares is considered to be aloan for acquisition of shares, unless it is proven that this loanhas been used otherwise. Tax-deductibility of the interest canbe achieved by implementation of any debt push-down strategy,whereby acquisition debt and business activity will be on thesame level (see question 9).


7 Are thin capital rules applicable? Are there otherlimitations of interest de-ductions applicable?

THIN CAPITALIZATIONLoan agreements concluded prior to 1 January 2008:Thin capitalization rules apply only to interest paid on loansagreed between related parties. Interest on loans exceedingthe debt-to-equity ratio of 1:6 for banks or insurance companiesand 1:4 for other entities is treated as non-deductible expense.The old rules are applicable to the above loans for 2008 and2009.

Loan agreements and amendments to existing loan agree-ments concluded after 1 January 2008:From 2009, the debt-to-equity ratio of 3:1 for banks or insur-ance companies and 2:1 for other entities has been retained.These ratios only apply to financing costs on loans between

related parties or to loans guaranteed by the related party.Financing costs arising from subordinate loans related toanother liability/payable and also financing costs arising fromloans with interest derived from the debtor's profit are non-deductible as well. Please note that profit-linked and sub-ordinated loans are disregarded for the calculation of non-deductible financing costs under the debt-equity-ratio rule.These new rules may also apply for 2008. Another importantchange is the possibility to treat non-deductible financing costsdue to thin capitalization as deductible in cases where suchcosts are covered by directly associated revenues.

From 2010, the tax-deductibility of all financing costs paidbased on loan and credit agreements regardless of the dateof their conclusion is governed by the new thin capitalizationrules enacted in 2009 (i.e. the old thin capitalization ceaseto have effect).

If a creditor to loan agreement is a Czech non-resident, interestnot deductible under the thin capitalization rules is treated as aconstructive dividend. This reclassification may lead to the im-position of Czech withholding tax on interest payments, unlessthe tax is avoided by the relevant tax treaty or the requirementsof the participation exemption are fulfilled.

Thin capitalization rules do not apply to¬ interest which forms a part of acquisition costs of

assets (i.e. this interest become tax-deductible throughthe depreciation of assets);

¬ interest-free loans;¬ individuals, non-profit organizations and the Prague

Stock Exchange.

Please note that currently another amendment to thin capital-ization rules is discussed and if enacted these new rules willbe already applicable to tax year 2008 and 2009. The mostsignificant changes are as follows:¬ debt-to-equity ratios should be 6:1 for banks and insur-

ance companies and 4:1 for other related parties; thisrule will not apply to loans guaranteed by unrelatedpersons, but will cover back-to-back loans;

¬ thin cap rules will no longer apply to subordinatedloans.

Besides thin capitalization rules, interest on loans granted byrelated persons (which are defined extensively) must be agreedwith respect to the arm’s length principle.


In general, interest on a share acquisition loan (please note thatany loan agreed within the six months preceding the acquisitionis deemed to be an acquisition loan, unless proven otherwise)is not tax-deductible. According to the ITA, all direct as well asindirect costs incurred in connection with the shareholding inthe subsidiary, including interest on an acquisition loan, arenon-tax-deductible only where corporations (a.s. or s.r.o.) func-tion as the parent company under the Parent-Subsidiary Direc-tive. The indirect costs related to the shareholding amount to5% of the dividends, unless lower costs are proven to the taxauthorities. In other cases, where interest payments are relatedto the acquisition loan, interest is not tax-deductible due tothe general provision stipulating the non-tax-deductibility ofexpenses relating to income that is subject to a final withhold-ing tax (i.e. dividends) or that is tax exempt (under the participa-tion exemption).


Interest on an assets acquisition loan is in general deductible,unless the interest is non-tax deductible under the transferpricing rules (applicable only to related persons) and/or thethin capitalization rules.


If the real estate is held by a Czech corporation (Target) andthe purchaser acquires the Target, Czech law allows strategiesin order to generate a debt push-down. Common debt push-down concepts are a merger of the Czech Target (the corpora-tion holding real estate) with a Czech newCo (the corporationacquiring shares in the share deal) or a conversion of theTarget into a (tax-transparent) partnership.

MERGERA newCo receives an acquisition loan to acquire the Target andafterwards these companies are merged. A merger is generallytax neutral for corporate income tax purposes and is not sub-ject to VAT.

A surviving company may deduct the interest from its taxablebase (e.g. rental income), since interest on the acquisition loanis not linked to any shareholding after the merger (i.e. the busi-ness activity and the loan are at the same level). It is importantthat the merger can be supported by sound business reasons.However, the merger makes it possible that the assets of theTarget can be used for securing the acquisition loan, whichmight be seen as a business reason to justify the debt push-down strategy.

There is no real estate transfer tax upon the acquisition of theTarget corporation. Mergers and other corporate reorganiza-tions are exempt from real estate transfer tax.

CONVERSIONThis alternative requires that prior to the conversion of theTarget into a limited partnership (k.s.), another company joinsthe target company as a second partner. Subsequently, theTarget is converted into a partnership of which the newCo isthe general partner and the newly-entered company is alimited partner.

Profits of a k.s. are divided in two parts for tax purposes. Onepart attributable to a limited partner is taxed at the level of apartnership (i.e. the standard tax regime for a corporation anda limited partner receiving dividends from a partnership).Usually the limited partner holds a minor share in the partner-ship. Another part attributable to the general partner is taxedin the hands of this partner (tax transparency). Interest on theacquisition loan is tax deductible, because this expense servesa general partner in generating taxable income derived from apartnership; true only for corporate investors.

There is no real estate transfer tax upon acquisition of theTarget. Under Czech civil law, a conversion is not treated as atransfer of any assets, and thus it is not subject to real estatetransfer tax.

GROUPExcept for the VAT-group regime, there is no special corporateincome tax regime for groups of companies.


Interest income of a non-resident taxpayer (corporations andindividuals) is subject to Czech withholding tax at a rate of 15%.However, double tax treaties usually protect from Czech taxa-tion. The withholding tax rate on interest is 0 % applying theEU Interest and Royalty Directive for group purposes (minimumparticipation 25%, minimum holding period 24 month).

The withholding tax rate for dividends is 15 %, but may bereduced under applicable DTA or even avoided by applycationof the EU Parent Subsidiary Directive for group purposes.

11 Is a Loss Carry Forward granted and what arethe restrictions?

Generally, losses from business and independent (professional)activities and losses from rental activities may be set offagainst other income categories, but not against employmentincome (Sec. 6 ITA) and other income (Sec. 10 ITA). Remaininglosses may be carried forward, provided the loss was not onlyentered in the tax return but also assessed, i.e. the tax adminis-trator approved the tax loss in the tax return. A loss carry-forward is limited up to five years; for losses generated priorto 1 January 2004 this period is seven years.

Losses incurred in other categories may neither be set off norcarried forward.


C Real Estate Taxes

12 Does The Czech Republic levy a real estate trans-fer tax on sale of real estate or shareholdings?Is it avoidable?

TRANSFER OF REAL ESTATE AND COMPARABLE RIGHTSReal estate transfer tax is levied on transfers of immovableproperty (land and buildings) located in the Czech Republic.Taxable transactions include – inter alia – the sale and ex-change of immovable property.

The taxable base is computed as either the real estate valueunder the Valuation Act or the purchase price, whichever ishigher. The taxpayer is the seller. The buyer is, however, theguarantor of the tax.

The transfer of real estate (plots of land, buildings and struc-tures) is subject to a real estate transfer tax of 3%. There are anumber of tax exemptions, e.g. the first transfer (for considera-tion) of newly-constructed buildings or apartments, if not usedfor contributions of real estate in the share capital of any com-pany that is a resident of an EU Member State.

TRANSFER OF SHARESThere is no real estate transfer tax levied upon a sale of shares,unless the real estate was contributed to the share capital of acompany and the sale of shares occurs within five years aftersuch contribution.


The real estate tax (the land tax and the building tax) coverslands, buildings, residential apartments and non-residential(business) premises. The taxpayer is in general the ownerregistered in the Land Registry. For the purposes of the taxcalculation, the status as per 1 january of the relevant calendaryear is to be taken into account as the decisive date.

All the Czech lands registered in the Land Registry (except forthe built-up lands) are subject to the land tax. The building taxis levied on Czech buildings as well as apartments and non-res-idential premises provided that these are registered in the LandRegistry and the building permit has been issued for their con-struction.

For the purposes of the land tax, the tax base is derived fromthe land type and the land area (in square meters). The highesttax rate applies to building lands and amounts to CZK 1 per m2

multiplied by the municipal coefficient (ranging from 1 to 5).

For the purposes of the building tax, the tax base of buildingsis determined as the built-up area in square meters (m2). Thebuilding tax rate ranges from CZK 1 to 10 per m2 depending onthe type of the building. The highest tax rate of CZK 10 appliesto buildings that are used for business activities. The basic taxrate is to be increased by CZK 0.75 per each floor. The in-creased tax rate must further be, as in the case of the land tax,increased by the above-mentioned municipal coefficient.

14 Is there a »real estate clause« in the case ofshare deals in the double taxation agreementbetween Czech Republic and the Austria?

no, the right to taxation in the case of share deals lies with thecountry of residence of the vendor.

VAT

15 What are the VAT consequences of a sale of realestate (share deal/asset deal)?

The transfer of buildings, apartments and commercial premisesis VAT-exempt after three years from the issuance of first occu-pancy approval or from the date of initial actual occupancy,whichever moment occurs first. Should the transfer occurwithin 3-year period, it would be subject to VAT of 19 % or 9 %in the case of family houses and/or residential buildings withthe given size.The supply of the building construction or its parts togetherwith the transfer of the land is VAT exempt provided that thesupply takes place after 3-year period.

The transfer of the un-built lands except for the building landsis exempt from VAT. Accordingly, the building land, i.e. undevel-oped land meant for construction, is always subject to the tax(19 % VAT).


The lease of real estate is VAT-exempt, however, some excep-tions exist, e.g. the lease of premises for car parking. never-theless, the lessor has the option to levy the lease with the VAT(19 %) provided that also the tenant is the Czech VAT payer whouses the leased real estate for his/her economic activities. Thisoption can only be exercised by the lessor. If the lessor opts forthe VAT, the approval by the tax authority is not needed. From2009, the option for VAT does not have to be notified to the taxauthorities.


E Other Taxes

17 Is there a capital tax for equity injectedinto a local company?n/A

18 Is there a stamp duty on debt granted toa local company?

Stamp duties are levied on certain legal transactions duringadministrative or court proceedings. Court fees vary between1% and 4% of the amount in dispute, whereas the minimum andmaximum fees are stipulated or are levied as fixed amounts.Administrative fees are usually levied as fixed amounts.


austria

croatia

czech republic

hungaryromania

slovakia

slovenia

estonia

latvia

lithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Hungary? Does the acquisition have to becarried out by a Hungarian corporation?

After the accession of Hungary to the EU with 1.5.2004 individ-uals and legal persons of the EU or EEA may generally acquirereal estate in Hungary under the same conditions as residents.

However, the acquisition of secondary residences and agricul-tural land by non residents in Hungary during a transition periodof 5 years (secondary residence) and 7 years (agricultural land)is subject to a permission of the competent Hungarian author-ity. After the expiration of this transitory period 2009/2011, alsosecondary residences and agricultural land may be acquired bynon resident EU/EEA investors without any restrictions. How-ever, as far as agricultural land is concerned, the Ministry ofAgricultural and Rural Development intends torequest an extension of the transitory period by another threeyears (i.e. non residents may only acquire agricultural land asof 2014).

Individuals and corporations who are resident outside theEU/EEA may acquire real estate in Hungary if they meetthe conditions set up by the governmental authority (theAdministration Office).

As described above, it is generally not required that non resi-dents acquire real estate in Hungary by a Hungarian company.However, if non residents establish a Hungarian branch or sub-sidiary which acquires the real estate in order to carry on theirbusiness activity in Hungary, no permission of the competentHungarian authority is required even if a secondary residence/agricultural land is acquired within the transition period.

2 Which importance does the Hungarian landregister have?

The ownership right according to civil law of real estate mayonly be acquired with the incorporation of the property right inthe land registry. The required documents have to be submittedto the land registry within 30 days after the conclusion of thecontract. For the incorporation of real estate an administrativefee amounting to HUF 6,000 has to be paid. If a mortgage isincorporated, an additional fee of HUF 12,000 has to be paid.


B Income Tax


¬ Corporate income tax rate:¬ 16 %¬ 10% for income up to HUF 50 million under

certain conditions¬ Minimum tax base: 2 % of the total adjusted

income (may be avoided by submitting a specialdeclaration to the tax authorities)

¬ 4 % solidarity tax¬ Personal income tax rate:

¬ 16 % for business income¬ 18 % – 36 % (progressive tax rate) for salary income¬ lump-sum taxation for entrepreneurs exempt

from VAT with an annual income below HUF 15million (100 million for retailers):18% up to HUF 1,700,000 and 36% above

¬ 4 % solidarity tax

¬ PARTICIPATION EXEMPTIONS:The Hungarian Corporate Income Tax Act provides foran exemption of dividends derived by resident compa-nies on their shareholdings in domestic and foreigncompanies, provided that the distributor is not a CFC.The exemption applies regardless of the amount andthe holding period of the participation. The exemptionis also granted to Hungarian permanent establish-ments of non-resident companies.

In general, capital gains are taxable in Hungaryunder the general rules. nevertheless, by using the»reported participation scheme«, capital gainsrealized upon the alienation of domestic and foreignshareholdings are tax exempt, provided that thefollowing conditions are met: the acquisition of theshareholding is reported to the tax authority within30 days after the acquisition (by submitting therespective contract), the minimum holding partici-pation must reach at least 30% of the subscribedshare capital, the shareholding was acquired after1 January 2007 and the participation is held for atleast one year. This »reported participation scheme«applies only to Hungarian residents.

4 What is the tax depreciation period for real estatein Hungary? Are there depreciation categories?Which depreciation method is used?

The depreciation rate for buildings generally amounts to 2%p.a., whereby the acquisition costs serve as the basis for de-preciation. Property (land) may not be depreciated accordingto Hungarian law. For company law purposes, an estimatedresidual value has to be taken into account in the course ofdepreciation. For tax purposes, however, a residual value maynot be taken into account and therefore an entire depreciationhas to be conducted.

The Hungarian law provides for a briefer depreciation of build-ings only for lightweight constructions (providing in this case fora depreciation allowance between 2-6%). Additionally, a lessormay claim a depreciation rate of 5% p.a. of the acquisition costs.

Equipment installed by tenant may be depreciated according tothe Hungarian corporate income tax act with 6% p.a., irrespec-tive of the actual term of lease. From a company law perspec-tive, however, it would be practicable to adapt the depreciationterm to the estimated term of lease.

5 When is a foreign investor subject to limited taxliability in Hungary?

Foreign individuals not disposing of the Hungarian citizenship,a residence or their habitual place of abode in Hungary (nonresidents) are only subject to tax in Hungary with incomearising from Hungarian sources. For example, income resultingfrom the rental or sale of real estate situated in Hungary orfrom dividends derived from Hungarian companies is subjectto limited tax liability. The income is generally taxed at progres-sive rates up to 36% (plus possibly 4% extraordinary tax). How-ever, if real estate is sold, special rules apply (tax rate of 25%,tax exemption of capital gains resulting from the sale of realestate used for residential purposes after the course of 5 years,in case of other real estate after the course of 15 years).

Corporate entities not disposing of a legal seat or place ofeffective management in Hungary are only subject to limitedcorporate tax liability with income derived from permanentestablishments situated in Hungary. The corporate income taxrate amounts to 16% (plus possibly 4% extraordinary tax).

If a taxation right according to the domestic Hungarian tax lawshas to be assumed, it has to be examined whether an applicabledouble tax treaty allocates a corresponding source taxationright to Hungary maintaining the domestic taxation right.

6 Are share deal and asset deal possible inHungary? What are the main consequences?

The real estate investor can acquire Hungarian real estate inthe course of an asset deal (i.e. the direct acquisition of realestate) or share deal (i.e. the acquisition of a corporation owningreal estate). In the case of a share deal, further reorganizationsteps may be required to achieve a debt push-down.

ASSET DEALBy performing an asset deal, the investor directly acquires thereal estate from a Hungarian company. The capital gain real-ized upon the sale of this real estate would be subject to corpo-rate income tax and solidarity tax at the level of the Hungariancompany.

As the Hungarian tax law does not differentiate between part-nerships and other types of corporations, the acquisition of apartnership interest would have the identical tax-consequencesdescribed above.

SHARE DEALIn a share deal, instead of a direct acquisition of a real estateproperty, the participation in an acquisition vehicle is obtained.

As regards to the taxation of capital gains deriving from thesale of a quota, the following shall be noted in domestic andinternational relations. Under the general rules, such gainsderiving from a share deal at the level of the seller are taxablefor corporate income tax (16%) and solidarity tax (4%) purposesin a domestic situation. By certain structuring, however, a par-ticipation exemption might be reached both from a corporateincome tax and solidarity tax point of view.




THIN CAPITAL RULESThe Act on CIT provides for a debt-to-equity ratio of 3 to 1.Accordingly, if the debts of a Hungarian company exceed threetimes the net equity, the interest paid on the excess is not de-ductible for tax purposes at the level of the paying company.These provisions are applicable to all loans – except for loansfrom financial institutions – including non-public bonds andcertain bills of exchange, irrespective of the related partystatus of the borrower.

TRANSFER PRICING RULESThe Hungarian tax law provides for very strict transfer pricingrules and documentation requirements, which are applicablefor all contracts and transactions concluded between relatedparties. Consequently, the interest payable on loans has to beat arm’s length. As the Hungarian finance authorities do notpublish, as a safe harbour rule, generally acceptable interestrates, the arm’s length interest has to be considered in eachtransaction depending on the actual circumstances of thetransaction (given the risk associated with the debtor, theprincipal, the conditions, the term of the loan, etc).


As a general principle, costs (except acquisition costs) andexpenditures are deductible as far as they are incurred for busi-ness purposes. Interest on loans and other debts are generallydeductible for tax purposes, but the 3:1 debt-to-equity ratio hasto be taken into account. Other costs relating to the acquisitionincluding transaction costs (e.g. due diligence costs, consul-tancy fees for structuring, valuation costs, etc.) and interestexpenses of debt financed acquisition are immediately taxdeductible, provided that the business purpose test is fulfilledregarding the acquisition.


GROUPThe Hungarian income tax legislation does not provide for thepossibility of taxation as a single fiscal unity. Each companysubject to income tax is regarded as a separate entity for taxpurposes. In Hungary group taxation only exists for VAT pur-poses.

MERGERIf the real estate is held by a Hungarian corporation (target) andthe purchaser acquires the target, Hungarian law allows themerger of the Hungarian target (corporation holding the realestate) with the purchasing company as a strategy to generatea debt push-down. Cost or expenditures connected with the ac-quisition of the shares of target are immediately tax deductible,provided that the business purpose test is met.

CONVERSIONA Conversion is legally possible. Acquisition interest expensesare deductible but the income-pooling of target and acquisitioncompany is not allowed (partnership is a taxpayer).


Hungary does not levy any withholding taxes on cross-borderpayments, provided that the recipient is a corporation (regard-less of whether the recipient is resident in the EU, OECD or aTreaty country or not). The above withholding tax exemption isavailable for dividend distribution, interest or royalty paymentsto abroad. Only private individual recipients may be subjectto personal income tax on their Hungarian-source income(dividends, interest or royalties). In such case, the respectivetreaty may reduce or eliminate withholding taxation if certainadministrative requirements are met (e.g. availability of a taxresidence certificate, beneficial ownership declaration priorthe payment or at least by the end of the year, etc).


Under the Hungarian regulations, tax losses may be carriedforward without any time limitation.nevertheless, the loss carry forward may be subject to theprior approval of the Hungarian tax authority in the fourth taxyear of existence of the company or in any subsequent years ifthe following conditions are fulfilled.The pre-tax accounting profit of the company is negative and¬ the revenues in the tax year do not reach half of the

combined value of costs and expenditures recorded,or

¬ the taxpayer’s tax base was negative in the previoustwo tax years as well.

The HTA permits the loss carry forward in case of special con-ditions, i.e. if the losses were due to »vis major« (unforeseencircumstances) or if the taxable person can prove that it wasdoing serious efforts on avoiding or minimizing the losses.


C Real Estate Taxes

12 Does Hungary levy a real estate transfer tax onsale of real estate or shareholdings?

TRANSFER OF REAL ESTATE AND COMPARABLE RIGHTSReal estate transfer tax is levied on the transfer of immovableproperty (land and buildings) located in Hungary. Taxable trans-actions include – inter alia – the sale and exchange of immov-able property as well as transfers without a legal title andtransfers of beneficial ownership. The tax base is the marketvalue of the transferred real estate (including e.g. VAT). Thegeneral tax rate is 10%. If real estate used for residential pur-poses is transferred, a reduced rate of 2% up to the volume ofHUF 4,000,000 applies. Above this threshold the sale of thereal estate is taxed at 6%. A further reduction (real estatetransfer tax rate of 2%) may be applied for entrepreneurswhose main activity is the selling or financial leasing of realestate, provided that further conditions are fulfilled.

TRANSFER OF SHARESPerforming a share deal for consideration does not trigger anyreal estate transfer tax, regardless of whether the assets of thecompany consist partly or exclusively of real estate.


The municipalities may levy taxes on property (plots and build-ings) located in their territory.

Undeveloped land plots within the territory of the municipality(with some exceptions like forestry) are subject to the tax onland plots. The tax base can be determined either by the sizeor the adjusted market value of the land, depending on thedecision of the respective municipality. The tax rate may befixed by the municipality, but may not exceed HUF 260 persqm or 3% of the value of the land.

Buildings situated within the territory of the municipality aregenerally subject to a tax on buildings, but there are some ex-emptions applicable. The tax base may be determined either bythe size or the adjusted market value of the building, while thetax rate may not exceed HUF 1,170 per sqm or 3% of the valueof the building.

14 Is there a »real estate clause« in the case ofshare deals in the double taxation agreementbetween Hungary and Austria?

no, the right to taxation in the case of share deals lies withthe country of residence of the vendor.

D VAT


ASSET DEALGenerally, the alienation of real estate is subject to VAT at arate of 20%. As of January 1, 2008, the sale of real estate occu-pied more than two years ago and of undeveloped land (exceptbuilding plots) as well as the rental and leasing of property istax exempt. notwithstanding from this general rule, the tax-payer may opt for taxation, but will be bound to his decisionfor a period of five years.

With respect to real estate transactions, taxpayers may optto be taxable on the sale or the lease or both. Within a certaintransaction type a taxpayer must not opt for a different taxtreatment.

However, it is obligatory to charge VAT on transactions notsubject to the above mentioned exemptions.

If a private individual, who is so far not qualified as a taxpayerfor VAT purposes, continuously sells building plots or new realestate, the sales will be subject to VAT after 4 subsequent saleswithin a two year period (starting with 1 January 2008).

SHARE DEALThe sale of a quota is exempt from VAT and also not subject toany transfer tax regardless of the fact that the main asset ofthe entity acquired may be a real estate. Consequently, by theapplication of a share deal both VAT financing and transfer taxpayment obligations may be avoided.

16 What are the VAT consequences of renting/leasing of real estate?See 15.

E Other Taxes

17 Is there a capital tax for equity injected intoa local company?

no capital tax obligation incurs in Hungary; the contribution orfurther increase of equity is free from taxation except some mi-nor registration duties (HUF 40,000).


Procedural fees on court proceedings are levied on the filing oflaw suits with a civil court (subject to the value of the claim). Ingeneral, the fees amount to 6% of the value under dispute, butat least HUF 7,000 up to a maximum of HUF 900,000. In addi-tion, procedural fees are levied by the Court of Registration onincorporation or any other change regarding the registration ofcompanies. The fees vary from HUF 30,000 to HUF 600,000.


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A Legal/General

1 Are non-residents entitled to acquire real estatein Romania? Does the acquisition have to becarried out by a Romanian corporation?

Until 2012, foreign individuals and foreign legal entities arenot allowed to buy land in Romania. For land to be used foragricultural purposes, the restriction will be valid until 2014.

However, non-resident investors are allowed to buy buildingsor parts of a building (i.e. apartments).

The acquisition of real estate may be done through a Romanianlegal entity.

2 Which importance does the Romanian landregister have?

The ownership right shall be entered in the Land Registry onthe basis of the document through which it has been consti-tuted or validly transmitted. The registrations shall be oppos-able to third parties on the date the request has been filed andwill automatically be filed by the Public notaries as their lawfulobligation (as a general rule). Basically, if you are the owner ofa piece of land, you must appear in the Land Registry as owner.


B Income Tax


¬ Corporate income tax rate:¬ 16 %¬ A so-called »micro-enterprise« tax regime may

apply to certain companies (such companies shouldhave between one and nine employees, annualrevenue should not exceed EUR 100,000 and nomore than 50% of the annual revenue should be de-rived from the supply of management and advisoryservices). Instead of paying the regular corporate taxon profit, microenterprises may choose to pay a taxof 3% starting 2009 of the total gross revenue.

¬ Personal income tax rate:¬ 16 %¬ 2%/3% (depending on the value of the transaction)

for real estate applied to the entire income derivedfrom the sale of real estate;

¬ Participation exemptions:¬ Full exemption for dividends received from a

Romanian company;¬ For inbound dividends additional requirements

for EU members exist (minimum 10% shareholdingin the subsidiary and minimum holding period of2 years)

4 What is the tax depreciation period for real estatein Romania? Are there depreciation categories?Which depreciation method is used?

Mainly, the depreciation period for buildings is between 40to 60 years according to the Government Decision no.2,139/2004 regarding the depreciation register of the fixedassets. In accordance with the Romanian Fiscal Code thedepreciable fixed assets do not include land.

Also, according to the fiscal legislation for constructions onlythe straight-line-method of depreciation is applicable.

5 When is a foreign investor subject to limited taxliability in Romania?

The non-residents performing activities in Romania are subjectto income tax on the Romanian source income. Provided thatresidency conditions are met, after a period of 3 consecutiveyears, the worldwide income is subject to taxation in Romania.

Foreign entities are generally subject to Romanian tax on the in-come derived from Romania. The extent to which a foreign en-tity is subject to Romanian taxation depends on its activities un-dertaken in, or related to, Romania.

A foreign entity can be subject to taxation by establishing abranch, creating a permanent establishment, representativeoffice or by becoming subject to withholding tax on the Roma-nia sourced income.

6 Are share deal and asset deal possible inRomania? What are the main consequences?The real estate investor can acquire real estate located inRomania in the way of an asset deal (e.g. direct acquisition ofreal estate) or share deal (e.g. acquisition of corporation owningreal estate). Please find below a short overview of the mainadvantages and disadvantages with respect to the abovementioned ways used for acquisition of real estate:

ADVANTAGES DISADVANTAGES

SHARE DEAL no VAT applicable lower tax on buildings,on transfer of shares; until revaluation

is performed;no need to adjust lower depreciationinput VAT; expenses + higher taxable

profits unless revaluationis made;

ASSET DEAL higher depreciation higher tax on buildings;expenses and lowertaxable profits;


DEDUCTIBILITY THRESHOLDThe law limits the level of deductibility for loans obtained fromcompanies other than banks, their branches, credit coopera-tives, leasing and mortgage companies, at:

¬ the national Bank of Romania’s (nBR) referenceinterest rate – for ROn denominated loans;

¬ an annual interest rate for foreign currency denomi-nated loans, rate which is periodically updated by theGovernment. This interest rate was 7% for 2008.The interest rate used for the year 2009 was not yetpublished.

The interest expense in excess of the above limits is treatedas non-deductible expense and its disallowance is permanent.

DEBT-EQUITY RATIO (D/E)The deductibility of interest expenses as well as of foreignexchange expenses is also subject to limitations based on thecomputation of the debt-equity ratio (i.e. borrowed capital di-vided by own capital). For the purposes of the above ratio, thedebt represents all credits and loans with a term longer thanone year, including supplier credit, but excluding bank loansand lease operations.

The interest expenses are deductible if the debt-equity ratio ispositive and less than or equal to 3. If it is higher than 3 or neg-ative, the interest is non-deductible, however it can be carriedforward and deducted in future tax periods, when the ratiodrops to 3 or below.



The costs relating to the acquisition including transactioncosts (e.g. due diligence costs, consultancy fees for structuring,valuation costs, etc.) and interest expenses of debt financedacquisition are deductible for corporate income tax purposes,provided that the general deductibility rule is fulfilled, namely»expenses are deductible only if they are incurred with thescope of obtaining taxable income«. Generally, it is consideredthat shares produce dividends. In case they may qualify asnon-taxable, tax inspectors usually disallow the deduction ofacquisition costs.


The Romanian legislation does not allow tax grouping forcorporate income tax purposes.

A merger or a conversion is legally possible. According to theRomanian tax legislation, the interest related to a loan is de-ductible only if this loan is used in order to obtain taxable in-come. Generally, shares are not considered to generate taxableincome, therefore the interest related to the loan for theacquisition of shares could be considered as non-deductiblefor corporate income tax purposes. However, in case that a debtpush down structure will be used for financing purposes, therelated interest expense could be deductible for corporateincome tax purposes.


non-resident are subject to withholding taxes (16% tax rate)on interest revenues derived from Romania.

Romania has implemented the Interest and Royalties Directivewith a transitional period for the application of this Directiveuntil December 2010 and until then, 10% WHT applies on pay-ments of interest and royalties made by Romanian companiesto companies resident in EU member states if the Directivecan be applied. Such payments are WHT exempt starting withJanuary 2011, under the same conditions.

If the interest payments are made to a beneficiary resident in acountry with which Romania has concluded a Double TaxationTreaty and the beneficiary of the payment makes available a taxresidency certificate, then the DTT prevails over the domesticlegislation.


The taxpayers are allowed to carry forward fiscal losses asdeclared in the yearly profit tax returns for a period of five yearsbased on a First In First Out (FIFO) method. As an exception,the fiscal loss incurred starting with year 2009 and onwardsmay be carried forward for a period of 7 years.

For foreign legal persons, this rule (i.e. carry forward of losses)applies only to revenues and expenses attributable to theirpermanent establishment in Romania.

C Real Estate Taxes:

12 Does Romania levy a real estate transfer taxon sale of real estate or shareholdings?Is it avoidable?

no real estate transfer tax is applicable in Romania.


In Romania real estate is subject to local taxes and dutieswhich are regulated by the Fiscal Code.

TAXES ON BUILDINGSFor buildings owned by individuals, the rate for calculating thetax is 0.1%. The rate applies to the taxable base established bythe law according to the type of building.

For buildings owned by legal entities, a 0.25% – 1.50% rateapplies to the gross book value of the building, accounted for inthe financial statements. In case of buildings which have notbeen revalued for a period of three years prior to the year oftaxation, the tax due amounts to 5% – 10% of the gross bookvalue of the building. A lower building tax is due for buildingswhich are fully depreciated. no taxes on buildings are due oncertain buildings and special constructions.

Starting 2008, the local council may grant exemptions on localtaxes on buildings and land to legal entities under the condi-tions of implementing state aid schemes with the purpose ofregional development.

TAXES ON LANDThis tax is calculated annually as a fixed amount per squaremeter and is payable in two instalments, on March 31 andSeptember 30. The tax varies in accordance with the locationof the land and its destination.

14 Is there a »real estate clause« in the case ofshare deals in the double taxation agreementbetween Romania and Austria?

According with the double taxation agreement concludedbetween Romania and Austria, article 13, paragraph 4, gainsderived by a resident of a Contracting State from the alienationof shares deriving more than 50% of their value directly orindirectly from immovable property situated in the otherContracting State may be taxed in that other State.


D VAT

15 What are the VAT consequences of a sale ofreal estate (share deal/asset deal)?

ASSET DEALThe sale of old buildings and of ancillary land, as well as landwhich is not meant to be used for construction is exempt with-out deduction right.

new buildings (or part of buildings) and land that could beused for constructions sold by VAT payers do not benefit of thisexemption. The sale of a new building means a sale made atthe latest on 31 December of the second year following thefirst occupation or use, as the case may be.

The supplier has the option to apply VAT on the exempttransactions.

If a taxable person has deducted VAT related to a real estateand sells or rents immovable property under the VAT exemp-tion regime, adjustments for the deduction right should beperformed. The adjustment period is 20 years for immovableproperty built, acquired or modernised after January 1, 2007.

SHARE DEALno VAT applicable on transfer of shares.


With respect to the VAT on rent or leasing of real estate, afterEU accession, the rental or leasing of immovable goods isexempt without right of deduction, except for certain casesexplicitly specified by the law. As in case of sale of immovableproperty, the taxpayer has the option to apply VAT on theseoperations.

E Other Taxes


18 Is there a duty on debt granted to a localcompany?n/A


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A Legal/General

1 Are non-residents entitled to acquire real estatein Slovakia? Does the acquisition have to becarried out by a Slovakian corporation?

As of the date of accession of Slovakia to the EU on 1. 5. 2004foreigners (all natural persons or legal entities not resident inSlovakia, including branch offices of foreigners – except branchoffices of a foreign bank) may acquire ownership of real estate.There are restrictions concerning agricultural and forest prop-erty. Prior to accession the ownership of real estate by foreign-ers was not possible.

The acquisition does not have to be carried out by a Slovakiancorporation. However, it must be checked, if the following rentalof the property is qualified as a commercial or non commercialactivity.

2 Which importance does the Slovakian landregister have?

The ownership to real estate that is transferred under the con-tract passes over to the buyer as soon as the ownership right isregistered with the Cadastral Register (“katastr nehnuteľností”).The registration of the ownership will be made on applicationby the Land Registry Office within a period of 15 days (chargedwith the increased administrative fee of EUR 265.50), or of 30days respectively of 60 days in difficult cases.


B Income Tax



¬ Personal income tax rate:¬ Single tax rate 19 %

¬ Participation exemptions: no

4 What is the tax depreciation period for real estatein Slovakia? Are there depreciation categories?Which depreciation method is used?

Buildings – that belong to the fourth depreciation group – havea tax depreciation period of 20 years (since 1.1.2004). If thebuildings were acquired by way of the financial leasing, theycan be depreciated in 12 years. There is also a possibility of thecomponent depreciation of the building equipments which area part of buildings (e.g. computer networks, elevators and lifts,air-conditioning), but can be depreciated in a shorter time.Both straight-line and accelerated methods of depreciationare allowed. Land cannot be depreciated.

5 When is a foreign investor subject to limitedtax liability in Slovakia?

INDIVIDUAL NON-RESIDENT INVESTORSAn individual real estate investor is non-resident in Slovakiaif he has neither a domicile nor his habitual place of abode inSlovakia.

non-resident individuals are taxed on real estate only withrespect to income from the following sources:¬ business income if the real estate business activity

is carried out in Slovakia or the Slovak real estatebelongs to a non-Slovak business;

¬ income from rentals and leasing if the immovableproperty is located in Slovakia, irrespective whetherthe immovable property belongs to a Slovak or non-Slovak business;

¬ income from the sale of real estate located in Slovakiawithin the five-year holding period in the case of owner-ship of the real estate and within two years in the caseof the domicile in the real estate

However, if a non-resident individual, who does not create apermanent establishment, makes the sale to another non-resident entity and certain other conditions are met, the saleis not subject to income tax at all.

non-resident individuals with Slovak-source real estate incomehave to file tax returns. The 19% flat tax rate applies.

CORPORATE NON-RESIDENT INVESTORSA corporate real estate investor is non-resident in Slovakiaif the place of management or legal seat is not situated inSlovakia.

Income of non-resident corporations (comparable to Slovakcorporations) from immovable property (including capitalgains) situated in Slovakia is taxable as business income.

However, if a non-resident corporate investor, who does notcreate a permanent establishment, makes the sale to anothernon-resident entity and other conditions are met, the sale is notsubject to income tax at all. The 19% flat tax rate applies.

6 Are share deal and asset deal possible inSlovakia? What are the main consequences?

The real estate investor can acquire Slovak real estate by wayof an asset deal (e.g. direct acquisition of real estate) or a sharedeal (e.g. acquisition of a corporation owning real estate).

ASSET DEALA Slovak foreign entity may directly acquire Slovak real estate.Interest expenses for a debt-financed acquisition may be de-ducted from the income from real estate if real estate is rentedout or used for its own business. no real estate transfer tax isapplied.

If the investment fund is considered to be a transparent com-pany in the state of its residence (outside Slovakia), it is consid-ered to be a transparent company by Slovak law, too. The in-come of shareholders is subject to the personal income tax rateof 19%.

If the investment fund is considered to be a non-transparentcompany in the state of its residence (outside Slovakia), the taxbase is created by the company income and is subject to thecorporate income tax rate of 19%.

SHARE DEALInvestment through a resident corporation: The tax base is cre-ated by the company income. The income of shareholders (divi-dends) is not subject to taxation in Slovakia.

Investment through a resident partnership: The income of ageneral partnership (v.o.s.) is split between the shareholdersand is subject to the personal income tax rate of 19%. The in-come of limited partnerships (k.s.) is split between the unlim-ited and limited partners. Income of the limited partners is sub-ject to the corporate income tax as a whole. Income of theunlimited partners is taxed separately at the level of each un-limited partner. Tax rate is 19% for both limited and unlimitedpartners.



THIN CAPITAL RULEWith effect from 1 January 2010, the thin capitalization rulesshould re-enter into force under following conditions:¬ the creditor’s share in the borrower’s capital

(both direct and indirect) of at least 25%;¬ the debt/equity ratio exceeds 6:1;¬ applicable if the average credit balance exceeds

EUR 3.3 million.


TRANSFER PRICING RULESThe Slovak ITA rules for transfer pricing are in line with OECDTransfer Pricing Guidelines. As from January 2009 transferpricing documentation in line with the OECD Code of Conductis obligatory. If requested by the tax authority during a taxaudit it must be submitted within 60 days. Two types of transferpricing documentation can be used, depending on the size ofthe company and some other criteria. In a simplified way –smaller companies can use simplified documentation.


Acquisition costs can be deductible by shareholders. Interestexpenses for a debt-financed acquisition may be deducted fromthe income from real estate if real estate is rented out or usedfor its own business.


In general, each corporate entity is regarded as a separateentity for income tax purposes. Thus, parent corporations andsubsidiaries are taxed separately. Resident parent corporationsand resident subsidiaries may not elect for taxation as a fiscalunity. Any agreements in this regard are not valid for taxpurposes.

Based on the Slovak ITA mergers and demergers are tax-neutral. There is no special Reorganization Tax Act; instead, thetax consequences are determined by the Slovak ITA. Acquisitioninterest expenses are deductible (according to unpublishedruling, if assumption of future taxable income met) and theincome-pooling of target and acquisition company is allowed.

The same is true for conversions but the income-pooling is onlypossible after conversion at the level of the unlimited partner.


Yes, generally the withholding tax rate on interest and royaltypayments is 19 % of the gross amount of income. A lower ratemay be provided in the applicable DTA and per applying theEU Interest and Royalty Directive for group purposes.Payments for the financial leasing are considered as aninterest.

Dividends are not subject to withholding tax.


A Loss Carry Forwards is granted but limited to 5 years pro-vided that the losses were computed according to generallyaccepted accounting principles and adjusted for purposes ofthe ITA. This applies to losses incurred starting in 2004. Thereis no obligation to invest an amount equivalent to the lossesor to carry forward the loss in equal portions. A Loss CarryForward is also possible for the legal successor.

C Real Estate Taxes

12 Does Slovakia levy a real estate transfer taxon sale of real estate or shareholdings?Is it avoidable?

As from 1 January 2005, a real estate transfer tax is not leviedin Slovakia.


Real estate tax is levied on Slovak real property, which com-prises land, buildings and flats. The taxable base is the as-sessed value of 1 m2 of land multiplied by the area in m2.Lower and higher annual tax rates are limited by the law andthe Slovak municipalities may apply their local tax rates witheffect from 1 January 2005.

14 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenAustria and Slovakia?

no, the right to taxation in the case of share deals lies with thecountry of residence of the vendor.


D VAT

15 What are the VAT consequences of a sale ofreal estate?

The delivery (sale) of real estate or part of real estate is VATexempt if the delivery is carried out within five years after thefirst use. The VAT registered person may opt to charge the VAT.The seller is only entitled to a full input VAT deduction for serv-ices received related to the acquisition of real estate and theacquisition costs when the sale is subject to VAT. The samehas to be considered for VAT on some major repairs undertakenwithin ten years of the sale. If input VAT was deducted, a VAT-exempt sale within ten years leads to a pro-rata reversal ofinput VAT deduction. The delivery of the land which is used forconstruction purposes as a building plot is always deliveredwith VAT.


In general, rentals are exempt from VAT. Excluded are rents ofcentres, car parks, etc. The taxpayers may opt to be taxable onthe rent, if the hirer is a taxable person.The leasing out of real estate is VAT exempt. The lessor maylease real estate and charge the VAT only if the lessee is regis-tered for VAT in Slovakia. The leasing agreement with the obli-gation to buy the subject of the leasing is treated as delivery ofgoods. A leasing agreement with the right to buy is treated assupply of services.

E Other Taxes


18 Is there a duty on debt granted to a localcompany?n/A


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A Legal/General

1 Are non-residents entitled to acquire real estatein Slovenia? Does the acquisition have to becarried out by a Slovenian corporation?

Since 1.5.2004 citizens of the European Union may acquire realestate without any special requirements (the same as Sloven-ian citizens).

Special conditions for purchasing real estate apply for US citi-zens, Swiss citizens, and citizens of EU candidate countries andSlovenians without Slovenian citizenship.

Citizens of other countries can become owners of real estate inSlovenia only in accordance with inheritance law and the reci-procity principle.

It is common practice that the acquisition of real estate forbusiness purposes is carried out by Slovenian corporations.

2 Which importance does the Slovenian landregister have?

The ownership right may according to civil law regarding realestate only be acquired with the incorporation of the propertyright in the land register (Zemljiska knjiga). The registrationnormally takes place within approximately one month.


B Income Tax


¬ Corporate income tax rate:¬ 21% in 2009¬ 20% as of 2010¬ Reduced tax rate of not less than 10% applies under

certain conditions to companies performing businessactivities in special economic zones

¬ Tax rate of 0% applies for investment funds, pensionfunds and insurance undertakings for pension plansunder certain conditions and to venture capital com-panies which were set up under the Venture CapitalCompanies Act and prepare a separate tax state-ment just for that part of their activity.

¬ Personal income tax rate:¬ Marginal tax rate:

¬ Up to EUR 7,410.42: 16%¬ From EUR 7,410.42 to EUR 14,820.83: 27%¬ From EUR 14,820.83: 41%

¬ PARTICIPATION EXEMPTIONSWhen calculating the tax base for corporate incometax act purposes, the taxpayer may exclude dividendsreceived and other similar income, except hiddenreserves, if the payer:¬ is liable to pay the tax based on the Corporate

Income Tax Act; or¬ is (i) a resident of an EU Member State for tax pur-

poses in accordance with the law of such MemberState and is (ii) not deemed to be a resident outsidethe EU in accordance with an international treatyon the avoidance of double taxation concluded witha non-Member State and is (iii) a taxpayer subjectto one of the taxes in connection with which thecommon system of taxation applying to parent com-panies and subsidiaries from different EU MemberStates, whereby a company that is exempt fromtax or that has the possibility of a choice of taxationshall not be deemed to be a taxpayer; or

¬ is liable to pay tax comparable to the tax accordingto Slovenian Corporate Income Tax Act and is not aresident of a country – or in the case of a businessunit, not situated in a country – in which the generalaverage nominal level of tax on corporate profits isless than 12.5%.

The aforementioned provisions also apply to a non-residentrecipient if the recipient’s participation in the equity capital ormanagement of the person distributing profits is connectedwith business activities performed by the non-resident in orthrough a permanent establishment in Slovenia.

4 What is the tax depreciation period for real estatein Slovenia? Are there depreciation categories?Which depreciation method is used?

The depreciation rate for building projects including investmentproperty generally amounts to 3 % p.a., for individual buildingunits the deprecation rate increases to 6 % p.a.. Depreciationover a shorter useful life is permitted for financial accountingpurposes but not allowable for tax purposes. For tax purposesonly the straight-line depreciation method may be used.

5 When is a foreign investor subject to limited taxliability in Slovenia?

A foreign investor is subject to limited tax liability in Slovenia ifhe receives income which has its source in Slovenia. Sloveniansourced income is i.a. a business activity carried out through apermanent establishment in Slovenia, income from real estateif the real estate is located in Slovenia or dividends paid by aSlovenian company.

6 Are share deal and asset deal possible inSlovenia? What are the main consequences?A real estate investor may acquire Slovenian real estate in formof an asset deal or a share deal (e.g. acquisition of a corporationowning real estate).

Capital gains due to an asset deal or a share deal are nottreated equal for corporate income tax purposes. Only 50% ofcapital gains due to a share deal are subject to tax at a rate of21% under the conditions prescribed by the Corporate IncomeTax Act. Capital gains due to an asset deal are subject to taxat a rate of 21%.

Capital gains due to an asset deal or a share deal are treatedequal for personal income tax purposes. The tax rate for capitalgains depends on the holding period: 20% for a holding periodof up to 5 years, 15% for a holding period from 5 to 10 years,10% for a holding period from 10 to 15 years, 5% for a holdingperiod from 15 to 20 years and 0% for a holding period greaterthan 20 years. This tax is a final tax. Capital gains derived fromthe direct disposal of immovable property acquired before1 January 2002 are not taxable. Gains on immovable propertyused as a permanent home of the taxpayer for at least 3 yearspreceding the disposal are exempt.

In case of an asset deal the purchase price forms the new taxbasis for depreciation. In case of a share deal the depreciationbasis is rolled over to the acquirer.



Thin capitalization rules apply to loans from shareholders whohold at least 25% of the capital or voting rights at any time dur-ing the tax period. According to the provision, the interest onloans from such shareholders may not be deducted if the loansexceed four times the value of the lender's share in the capitalof the company. Transitional rules apply in the form of a debt-equity ratio of 6:1 for the years 2008 to 2010 and 5:1 for 2011.Thin capitalization rules apply to direct loans and loans grantedby a substantial shareholder indirectly through a bank or any


other third party. The provision covers not only the debt financ-ing of companies subject to unlimited tax liability in Slovenia,but also the financing of companies that are only subject tolimited tax liability such as Slovenian permanent establish-ments of foreign companies.

There is a special rule regarding the interest paid among asso-ciated enterprises in accordance with Art 19 of the SlovenianCorporate Income Tax Act. The interest shall be determined ingeneral in accordance with the arm's length principle.


Interest on the debt-financing of the acquisition of a participa-tion in a (resident or non-resident) corporation is in general taxdeductible regardless of the fact that the participation exemp-tion provides for a tax exemption on income from the acquiredparticipation.

Interest expenses for a debt-financed acquisition of real estatemay, in general, be deducted from the income from real estateif the real estate is rented out or used for the own business.


In Slovenia neither a tax group nor a conversion are legallypossible to generate a debt push down, whereas a corporateincome tax neutral merger is in principle allowed. However, adebt push down/up by down-stream or up-stream merger isnot possible in Slovenia, since interest paid after mergers arenot recognized as expenditures for tax purposes.


Withholding tax at a rate of 15% applies for corporate incometax purposes to interest, with the exception of interest on loansraised and securities issued by the government of Slovenia,and interest paid by banks.

There is no withholding tax if a resident taxpayer notifies thepayer of its tax number and if a non-resident taxpayer foractivities in a business unit in Slovenia notifies the payer ofits tax number.

The Directive on the common system of taxation applicableto interest and royalty payments made between associatedcompanies of different Member States has been implemented.Interest paid to individuals is subject to a flat rate of 20%.


Losses derived from business activity may be carried forwardwithout limitation, provided the loss was computed accordingto generally accepted accounting principles.

C Real Estate Taxes

12 Does Slovenia levy a real estate transfertax on sale of real estate or shareholdings?Is it avoidable?

TRANSFER OF REAL ESTATE AND COMPARABLE RIGHTSThe real estate transfer tax is levied on the transfer of immov-able property if VAT has not been charged on such property.Taxable transactions include the sale and – inter alia – the ex-change of immovable property. In general, the taxpayer is theseller of the immovable property. The tax rate is 2% of the con-tractual price. If the contractual price is 20% lower than thegeneral market value determined by a special rule, the tax baseis 80% of the market value.

The following transfers of immovable property are exempt:transfers to diplomatic and consular missions and to other in-ternational organizations according to international contractsand conventions, transfers made under the privatizationprocess, transfers of agricultural land and transfers connectedto the enforcement of tax collection.

The taxpayer must submit details of the transfer to the localtax administration on a prescribed form within 15 days of thecontract date. The tax office must issue a written invoice for thetax within 30 days and the tax due is payable within 30 days.

TRANSFER OF SHARESReal estate transfer tax is not levied in the case of a transfer ofshares in companies owning Slovenian immovable property.


There is no general real estate tax. However, a land and build-ing compensation duty is imposed on owners or users (renters,etc.) of plots of land and buildings. The tax rates are set up bythe municipalities. For individuals, the duty is deductible if theproperty is used as business property.

In addition, a property tax is levied on individuals who ownpremises (including plots of land and buildings that are alsosubject to the above duty). The taxable base for premises is thevalue determined by law. In general, the first 160 m2 of anapartment are exempt from property tax if the owner or hisfamily members live in the apartment. The tax rates are pro-gressive and depend on the type of the premise and on itsvalue. In general, the rates range from 0.1% to 1.5% of thevalue.

14 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenSlovenia and Austria?

no, the right to taxation in the case of share deals lies with thecountry of residence of the seller.


D VAT


Revenues from the sale of real property are VAT exempt, withthe option to taxation. However, the sale of buildings, parts ofbuildings and land on which the buildings are located is notVAT exempt:¬ if the supply is effected before the buildings or parts

of buildings are used for the first time or¬ if the supply is effected before two years from the

start of the first use.

Transfer of building land is always subject to VAT.

If VAT was deductible when buying a real estate and later thisreal estate is sold under VAT exemption, an adjustment of thedeductible VAT has to be made over a period of 20 years, start-ing with the year in which the VAT was deducted. The sameholds for other tangible assets whereby the correction periodis only five years.


The leasing out of real estate for business purposes is, in gen-eral, VAT exempted. The lessor may opt for taxation if thelessee has a 100% right for VAT deduction. In that case thelessor would charge VAT at a rate of 20% on the rent. Beforecharging the first rent with VAT, both the lessor and the lesseehave to send a note to their respective tax office to inform itabout the option for taxation (same procedure is valid whenbuying a real estate). The lessor is entitled to VAT deductionfor services received in connection to his taxable activity –leasing by charging VAT.

Financial leasing has the same consequences as the sale ofreal estate.

E Other Taxes

17 Is there a capital tax for equity injected intoa local company?n/A.

18 Is there a stamp duty on debt granted to alocal company?n/A.



table of contents

real estate in …CROATIA

CZECHREPUBLIC

HUnGARY

ROMAnIA

SLOVAKREPUBLIC

SLOVEnIA

UKRAInE

AUSTRIA

ESTOnIA

LATVIA

POLAnD

SERBIA

LITHUAnIA

13

18

28

44

48

50

52

07

24

32

42

46

36

austria

croatia

czech republic

hungary

romania

slovakia

slovenia

estonialatvia

lithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Estonia? Does the acquisition have to be carriedout by an Estonian corporation?

Generally, residents of the EU/EEA may freely acquire realestate in Estonia (restrictions exist for: real estate on islandsother than the four biggest islands of Estonia, real estate incertain border regions and land plots including at least10 hectares of agricultural or forest land). Other foreignersgenerally require the permission of the Estonian Governmentor in some cases of the local County governor.

2 Which importance does the Estonian landregister have?

The Estonian land register is a register of real rights inimmovable property. Rights in immovable property arecreated, amended or extinguished by making a respectiveentry in the land register and they can be relied on uponmaking transactions.

B Income Tax


¬ Corporate income tax rate:¬ Unique corporate income taxation system: resident

companies do not pay income tax for retained orreinvested earnings. The income tax obligation isdeferred to the moment of distributing the profits.The corporate income tax is levied on the profit dis-tributions (dividends and gifts, fringe benefits andother non-business expenditures) made by compa-nies at the rate of 21/79 (~26,6% of the net distribu-tion or 21% of the gross distribution).

¬ Personal income tax rate:¬ Flat rate of 21 %¬ Tax free allowance EEK 27,000

¬ Participation exemptions:¬ An Estonian company is exempted from Estonian

CIT on a distribution of dividends that are receivedfrom a qualifying legal person and (i) the payer is aresident of EU or Switzerland and subject to corpo-rate income tax or (ii) the dividend received wastaxed or subject to withholding. qualifying legalperson is a resident or non-resident, in which theEstonian company holds at least 10% of the sharesor votes, and who is not located in a low tax territory.

4 What is the tax depreciation period for real estatein Estonia? Are there depreciation categories?Which depreciation method is used?

Thanks to Estonian unique CIT system there is no need fordepreciation/amortization rules. However the outcome is thesame as there was unlimited depreciation for tax purposes.

5 Are share deal and asset deal possible in Estonia?What are the main consequences?

Both a share deal and asset deal are possible in Estonia.

ASSET DEALCapital gain realized upon the sale of real estate would be sub-ject to Estonian Income Tax. The applying income tax rate for anatural person is 21 %. The business income of a sole proprietoris tax exempt. no income tax is payable on gains from thetransfer of immovable property if an essential part of the


immovable is a dwelling which was used by the taxpayer as hisor her permanent or primary place of residence until transfer(Estonian Income Act § 15 (5)). Estonian legal persons and non-resident legal persons who have a permanent establishment inEstonia do not pay income tax on income or annual profits.Capital gains of a non-resident realized upon sale of real estateare subject to Estonian Income Tax (at the rate of 21%) unlessotherwise provided in a respective tax treaty.

SHARE DEALThe capital gain derived by natural persons or sole proprietorsfrom the alienation of shares in a company are subject to an in-come tax rate of 21%. Estonian legal persons and non-residentlegal persons who have a permanent establishment in Estoniado not pay income tax on income or annual profits. Capitalgains of a non-resident realized upon sale of shares of a com-pany deemed to be a real estate company are subject to Eston-ian Income Tax (at the rate of 21%) unless otherwise providedin a respective tax treaty. A company is deemed to be a realestate company if it holds or has held during the previous twoyears directly or indirectly real estate in excess of 50% of itstotal assets.

If an Estonian company buys its own shares then payments,that exceed contributions, are taxed (rate 21/79) on the levelof the company making the payments (the taxable proceeds).On the level of a shareholder, income tax (rate 21%) is chargedonly on the amount by which the payment exceeds the acquisi-tion cost and the taxable proceeds.



In Estonia there are no thin capitalization rules applicable.Transfer pricing methods in use are comparable uncontrolledprice, resale price, cost plus, profit split, and transactionalnet margin.


Estonian CIT system does not use the concept of tax deducti-bility for property acquired. Acquisition costs, as long theseare related to business, do not increase tax base. There is noincome tax obligation if financing fees and interest are relatedto business.

8 Are there any possibilities to allow pooling ofdebt financed interest with income of target(dept push down)?

MERGERA debt push down can be achieved by merging companies.Mergers are regulated by the Commercial Code. There areno transfer taxes applicable other than smallish registrationduties and mandatory notary’s fees.

GROUPIn Estonia each corporate entity is regarded as a separateentity for profit tax purposes. There is no possibility underEstonian tax law to be taxed on the basis of consolidatedincome or as a fiscal unity.


As a general rule, the interest paid by an Estonian companywill not be subject to withholding tax in Estonia. The withhold-

ing tax of 21 % is imposed on the interest if the interest ratepaid substantially exceeds the rate of the interest receivablefrom a similar debt instrument on the market. A lower ratemay be provided in the applicable DTA and per applying theEU Interest and Royalties Directive.


Thanks to Estonian unique CIT system there is no need forspecial Loss Carry Forwards for tax purposes. However theoutcome is the same as losses could be carried forward forunlimited period of time in conventional CIT system.

C Real Estate Taxes

11 Does Estonia levy a real estate transfer tax onsale of real estate or shareholdings?

There is no real estate transfer tax in Estonia. However transferof real estate do incur registration duties and notary’s fees.


Yes, the rate of annual land tax ranges from 0.1% to 2.5% ofcadastral value of land and buildings. The tax rate is set bymunicipalities by 31 January each year.

13 Is there a »real estate clause« in the case ofshare deals in the double taxation agreementbetween Estonia and Austria?

According with the double taxation agreement concludedbetween Estonia and Austria, article 13, paragraph 1, gainsderived by a resident of a Contracting State from the alienationof shares deriving primarily of their value directly or indirectlyfrom immovable property situated in the other ContractingState may be taxed in that other State.

D Value Added Tax


The asset deal of real estate is VAT exempt. The VAT exemptionis not applied to (1) a new building, (2) an immovable if anessential part thereof is a construction which has been signifi-cantly improved and (3) to a plot within the meaning of thePlanning Act if the plot does not contain any constructionworks. If supply is VAT exempt, the seller may also opt for 18 %VAT taxation if tax authority is notified in writing beforehand.VAT can not be added to dwellings.A share deal is usually VAT exempt. From 1 January 2009shares of a real estate company might be subject to VAT ifthere is no economic activity in that company which owns theimmovable property. It is advisable to seek a preliminaryruling for the sale of shares of real estate SPVs until thereis sufficient amount of practice that selling such shareholdingis not subject to VAT.


The renting/leasing of real estate is generally exempt from theVAT. The lessor may also opt for 18 % VAT taxation in case ofrenting/leasing out of real estate, following the same rulesand requirements as in case of real estate transfer.

E Other relevant business-related taxesn/A


austria

croatia

czech republic

hungary

romania

slovakia

slovenia

estonia

latvialithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Latvia? Does the acquisition have to be carriedout by a Latvian corporation?

In Latvia, the acquisition of buildings is possible without restric-tions. Land in urban areas may be freely acquired by EU andEEA nationals/companies, whose capital for more than halfbelongs to (i) individuals and companies of Latvia and citizensof EU member states or (ii) individuals and companies fromcountries, which have concluded an investment protectiontreaty with Latvia.Direct acquisition of land by other foreigners is subject topermission of the local municipality, except agricultural land,forest land or various protection zones.

Special restrictions concerning the acquisition of rural landand forest land apply to EU citizens and legal entities duringa transitional period until 2011.

2 Which importance does the Latvian landregister have?

All Latvian real estate is entered into the central land registercalled the Land Book. The Land Book protects the rights ofowners for properties and land in the country.

B Income Tax



¬ Personal income tax rate:¬ Flat rate of 23 % as of 1. January 2009

¬ Participation exemptions:¬ A Latvian holding company may receive tax-free

dividends from its resident and EU/EEA subsidiaries¬ Dividends received from a non-resident company

are tax-exempt if the Latvian company holds directlyat least 25% of the shares, except for the juris-dictions classified as »offshore« jurisdiction to the»black list«.

4 What is the tax depreciation period for real estatein Latvia? Are there depreciation categories?Which depreciation method is used?

Buildings, constructions and long-term plantations can bedepreciated at 10%. Depreciation is computed under thedeclining-balance method.

5 Are share deal and asset deal possible in Latvia?What are the main consequences?

Both share and asset deals are possible in Latvia. Capital gainsdue to an asset deal or a share deal are treated equal for in-come tax purposes. Capital gains derived by an individual fromthe sale of real estate are subject to the flat income tax rate of23%. The sale of private property that is owned for a period ofat least 12 month is tax exempt. Capital gains derived by legalentities and non-resident legal persons who have a permanentestablishment in Latvia are subject to corporate income tax atthe rate of 15 %.




In general, two limitations have to be considered: interest ex-ceeding 1.2 times the annual short-term credit rate will be re-characterized as income and a 4:1 debt to equity ratio is ap-plied. But thin capitalization rules are not applicable to loansreceived from and interest paid to banks registered in the EU orcompanies which are incorporated in jurisdictions with whichLatvia has concluded a DTT with a non-discrimination clause,because the limitations are not applicable to interest paid toLatvian entities.


The costs related to an acquisition are immediately tax de-ductible. The major exception to this principle exists when, forexample, unfinished construction object is purchased and itscompletion requires additional costs. These costs are includedin the value of the real estate (capitalized). Financing fee andinterest normally are immediately tax deductible.

Interest expenses and financing fees for refinancing of existingdebt are tax deductible as long as it is attributable to the busi-ness of a company deducting such expenses.


A usual model is to do a merger between a target company andSPV. Apart from negligible stamp duties there are no transfertaxes for the implementation of the debt push down.

Latvia does not allow consolidation for tax purposes but agroup relief is possible. A group company incorporated in Latviamay surrender its tax losses to another Latvian company withinthe same group, provided that certain preconditions are met.


A withholding tax of 10 % applies to interest paid by Latvianresident companies to associated non-resident companies. Therate is 5 % if paid by a commercial bank to an associated non-resident company. A lower rate may be provided in the applica-ble DTA and per applying the EU Interest on Royalty Directivefor group purposes.

There is no withholding tax for outbound dividends if the recipi-ent is an investor resident in the EU or the EEA. A default rateof 10 % applies to any other recipient. A lower rate may be pro-vided in the applicable DTA.

There is no withholding on profits remittance from a branch.


Losses may be carried forward for five years (eight years from2010) in the order in which they were incurred. This rule is notapplicable in case there is a change of control over the com-pany, which has sustained the losses.

C Real Estate Taxes

11 Does Latvia levy a real estate transfer tax on saleof real estate or shareholdings? Is it avoidable?

There is no formal real estate transfer tax. However, theregistration of the new owner of a real estate is subject to thestamp duty in the amount of 2% from a transaction value.The stamp duty may not exceed LVL 30,000. The case lawindicates that the stamp duty does not apply to mergers orsimilar restructurings.


Real estate tax (RET) is applied at a rate of 1% and is dueannually. RET is calculated based on the cadastral value ofthe real estate.

13 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenLatvia and Austria?

According with the double taxation agreement concluded be-tween Latvia and Austria, article 13, paragraph 1, gains derivedby a resident of a Contracting State from the alienation ofshares deriving most of their value directly or indirectly fromimmovable property situated in the other Contracting Statemay be taxed in that other State.

D Value Added Tax


A sale of real estate is VAT-exempt, except a first sale of un-used real estate (its definition is broad and includes inter aliarecently renovated, reconstructed and restored buildings),which is subject to VAT (21%).

The share deal is VAT exempt.


The lease is subject to 21% VAT. Renting of appartments fordwelling purposes is VAT exempt.



austria

croatia

czech republic

hungary

romania

slovakia

slovenia

estonia

latvia

lithuaniapoland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Lithuania? Does the acquisition have to becarried out by a Lithuanian corporation?

In general, non-resident individuals and legal persons can freelyacquire real estate if they are resident in the EU, the OECD,the nATO or in a state party to an European Union (Association)Agreement or the European Economic Area Agreement.However the said foreign persons are not entitled to acquireagricultural and forestry land until the expiry of a seven yeartransitional period starting from the accession of Lithuania intothe EU-membership in May 2004.

Generally it is not required that non-residents acquire realestate in Lithuania by a Lithuanian company, save for the caseswhen they acquire agricultural or forestry land.

2 Which importance does the Lithuanian landregister have?

Real estate is registered with the Lithuanian Real Estate Regis-ter. Only legally registered real estate may be sold. A failure toregister the agreements related to real estate does not causetheir invalidity but it will preclude the parties from invoking theagreements against third persons.

B Income Tax


¬ Corporate income tax rate:¬ 20 %.¬ 13 % for certain small and medium size entities

¬ Personal income tax rate:¬ Standard rate: 15 %¬ Dividends and other profit distribution: 20 %

¬ Participation exemptions:¬ Dividends will not be taxed in Lithuania, if the

recipient of dividends (resident and non-residententity) holds more than 10 % of the voting shares inthe payer of dividends for the period not shorter than12 consecutive months, including the momentwhen the dividends are distributed.

4 What is the tax depreciation period for real estatein Lithuania? Are there depreciation categories?Which depreciation method is used?

The tax depreciation period for buildings that are used inactivity is 8 years. The straight-line method or double balancedepreciation may be used. For residential buildings the depreci-ation rate is 20 years. Only the straight-line method is possiblein this case.

5 Are share deal and asset deal possible inLithuania? What are the main consequences?Both a share deal and asset deal are possible in Lithuania.

ASSET DEALCapital gain realized upon the sale of real estate would besubject to Lithuanian Income Tax. The applying income tax ratefor natural persons and sole proprietors is 21 %. The capitalgains of Lithuanian companies realized upon the sale of realestate are subject to corporate income tax at a rate of 20%.


SHARE DEALThe applying income tax rate for natural persons and sole pro-prietors realizing capital gains upon the sale of shares is 21 %.For corporations the corporate income tax rate of 20% is appli-cable. Capital gains that are realized from a transfer of sharesfrom a company registered in an EEA state or from a statewhich has signed a tax treaty with Lithuania are tax exempt,provided that the seller is a Lithuanian company that holdsmore than 25 % of the shares during a 2 year period.


The Lithuanian thin capitalization rules apply to restrict taxdeductions on borrowings from related parties, including thirdparty debt that is guaranteed by a related party. The debt toequity ratio governing otherwise permitted interest deductionis limited to 4:1.

The relevant Lithuanian transfer pricing regulations can belisted as follows: requirement to (i) apply arm's length pricesin related party transactions; (ii) supply information to theLithuanian tax authorities on related party transactions; and(iii) maintain a sufficient documentation of the related partytransactions.


Yes, acquisition costs are immediately deductible for shortterm assets. For long term assets depreciation (amortization)is applicable.

Yes, if financing fees and interest are incurred for the earningof the income or for the economic benefit of the company.

8 Are there any possibilities to allow poolingof debt financed interest with income of target(dept push down)?

A debt push down can be achieved by merging companies.no transfer tax is applied.Lithuanian law does not provide for consolidation or grouprelief (grouping) for tax purposes with each legal entity withina group being recognized as a separate taxpayer.


Interest paid out by a resident entity to a non-resident entityis subject to 10 % withholding tax. A lower rate may be providedin the applicable DTA and per applying the EU Interest onRoyalty Directive for group purposes.The withholding tax on dividends is 20 % or lower perapplicable DTA.


Losses for the tax period may be carried forward for anunlimited period of time. In the event that losses for the taxperiod or part of such losses were incurred as a result oftransferring securities and/or derivative financial instrument,such losses or part thereof may be carried forward no longerthan for 5 consecutive tax periods, beginning with the taxperiod following the tax period during which the losseswere incurred.

C Real Estate Taxes

11 Does Lithuania levy a real estate transfer taxon sale of real estate or shareholdings? Is itavoidable?

no, there are no transfer taxes in Lithuania.


REAL ESTATE TAXLithuanian and foreign legal entities, as well as individualowners, who use real estate in their economic activities, aresubject to real estate tax. Tax is collected by the municipalitiesin respect of property deemed by Lithuanian law to be immov-able property (e.g. buildings, constructions and fixtures), otherthan land. The annual tax rate is from 0.3 % to 1 % dependingon rates imposed by the municipality where the real estate islocated.LAND TAXOwners (companies and individuals) of privately-owned landare subject to land tax in respect of land located in Lithuania.The annual tax rate is 1.5 % of the taxable value, which iscalculated according to the rules established by the Govern-ment of Lithuania. As a rule, taxable value is lower than fairmarket price.

13 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenLithuania and Austria?

According with the double taxation agreement concludedbetween Lithuania and Austria, article 13, paragraph 1, gainsderived by a resident of a Contracting State from the alienationof shares deriving most of their value directly or indirectly fromimmovable property situated in the other Contracting Statemay be taxed in that other State.

D Value Added Tax


The sale of land (except the land transferred together withnew buildings or structures or sections thereof as well asbuilding land) and the sale of buildings, structures or sectionsthereof (except new buildings and structures, new sectionsof buildings and structures) are VAT exempt.In case a transaction is subject to VAT, standard rate of 19 %is applied.The seller may also opt for 19 % VAT taxation provided thatboth entities (seller and buyer) are VAT-registered payers.The sale of shares is not subject to VAT.


Similarly as in case of real estate transfer, the lease of realestate is generally exempt from the VAT.The lessor may also opt for 19 % VAT taxation in case oflease of real estate, provided that both entities (lessor andlessee) are VAT-registered payers.Further, the law specifically lists the real estate, includinglease of parking lots, garages or other items of similar purpose,whose lease is subject to VAT.



austria

croatia

czech republic

hungary

romania

slovakia

slovenia

estonia

latvia

lithuania

polandserbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Poland? Does the acquisition have to be carriedout by a Polish corporation?

In general citizens and corporate entities of the EEA may freelyacquire real estate. In special cases (the purchase of agricul-tural or forest land or a second house) they need a governmen-tal permit by the Ministry of Internal Affairs and Administration.Other foreigners generally require such a governmental permit(some exceptions exist).

It is not necessary that the acquisition is carried out by a Polishcorporation.

2 Which importance does the Polish land registerhave?

The legal status of Polish Real Estate is codified in the Landand Mortgage Register maintained by Polish Courts. It providesinformation about the land ownership, the security and con-sistency for land transactions, mortgages, encumbrances,historical details etc. The Register is publicly accessible.

B Income Tax



¬ Personal income tax rate:¬ 18 % or 32 %

¬ Participation exemption is applied if the Polishcompany has held at least 10% capital participationin the foreign subsidiary for an uninterrupted periodof at least 2 years.

4 What is the tax depreciation period for real estatein Poland? Are there depreciation categories?Which depreciation method is used?

Tax depreciation rates for real estate depend on the intendedpurpose. The depreciation rate for house buildings is 1.5 %,for no-house buildings 2.5 %, for underground garages androofed car parks 4.5 % and for kiosks and bungalows 10 %.Land is not subject to tax depreciation.

5 Are share deal and asset deal possible in Poland?What are the main consequences?

Real estate can be sold either through the direct sale of theproperty (an asset deal) or indirectly through the sale of theshares in the company owning the property (a share deal).

Capital gains realized by a Polish company upon the sale of realestate are subject to regular corporate income tax at the stan-dard rate of 19 %. The same is true for capital gains on the saleof shares. As a rule, for individuals both sale of real estate andsale of shares are taxable at the income tax rate of 19%.

The sale of shares in the Polish company is subject to a 1% civillaw transaction tax (on the market value of shares) payable bythe buyer. This is irrespective of where the transaction takesplace or where the parties to the transaction are resident fortax purposes.



Under the Polish thin capitalisation rules, the interest due onloans or credits granted to the taxpayer by (i) the shareholdersholding directly, individually or jointly, not less than 25% of thevoting rights in the loan beneficiary (mother companies) or by(ii) sister companies where the same shareholder holds directlyat least 25% of the voting rights in both of these companies(the borrowing and the lending company), may not be recog-nized as tax deductible cost in the part of which the borrowingcompany’s debt to equity exceeds the ratio of 3:1.

no thin capitalisation restrictions are provided to third partybanks or financial institutions.


In general, interest on loans and acquisition costs(e.g. advisory and financing costs) are tax deductible.


GROUPIn Poland tax capital groups may be formed under CIT law.In order to form a tax group certain quite restrictive require-ments have to be met:¬ only joint stock companies and companies of

limited liability can form a group¬ the average share capital is not lower than

PLn 1 million¬ a minimum holding requirement of 95 % owned

by the parent company¬ dominated companies do not have shares on other

dominated companies in a tax group¬ companies do not have tax arrears¬ a minimum period for joint tax settlements of

three years¬ profitability ration of the group is not lower

than 3 % for each tax yearTaxable income for the group is calculated by combining theincomes and losses of all group members. no transfer pricingregulations apply to a tax group.

MERGERUnder the Polish tax law debt push down strategy is possible toimplement through an up-stream merger.


Interest payments to foreign creditor are subject to 20% with-holding tax in Poland. A lower rate may be provided in the appli-cable DTA. Furthermore, Poland incorporated into the domesticlegislation the EU Directive on Interest and Royalty Payments.

Dividend repatriation to foreign company is liable to thewithholding tax in Poland. The withholding tax from dividendsamounts to 19% value of revenue. A lower rate may be providedin the applicable DTA and applying the EU Parent SubsidiaryDirective for group purposes.


Yes, a Loss Carry Forward is granted for a maximum periodof 5 years. The annual amount deductible cannot exceed 50 %of the total loss.

C Real Estate Taxes

11 Does Poland levy a real estate transfer tax on saleof real estate or shareholdings? Is it avoidable?

In Poland no real estate transfer tax exists.


Yes, in Poland a real estate tax is charged to the owner of theland/building/infrastructure which is used for business activi-ties. The real estate tax rates are set by regional authorities.However, there are maximum tax rates which are governedby national tax regulations. The local authorities may grantexemptions for certain types of real estate.

13 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenPoland and Austria?

According with the double taxation agreement concluded be-tween Poland and Austria, article 13, paragraph 2, gains derivedby a resident of a Contracting State from the alienation ofshares deriving most of their value directly or indirectly fromimmovable property situated in the other Contracting Statemay be taxed in that other State.

D Value Added Tax


In general, the sale of real estate is VAT exempt, except forthe supply of (part of a) building/infrastructure in the courseof its first occupation or when made within two years of thefirst occupation.

If selling real estate is VAT exempt, it is subject to the tax oncivil law transactions. The tax on civil law transaction rate forselling real estate is 2% of the market value.

Despite the existing exemptions there is the possibility of taxingall real estate sales. Condition is to carry out a transaction be-tween registered taxpayers of Polish VAT. VAT rate for selling ofreal estate is 22%. However, residential buildings and separateapartments are subject to 7% VAT rate.


As a rule, renting/leasing of real estate is subject to the PolishVAT. VAT rate for renting/leasing of real estate is 22%. This VATis added to the rent due. Rental of residential units for housingis tax exempt.

E Other relevant business-related taxesUnder the Polish tax on civil law transactions Act, the equityfinancing involves civil law transactions tax at the rate of 0.5%with certain exceptions for restructuring and reorganisationtransactions. no civil law transactions tax applies to theincrease of share premium.

Loans involve a civil law transactions tax of 2 % of the loanprincipal. Certain loans are exempt from taxation, e.g. loansgranted by shareholders to a limited liability company or jointstock company (exemption in force from 1 January 2009) orloans granted by foreign entities which are engaged in creditand financing activities.


austria

croatia

czech republic

hungary

romania

slovakia

slovenia

estonia

latvia

lithuania

poland

serbiaukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Serbia? Does the acquisition have to be carriedout by a Serbian corporation?

Foreign citizens may acquire real estate in Serbia for privateuse under the condition of reciprocity. Therefore, it is essentialthat real estate acquisition rights given by a foreign country toits own citizens and to commercial companies established inforeign countries according to the laws of these countries arealso given to the citizens and commercial companies of Serbia.Foreigners may not acquire agricultural land, forests and forestland.

The acquisition of real estate for commercial use has to becarried out by a company or a subsidiary incorporated in Serbia.

2 Which importance does the Serbian landregister have?

Rights of ownership over real property are acquired by theirregistration in the Real Estate Cadastre. This unified registryis the public record of real estate objects and the rights estab-lished on them. It contains information about factual and legaldata of real properties.

B Income Tax


¬ Corporate income tax rate:¬ 10 %¬ Corporate Income Tax Law regulates also tax

holiday for large investors. Large investors, whoinvest (currently) at least RSD 600 million andemploys at least 100 workers for an indefinite time,are entitled to tax holiday of 10 years

¬ Personal income tax rate: 10 – 20%¬ Participation exemptions:

¬ Dividends received by a Serbian resident companyholding at least 25 % of the shares in the non-resi-dent distribution company for a year are eligiblefor credit for foreign tax.

4 What is the tax depreciation period for real estatein Serbia? Are there depreciation categories?Which depreciation method is used?

Real estate is depreciated over its useful life at a single annualtax depreciation rate of 2.5%. Pursuant to the Corporate IncomeTax Law, all fixed assets are divided into 5 depreciation groups(first group is depreciated by 2.5% p.a., second by 10% p.a,third by 15%, fourth by 20% and fifth by 30%). Depending onthe asset the proportional or the declining balance methodshall be applied.

5 Are share deal and asset deal possible in Serbia?What are the main consequences?

A foreign investment company has two options:

INCORPORATION OF AN ACQUISITION COMPANY ANDPURCHASE OF REAL ESTATEThe Serbian Enterprise Law provides for very few conditions forincorporation of a company. The usual form of a company is thelimited liability company. The incorporation of a Serbian limitedliability company does not trigger any taxation.Once the Acquisition Company is set up by the InvestmentCorporation, it can purchase real estate in Serbia.


PURCHASE OF A LOCAL COMPANY OWNING REAL ESTATEThe Investment Company can opt to purchase an existingSerbian company, which holds real estate. The purchase of aSerbian company is in principle tax neutral. However, in prac-tice, purchasers are regularly required to pay property transfertax on transfer of shares in a Serbian company, which by lawis due by the seller of the shares.

For other tax consequences see the questions below.


THIN CAPITALIZATION RULESIn case the loan is granted to the Serbian company by arelated party, thin capitalisation rules need to be obeyed.A related party is considered if a company holds at least halfof the shares, stock or votes of the other company or if it hascontrol or influence concerning business decisions of theother company.According to Serbian Corporate Income Tax Law, the deductibleinterest is limited to the following amount:(4*own capital of the Serbian tax payer)*(110% of the interestrate of the central bank, issuing the foreign currency in ques-tion, in case of foreign currency loans, i.e. of the national Bankof Serbia, in case of loans denominated in RSD, charged onloans granted to commercial banks). Interest in excess of theabove formula may be deducted in the following year.

TRANSFER PRICINGTransactions between related entities must be on arms lengthbasis. Serbia has no documentation requirements.


The purchase price paid for acquisition of real estate is capi-talised. The only additional acquisition cost, which can be capi-talised along with the purchase price, is the property transfertax at the rate of 2.5%, if it was paid by the purchaser. All otherexpenses (financing fees, interest from initial loan and refinanc-ing, evaluation, lawyers’ fees etc) are immediately deductible.

8 Are there any possibilities to allow poolingof debt financed interest with income of target(dept push down)?

The Serbian Enterprise Law allows both up-stream and down-stream merger. Mergers are tax neutral. After the merger isperformed, all the financing costs (interest and similar) aredeductible from the profit of the newly established company.Same refers to potential refinancing expenses. Serbian lawdo not contain provisions on cross-border merger.

The Serbian legislation does allow tax grouping for corporateincome tax purposes. The parent company must own at least75 % of the shares or stock of the other company. The groupfiles a consolidated tax return (losses and gains of the groupmembers are offset).


Dividends and interest paid by a Serbian company to a non-resident shareholder are subject to 20% withholding tax unlessreduced under an applicable DTA.


Tax losses incurred in a Serbian corporation can be carriedforward for 10 years.

C Real Estate Taxes

11 Does Serbia levy a real estate transfer tax on saleof real estate or shareholdings? Is it avoidable?

Every sale of real estate built after January 1, 2005 other thenthe first transfer and sale of real estate built before January 1,2005 is subject to 18% (commercial), i.e. 8% (residential prem-ises) VAT. The tax payer is the seller. The taxable base is thecharged price for the real estate. All other real estate not quali-fying for the VAT treatment, are subject to 2.5% property trans-fer tax, due by the seller. However, in practice the propertytransfer tax is regularly paid by the purchaser, based on theagreement between the seller and the purchaser.

In general, sale of shares in a Serbian company is subject tothe property transfer tax at the rate of 0.3%.


Serbian real estate (buildings and land plots) is subject to prop-erty tax. The tax depends on the location of the real estate. Fortaxpayers who maintain business accounts the tax rate is 0.4%,calculated on the market value. For other taxpayers the rate isprogressive (starting value 0.4%). The property tax rate is setby the municipalities, which have the right to stipulate it up tothe amount of 0.4%.

13 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenAustria and Serbia?

Austria has not concluded a Double Taxation Agreement withSerbia.

D Value Added Tax


The sale of residential real estate is taxable at the rate of 8%VAT. The sale of other types of real estate is subject to 18% VATprovided that the real estate is built after January 1, 2005 andthat the sale of real estate represents the first transfer. Inprecise, under the Serbian Value Added Tax Law (»VAT Law«),the first transfer of real estate built after January 1, 2005 issubject to VAT.

Sale of shares is not subject to VAT.


The leasing of real estate for business purposes is subject toVAT at the rate of 18%. Leasing of residential premises howeveris VAT exempt. Therefore, only leasing of business premisesqualify the lesser to input VAT deduction, whilst lesser of resi-dential real estate bears cost of VAT charged to it.



austria

croatia

czech republic

hungary

romania

slovakia

slovenia

estonia

latvia

lithuania

poland

serbia

ukraine

A Legal/General

1 Are non-residents entitled to acquire real estatein Ukraine? Does the acquisition have to becarried out by a Ukrainian corporation?

On October 25, 2001 the Parliament of Ukraine adopted anew Land Code which came into effect on January 1, 2002.This Code strictly prohibits foreign citizens, legal entities andgovernments from acquiring agro-industrial lands.

Foreigners may acquire non-agricultural land. However, foreigncitizens may acquire ownership rights to a non-agricultural landplot outside the limits of populated areas if they have privately-owned real estate already located on such land plot.

Foreign legal entities may acquire ownership rights to landplots of non-agricultural designation (a) within populated areas,when the property acquisition of real estate will be improvedby buildings or other objects related to the companies businessactivities in Ukraine or (b) outside the limits of populated areasin the case of the acquisition of real estate.

2 Which importance does the Ukrainian landregister have?

Article 210 of the Civil Code effective as of 1 January, 2004stipulates a general rule that an agreement on real estateshall be registered. This code provides for real property rights,defines the holder of real estate and regulates real estatetransactions.

B Income Tax


¬ Corporate income tax rate:¬ 25 %¬ 0 % – 3 % for insurance companies¬ Simplified taxation for small legal entities possible

(Option): 6% of sales proceeds for VAT registeredand 10% of sales proceeds for non-VAT-registeredentities

¬ Personal income tax rate:¬ Flat tax rate of 15 %¬ Generally double tax rate for non-residents¬ Special (lower) tax rates for certain types of income

¬ Participation exemptions: no

4 What is the tax depreciation period for real estatein Ukraine? Are there depreciation categories?Which depreciation method is used?

Under Ukrainian legislation, for tax depreciation purposes fixedassets are classified into four groups. Buildings, constructions,capital costs of improvement of the quality of the land andtransmitting terminals belong to group one with a quarterlydepreciation rate of 2 %. These rates are applied to the net bookvalue (reducing balance method).

normally land is not depreciable unless real estate and thecorresponding land are purchased together. In this case theland can be depreciated together with the value of real estate.


5 Are share deal and asset deal possible in theUkraine? What are the main consequences?

ASSET DEALThe feasible option for the asset deal will be to set up an acqui-sition company in Ukraine for this purpose. The real estate ispurchased under the agreement between the acquisition com-pany and the Ukrainian company, that owns the Real Estate.The acquisition company may be financed by loans from anon-Ukrainian investment coporation or banks.

For the Ukrainian company (as the seller) the positive marginbetween the book value of real estate and the sale price willbe taxable with the profit tax at the regular rate of 25%.

SHARE DEALThe share deal is quite frequently used for acquiring real estatein Ukraine. There are two principal options for the share:

A non-Ukrainian investment corporation directly acquires 100%share of the Ukrainian company owning the real estate. Thesum paid by the non-Ukrainian investment corporation for thepurchase of 100% share of the Ukrainian company may be de-ducted from revenue gained in case respective shares are alien-ated in future or from the revenue from sale of other securities(corporate rights in other form) of similar type. Thus, UkrainianCorporate Profits Tax (CPT) Act stipulates that in case of pro-ceeds from trading with securities it is the profit (rather thanrevenue) from such trading that constitutes Ukraine-sourcedincome of non-resident which is taxable in Ukraine with with-holding tax at the rate of 15%.

The alternative structuring which provides some opportunityfor the debt push-down is incorporating in Ukraine of anacquisition company which will acquire the shares in theUkrainian company owning the real estate.



THIN CAPITALIZATIONThere are no thin capitalization rules in Ukraine.

TRANSFER PRICING RULESThe Ukrainian tax authorities use the concept of the »usualprice« (usually the fair market price) to adjust deductible inter-est. The Ukrainian law provides specific regulations for deter-mining the usual price. These rules have to be applied accord-ingly by legal entities and individuals who are subject to alower rate than the general income tax rate of 25 %.


SHARE DEALInterest expenses and costs which are indirectly related to thepurchase of the Ukrainian company (e.g. due diligence costs,valuation costs etc) are deductible provided that such pay-ments are related to business activity of the taxpayer. In re-spect of taxpayers whose capital is 50% or more owned by oris in trust of non-resident(s), there are certain timing limitationsfor deductibility of interest on loans provided by the non-resident shareholder(s) or by affiliated parties of the non-resident shareholder(s).

ASSET DEALThe aggressive approach is that such interest shall be immedi-ately deductible as they are incurred in connection with busi-ness activity. Yet, the tax authorities tend to adhere to the con-servative approach according to which such interest constitutethe costs in connection with purchase of the fixed asset objectand as such these interest expenses shall be capitalized withinthe value of respective real estate. Other expenses of the acqui-sition company for purchase of real estate will be capitalizedand subject to depreciation for profit tax purposes.


MERGERThe principal option that may allow pushing down the debt tooperating level under Ukrainian legislation is a merger underuniversal succession. Yet, it is inherent with uncertainties,which are not yet finally resolved by the law, although achievingthe deductibility of interest at the level of the target remainsdoubtful anyway.

GROUPUkrainian law does not provide for consolidation or group relief(grouping) for tax purposes with each legal entity within a groupbeing recognized as a separate taxpayer.


Foreign legal entities deriving incomes from Ukraine notthrough a Permanent Establishment in Ukraine are subject towithholding tax in respect of types of incomes that are specifi-cally listed in the CPT Act. The general tax rate for interest,dividends and royalties is 15 %. normally Ukrainian withholdingtax may be capped at the lower rates by virtue of DTAs con-cluded by the Ukraine. The applicable rate may be substantiallylower in case the loan is granted by a non-resident financialinstitution.


Tax losses recorded after 1 January 2003 can be carriedforward for an unlimited period of time.

C Real Estate Taxes

11 Does Ukraine levy a real estate transfer taxon sale of real estate or shareholdings?Is it avoidable?

For the transfer of real estate according to Ukrainian legislationthe state duty at the rate of 1% and the contribution to thepension fund at the rate of 1% shall be paid into the budgetfrom the value of agreement on transfer of real estate, i.e.purchase price of real estate. The taxes may be not appliedfor some types of transfer.The transfer of shares in a real estate owning company is notsubject to any transfer tax in Ukraine.



Yes, for owning and using land a land tax is charged in Ukraine.The level of the tax rate varies depending on the nature andlocation of the land. If the land has an estimated value then theland tax is calculated as 1% of that estimate. There is no tax onthe estate other than land in general.

13 Is there a »real estate clause« in the case of sharedeals in the double taxation agreement betweenthe Ukraine and Austria?

According with the double taxation agreement concluded be-tween the Ukraine and Austria, article 13, paragraph 2, gainsderived by a resident of a Contracting State from the alienationof shares deriving more than 50% of their value directly or indi-rectly from immovable property situated in the other Contract-ing State may be taxed in that other State.

D Value Added Tax


The sale of real estate will be subject to Ukrainian VAT at theregular 20% rate. The sale of pure land is exempt of VAT.

Sale purchase of shares is not subject to Ukrainian VAT pro-vided that the shares are paid with monetary funds or sold inreturn for securities.


The leasing of real estate (including land) is subject to VATin Ukraine at the standard rate of 20%.

E Other relevant business-related taxes:n\A




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