Transfer of Property (Real Estate) from Ltd Company to Shareholder and Income Tax
JUDr. Jakub Vozáb, PhD.
29.01.2023
Do you own real estate through a company and looking for the possibility of simplifying the management of your own property?
Do you want to get rid of the company, but it owns real estate and you don't know how about the taxes?
We are LAWYERS and TAX ADVISORS focused on real estate and companies. We propose the best possible transfer of real estate from the company to shareholder.
These problems are mainly solved by foreigners who in the past were forced by Czech legislation to establish a limited liability company or other business corporation for the purpose of acquiring real estate. However, „the conditions have changed“: https://www.idnes.cz/finance/hypoteky-a-pujcky/vykoupi-cizinci-nemovitosti-v-cr.A040519_164426_fi_osobni_jlo and both EU foreigners and foreigners from third countries outside the EU can now acquire real estate in the Czech Republic directly without any restrictions.
Transfer of company assets to a partner
Instead of the financially demanding transfer of real estate from the company's assets to the partner and the subsequent liquidation of the company, which would mean multiple taxation, it is possible to realize the transfer of the company's assets to the partner, when the partner (even a natural person) takes over all the company's assets and liabilities and the company is dissolved and deleted from the commercial register in one single process.
By default, a company should transfer property (property) to another person (including a partner) at market value, and the income from such a transfer would be part of the company's income tax base. It is then a question of how many tax-deductible costs the company can set against this, however, as a rule, the company's income tax will be based on 19%. In addition, this procedure does not deal with the existence of the company or the money or receivables in the company's property after the property (real estate) has been sold. If the partner wanted to dispose of the money as an individual, he would probably have to proceed with the payment of the dividend, which is taxable income on the part of the partner at a rate of 15%.
When the property is transferred to the partner, there is no change in the initial price of the property, and the partner continues with the tax depreciation carried out by the company. This is due to the fact that in this case the partner is the legal successor of the company and there is therefore legal continuity, similar to other types of conversions of business corporations.
As far as VAT is concerned, if the company is a VAT payer, the rule of maintaining the tax status of the legal successor will apply according to the provisions of § 6b paragraph 2 ZDPH, according to which if the property of the payer is transferred to the legal successor as part of the transformation of a legal entity, this legal the successor is also the payer, starting from the date of registration of the conversion in the commercial register.
The transfer of assets is only possible to one partner, who takes over all the assets and liabilities of the company, i.e. it is ideal in situations where the company does not have more partners or when the others are to receive only financial compensation, not the company's assets.
In contrast to liquidation, there is no need to deal with the archiving of documents or the approval of the financial authority for the deletion of the company as part of the transfer of assets to a partner, since the taking over partner is the legal successor of the defunct company.
Liquidation of the company and taking over the property as part of the liquidation balance
Another alternative is to liquidate the company, with the partner taking over the property as part of the liquidation balance in non-monetary form.
Although the share of the liquidation balance is generally paid in money, the agreement of the partners or the partnership agreement may stipulate otherwise. Non-monetary payment of the liquidation balance can then take place by transferring the items constituting the liquidation substance to the partner. The reason for such a procedure can be a direct interest in the acquisition of individual items owned by the company by a specific partner or the fear that the price will not be favorable enough when monetizing them.
In this case, the partner does not continue with depreciation and the entry price of the tangible property acquired by the partner of the defunct business corporation as part of the liquidation balance in non-monetary form will be determined according to § 29 paragraph 1 letter d) ZDP reproduction purchase price according to a special legal regulation, which is the law on property valuation and its implementing decree. As far as real estate is concerned, the reproduction purchase price will be the „determined price“: https://www.mfcr.cz/assets/cs/media/2022-05-12_Stanovisko-k-reprodukcni-porizovaci-cene-po-1-1-2021.pdf, and in the case of movable property and services it will be the „usual price, or market value“: https://www.mfcr.cz/assets/cs/media/2022-05-12_Stanovisko-k-reprodukcni-porizovaci-cene-po-1-1-2021.pdf.
As far as VAT is concerned, in the case of a non-monetary liquidation balance, the provision of § 6b, paragraph 2 of the VAT Act does not apply, i.e. if a company that is a VAT payer is dissolved as part of the liquidation, the partner acquiring the property forming the liquidation substance does not become a VAT payer.
Taking over the real estate as a liquidation balance within the liquidation also makes it possible to solve the situation when there are several partners and each one has an interest in part of the assets (other real estate) of the company. As part of the distribution of the liquidation balance, each partner can receive property (real estate) according to the partners' agreement.
However, liquidation is a more complicated process, when you have to publish the entry into liquidation in the trade journal and then wait 3 months for any applications for creditors' claims. Furthermore, it is necessary to communicate with the regional state archive regarding the archiving of the company's documents, as well as to obtain the approval of the relevant financial authority to delete the company from the commercial register.
What about income tax on the shareholder's side
A frequently asked question then is, what about the income tax on the part of the partners in the case of both of the above transactions? However, the result of taxation is completely individual and depends on the amount of the partner's contributions to the share capital, the amount of the partner's extra payments outside of the share capital or contributions to other capital funds, as well as the company's obligations towards the partner, etc.
Both of the above transactions take place under different conditions, so you need to consider all the invoices and set up the transaction as needed.
The total cost of these transactions usually amounts to between CZK 50,000 and CZK 80,000 excluding VAT and varies according to the length of the entire process and other important details. The specific type of transaction should be chosen depending on the preference and needs of the partners.
If you are interested in more detailed information, please do not hesitate to contact us. After submitting the necessary documents, we are able to suggest a specific procedure in advance and confirm the total final cost of the given transaction.
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