Aquiring Slovak Real Estate

DIRECT PURCHASE OF REAL ESTATE

This section shows the most important tax implications of direct purchase of real estate (i.e. asset deal). First, the impacts for resident and non-resident individuals are explained. Thereafter the impact for resident and non-resident companies is illustrated.

Resident Individuals

Value added tax

The transfer of buildings within 5 years from their construction (issuance of first use approval/permit) are subject to 20 % VAT. Transfers of real estate 5 years after their construction (issuance of first use approval/permit) are exempt from VAT. Right to deduct the paid input VAT in connection to residential properties is limited (not allowed).

Transfer of land is VAT exempt except for building plots and land transferred together with building, which stands on the respective land. VAT regime of transfer of the built-up land follows the VAT regime of the related real estate property.

The lease of real estate is generally VAT exempt; however, if the lessor is VAT taxable, it may opt for VAT (20%) when leasing real estate to another VAT taxable person. If the lessor decides to tax the lease, it allows to deduct the input VAT related to purchase and operation of the real estate. If the lease is treated as being VAT exempt, lessor cannot deduct the input VAT.

Deductibility of costs

Residential and administrative buildings (i.e. buildings of hotels, stores and office buildings) are depreciated for tax purposes for 40 years. Manufacturing and commercial buildings are depreciated for tax purpose for 20 years. Land is not depreciated for tax purposes.

Generally, tax depreciation, interest, maintenance and operational costs (expenses to secure and maintain income) reduce the rental income if general and special legal conditions are met.

Non-resident individuals

The income from transfer of the real estates located in Slovakia forms generally Slovak sourced income of non-residents and thus is generally taxed in the Slovak Republic. The generated income is taxed in Slovakia if the income is generated by resident of the contractual state and the Slovak Republic is allowed to tax it in accordance with respective double taxation avoidance treaty, or the income is generated through the permanent establishment created in the Slovak Republic. If one of these mentioned conditions is met, a regime like that described under the “Resident Individuals” above applies.

Resident companies

Value added tax

The transfer of buildings within 5 years from their construction (issuance of first use approval/permit) are subject to 20% VAT. Transfers of real estate 5 years after their construction (issuance of first use approval/permit) are exempt from VAT. Right to deduct the paid input VAT in connection to residential properties is limited (not allowed).

Transfer of land is VAT exempt except for building plots and land transferred together with building. Building plots are subject of VAT. VAT regime of transfer of the built-up land follows the VAT regime of the related real estate property.

The lease of real estate is generally VAT exempt; however, if the lessor is VAT taxable, it may opt for VAT (20%) when leasing real estate to another VAT liable person. If the lessor decides to tax the lease, it allows to deduct the input VAT related to purchase and operation of the real estate. If the lease is treated as being VAT exempt, lessor cannot deduct the input VAT.

Deductibility of costs

Generally, tax depreciation, interest, maintenance and operational costs (expenses to secure and maintain income) reduce the rental income if general and special legal conditions are met.

Non-resident companies

The income from transfer of the real estates located in Slovakia forms generally Slovak sourced income of non-residents and thus is generally taxed in the Slovak Republic., The generated income is taxed in Slovakia if the income is generated by resident of the treaty state and the Slovak Republic is allowed to tax it in accordance with respective double taxation avoidance treaty or the income is generated through the permanent establishment created in the Slovak Republic. If one of these mentioned conditions is met, a regime similar to that described under the “Resident Companies” above applies.

INDIRECT PURCHASE OF REAL ESTATE

This section shows the most important tax implications of indirect purchase of real estate (i.e. share deal). First, the impacts for resident and non-resident individuals are explained. Thereafter the impacts for resident and non-resident companies are illustrated.

Resident individuals

Transfer tax

The purchase of the shares is not subject to any immovable property acquisition tax.

Personal income tax

Subject of the taxation is income derived from the transfer of shares if transfer of the shares is subject of taxation. The tax liability occurs at the moment of the sale of the shares.

The costs incurred in relation to share purchase are not tax-deductible expenses at the moment of the share acquisition. These costs become tax-deductible expenses at the moment of transfer/sale of shares when the taxable income is generated.

Non-resident individuals

Non-resident individuals are treated in the same way as resident individuals.

Resident companies

Transfer tax

The purchase of the shares is not subject to any immovable property acquisition tax.

Corporate income tax

Subject of the taxation is income derived from transfer of shares if transfer of the shares is subject of taxation. Transfer of shares is generally tax exempt if the shares are hold at least 24 month and the direct participation amounts at least to 10%.

The costs incurred in relation to share purchase are not tax-deductible expenses at the moment of the share acquisition.

Non-resident companies

Corporate income tax

Non-resident companies are treated same way as resident companies, where the rules stipulated by the respective double taxation avoidance treaty are considered (if applicable).

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