11.05.2012
The acquisition of land by foreigners is no longer limited in the Czech Republic since May 2009. Until that time it used to be necessary for foreigners to establish a Czech company and buy the land on behalf of such company. However, after joining the European Union, such limitation was abolished with a five-year-exception, and so since May 2009 it no longer applies to any foreigners. In general, therefore, the foreigners are entitled to buy the land under the same conditions as domestic people. The only requirement is a written purchase contract with verified signatures of all contractual parties and its entry into the cadastral registry. Only by and from the time of such entry into the cadastral registry, the ownership to the land is transferred to the buyer. Therefore, it is necessary to ensure that until the registration, the seller does not have the money at its disposal. The escrow account is one of the possibilities how to resolve this issue.
In the course of purchase of land, it is however necessary to consider the type of land that you are buying. In case it is a plot of land designated for construction – it is possible to check the type of land you are planning to buy in the cadastral registry maintained by the local cadastral office (www.cuzk.cz) - it may be used for construction of any kind of building subject to the construction permit without any further requirements and limits. Lot of the land plots, unfortunately, do not belong to this category and often are designated as agricultural land that belongs to the agricultural land fund. Such land may only be used for farming or other type of agricultural activity, however, no construction may be performed on such land without further decision/permission of the relevant authority (the agricultural-land protecting body). There is an authority empowered to decide on the exemption of a particular land or its part from the agricultural land fund. Only on the basis of such decision the land may be used for construction. For more details see the answer to the third question below.
The transfer of any land is subject to the real estate transfer tax (“tax”). The original taxpayer under the Czech law is the seller of the land. However, the buyer guarantees for the seller’s duty to pay the tax. Therefore, it is necessary to keep in mind this duty and ensure the payment of this tax as a condition in the purchase agreement. The tax amounts into 3 % of the tax base (unfortunately, there is a governmental proposal to raise the tax into 5 % nowadays). The base is determined as the actual market value of the transferred land. For this purpose an expert valuation is required and shall be submitted to the tax office with the tax return. The final tax will be calculated as 3 % of (i) the price for which the land was purchased, based on the purchase agreement; (ii) or the value of the land pursuant to the expertise (it depends on which one is higher). Therefore, both the original or verified copy of the purchase agreement and expertise shall be submitted along with the tax return. The tax return shall be submitted to the local tax authority (within its area the purchased land is situated) within three months from the month in which the ownership to the land is transferred. The tax is than payable within 30 days from the delivery of the tax bill to the account of the tax local authority. The tax authorities always monitor the cadastral registry and changes of the ownerships of real estate. Therefore, it is necessary to ensure that the obligation to submit relevant tax return and pay the tax by the former owner of the land. Such obligation should also be included into the purchase agreement.
When buying a land for farming a foreigner has to distinguish whether the land is in private ownership or state ownership, since the land in the state ownership can be purchased only by EU citizens and citizens of Switzerland, Norway, Lichtenstein and Iceland. When buying a land for farming, foreigners have the same position as Czech nationals.
In case a person wants to buy a land that is specified as an agricultural land, but he/she wants to use it as a land for construction, he/she has to arrange its exemption from the agricultural land fund. The exemption from agricultural land fund can be permanent or temporary. When applying for an exemption, a person has to provide a set of documents, including opinions of respective municipality, nature protection authority and water management authority regarding the planned exemption. Other documents that have to be provided are: cadastral and land map where the respective plots of land shall be marked; a scheme where the planned construction shall be marked; preliminary evaluation of topsoil and proposal for future use of the topsoil and its transfer to other land, including approval of the owner of such land; calculation of financial contribution for the exemption from the agricultural land fund prepared by an authorized organization; statement of owners, co-owners and tenants of the respective land, and in case of temporary exemption also a plan for future regeneration of the land. In the application, the applicant has also to specify the purpose of such exemption.
The fee for exemption depends on its purpose, area and quality of the land. The solvency is determined by its 5digit number (so called “BPEJ” code), which specifies the economic potential of the land with regard to the climate region, ecological characteristics, cardinal direction and quality of the soil. The BPEJ code can be found on the land title deed, and the price for each BPEJ code is determined in the regulation of Ministry of Finance with regard to real estate appraisal.
A plot of land can be limited by number of encumbrances, which can cause problems in relation to use of the land and construction on it. Before purchasing a plot of land, the purchaser should first check at the cadastral office whether there are some encumbrances registered on the land. The encumbrances are written in the part B1 and C of the title deed.
First type of encumbrance that can limit the right of the owner of the land are easements. Easements restrict the owner of a real estate property in favor of someone else in the manner that he must suffer something, omit something or do something. The rights corresponding to the easements are either connected with ownership of certain real estate property (“in rem”) or belong to certain person (“in personam”). In the first case, the easements pass to the acquirer together with acquisition of the ownership of the property. Usually, an easement is created by contract; however, there are some easements that are also created by law. These easements are connected mainly with water or sewage pipes or electricity or gas systems.
Other type of limitation written in cadastre is a pledge. A pledge is a security for a receivable in case the debt corresponding thereto is not timely repaid. In such case, the satisfaction of receivable may be obtained from the proceeds of sale of the pledged property. Usually the pledge is based on a contract; the most common contract establishing pledge is contract on mortgage contract.
Another type of limitation can be a pre-emption right. Such pre-emption right can be based on a contract (pre-emption right of a private person) or law (pre-emptive right of state, region or municipality). Under the Czech Building Act, a municipality or the administrative regional authority, which delimited the land within the planning documentation, or the state according to jurisdiction to the property, has the pre-emption right to the land specified by the plan.
Some types of land are protected under laws on protection of environment, which create some limitations to their (private) owners, such as limitation of construction, modifications or for example mining and extraction. Also owners of forests are obliged under the Act on forests to allow anyone on his/her own risk to enter the forest (without permission).
Contact:
Monika Rutland, partner
rutland ježek, law firm
t: +420 226 236 600
About rutland ježek:
The rutland ježek law firm in Prague focuses mainly on business law, real estate law, litigation, finance and banking law; the firm is ready to provide adequate comprehensive consulting thus offering an alternative for clients of international law firms. The international dimension of the provided services is guaranteed by its track record and cooperation with leading law firms in most European countries, the USA and other jurisdictions. Czech lawyers of the rutland ježek team have long experience in providing legal consulting to transnational corporations, large Czech companies as well as medium size firms and individuals, acquired in leading international law and tax firms. More on www.rutlandjezek.com.
