There are currently no general limitations on ownership or occupation of real estate by foreign entities or foreign citizens, and this applies to foreign guarantees and security as well.

However, specific limitations could follow from hypothetical economic sanctions imposed by the EU, United Nations or other international organisations of which the Czech Republic is a member. However, such sanctions are extremely rare and very unlikely considering the stability and characteristics of the Czech political and economic situation.

The real estate market in the Czech Republic can be quite confusing for a new investor.

As of 1 January 2014, when the new Civil Code came into force, buildings form part of the land on which they are located. This means that buildings are usually owned by the owner of the land. Buildings also cannot be transferred independently from the land (principle “superficies solo cedit”). This applies to the buildings constructed after 1 January 2014 and to the buildings which had the same owner as the land under the building on 31 December 2013. As always, there are some exceptions to this general rule. But let´s focus on the big picture.

Buildings constructed before 1 January 2014 can be considered as a separate real estate itself. Such a building will remain a separate real estate until it is owned by the same entity as the land under the building.

It has to be pointed out, that for the purpose of a merger of a building with the land under the building, both of the owners have a mutual statutory pre-emptive right, which means the owner of the land has a pre-emptive right to the building and vice-versa.

It is also possible to construct a building on another person’s land (without acquiring the land). This can be arranged by a right to build. Right to build is considered as a separate real estate in a legal sense and as such can be transferred or mortgaged. On the other hand, the building itself is not a separate object and only forms part of the right to build.

All of the information on a real estate can be found in the Cadastre of Real Estate administered by the State Administration of Land Surveying and Cadastre.

The Civil Code states that if a person acquires a real estate from the person registered in the Cadastre of Real Estate for a consideration and in good faith, then the ownership of the real estate is acquired even if the registered person has not been the legal owner of the real estate.

If the relevant Cadastral Office makes an error during a registration in the Cadastre of Real Estate, only a compensation for related damages can be claimed.

Real estate is typically acquired via:

In the past, acquisition of shares was often preferred due to tax reasons, as direct transfers of real estate were subject to the real estate transfer tax of 4%. However, in September 2020 the real estate transfer tax was dropped and currently the asset deal transfer is no longer subject to specific taxation. Still there are a few advantages when it comes to share deal – mainly provision of functioning company with capital to the buyer. This can be a bonus where the buyer/investor is a developer and would need these tools either way.

The disadvantage of share deals is that the investor acquires not only the relevant assets, but all the company’s liabilities as well. This is sometimes mitigated by corporate demerger, where the relevant asset is demerged to a newly established clean company that is subsequently the subject of the share deal.

With an asset deal the registration in the cadastral register is performed based on an application signed by each party to the purchase agreement, accompanied by an original or certified copy of the purchase agreement. The registration is subject to a fee, currently CZK 2,000. The registration proceedings take about one month, provided that the ownership is then transferred retroactively from the date of the filing of the application.

Because of an over 40-year period of communism in the Czech Republic, a kind of settlement of injustices made during these times has been implemented into the Czech law. The so-called restitution of Real Estate property in the Czech Republic is bound to the property unlawfully escheated by the Communist regime in the 1945-1989 period. Restitutions are mainly governed by the so-called restitution acts.

Due to the various restitutions, it is advisable for investors to check thoroughly the legal status of the intended acquisition from the point of being potentially the object of restitution at the Czech State Land Office, even though the risks relating to the restitutions are smaller every passing year.

Asset deals

In the past, real estate transfer tax was payable on the transfer of real estate in an asset deal. The rate of tax was 4 % from the agreed purchase price. This transfer tax is no longer in force since September 2020 and therefore, the transfer is not subject to special taxation.

However, in cases where no exemption (of which there are many, mainly the 5/10 year time test) can be used, the income tax still applies. The rates can be found in the Share Deals section of this material.

Share deals

The cancelled real estate transfer tax never applied to share deals. Instead, the income of the seller from the sale of the shares may be subject to:

• 19% corporate income tax rate (if the seller is a legal entity)
• 15% personal income tax rate (if the seller is a natural person)
• 5% corporate income tax rate (if the seller is a licensed real estate investment fund)

As with asset deals, there are several exemptions to income tax, which are targeted mostly towards natural persons. An advantage is that share deal is not subject to VAT.

VAT in relation to Real Estate transactions

The following real estates are exempt from VAT:

• Land that does not form a functional unit with a construction firmly connected to the ground;
• Land that is not a building site;
• Other real estate after lapse of 5 year after issuance of:
  1. first occupancy permit, or
  2. occupancy permit after a substantial change in the real estate

The most important public regulation for preparation and realization of constructions in the Czech Republic is the Czech Building Act and its associated and implementing legislation. For realization of a construction, a permit from the Building Office shall be obtained; for simple constructions only a notification to the Building Office is needed.

The permitting procedure, basically, consists of two phases. Firstly, a developer is obliged to obtain a land-use permit containing conditions on location of the building. The land-use permit is issued by the Building Office if the location of construction meets general criteria stipulated by law and specific criteria specified in the land-use plan issued by the municipality. After obtaining the land-use permit, the developer submits an application to the Building Office for a building permit.

Applications for both the land-use and building permit contain, apart from general essentials, the basic data on the required project and the grounds’ and building objects’ identification data. The developer has to attach documents proving its rights to the land entitling it to realize the construction, project documentation, control plan, binding assessments requested by a special regulation, e.g. environmental and health protection, fire protection, and opinion of owners of the public transportation infrastructure and utilities if the construction is connected to the infrastructure. For larger projects, the environmental impact assessment procedure (EIA) is needed. The Building Office is obliged to issue a land-use permit as well as a building permit without undue delay.

After successful realization of the construction, the developer shall obtain a Final Inspection Approval. The Final Inspection Approval is issued by the Building Office after fulfilment of the criteria set for the building by the Building Act, Building Permit and other stipulated criteria, e.g. environmental and health protection, fire protection, etc. Operating a construction is possible only after obtaining relevant environmental permits.

Described procedure is currently applicable, however, it is very likely that the process will be changed substantially in the near future. The goal is to simplify and speed up the proceedings, which are currently amongst the slowest in Europe. Such change could result in a dramatic expansion of investment opportunities. New Building Act has already been passed, however, its effect is still being pushed further into future (currently July 2023 – July 2024) and consequently its wording still faces noticeable uncertainty.