Buying real property in Prague

People from all over the world are investing in the city that many consider among the most beautiful in Europe. Compared to the prices of residential and commercial real estate in major European cities, the prices are still reasonable with solid growth potential. Following are a few facts you should be aware of as you approach your purchasing decision.

Can a foreigner buy real property in Prague?

Up until May of 2009 there were two categories of foreign property buyers in the Czech Republic – EU citizens and non–EU citizens. In May of 2009, the Czech Republic had its 5 year anniversary as an EU country at which time it became legal under EU law for anyone in any country to buy a house, an apartment, or buildable land in the Czech Republic as an individual without being a resident of the Czech Republic or making any applications for residence permits or visas other than those required by law for entry into the country as a tourist. In May of 2011, based on EU laws, the same will be true for agricultural land and forests.

Can foreigners live in the real property they buy?

This broadening of the law for foreign property buyers does not change the categories of foreigners (EU citizens and Non-EU citizens) who wish to live for more than 90 days in the property they purchase. Owning property in the Czech Republic does not give you the right to live in the property unless you go through the proper channels of becoming a resident.

EU citizens only have to register with the foreign police and apply for a Czech EU residence card.

Non- EU citizen wishing to buy a home and live in the Czech Republic for more than 90 days, must obtain a residence visa. Residence visas can only be obtained for very specific activities or reasons.

• a partner or manager of a company
• having a valid employment contract
• making an application for a business license
• one can apply for a student visa

Tip: One can be a partner or manager of ones own company and the company can be the owner of the property.

Applications for residence permits may also be filed from abroad at Czech embassies or general consulates, but may take up to three months to process. If coming to Prague is not convenient for you, you may choose to designate a representative to file the application and arrange for the required documents.

Our legal department will be glad to arrange all of the above at a reasonable cost.

Are mortgages available to foreigners?

Mortgages are available to citizens of the EU as well as to non-EU citizens.

Probably the most convenient, cost effective and stress-free way to arrange a mortgage is through a mortgage broker. There are also several banks that have recently developed products for financing the purchase of residential real estate for foreigners. If you would prefer to do the paperwork and the negotiations yourself, we can provide the contact information for the banks at your request; or we can refer you to some of the best mortgage brokers in Prague.

What about taxes?

Real Estate Tax: All properties are subject to a nominal annual real estate tax depending on the position and size of the property. A typical two-bedroom apartment in the center, for example, would be taxed at about CZK 1 000 per year.

Transfer Tax: Whenever a property is sold and title is transferred there is a real estate transfer tax of 3% of either the assessed valuation or the sale price, whichever is higher. The seller normally pays this tax unless the parties agree otherwise.

Income tax: A property owned by a company and generating an income is subject to taxation at the current rate of 19%. Individual Czech persons, EU citizens and foreigners with residence permits, are subject to a 15% income tax based on the amount of income earned in the Czech Republic.

VAT on sales: The new amendment to the VAT act gives a definition of an apartment, and a family house meeting the criteria for “social housing“ structures. The entire floor area of an apartment must not exceed 120m2 to qualify as a “social housing“ apartment. The total floor area of a family house must not exceed 350m2 to qualify as a “social housing“ family house. Newly built “social housing“ is subject to VAT at 10% of the purchase price. New residential properties over the limit of the “social housing“ are subject to VAT of 20%. Commercial sales are usually subject to VAT at 20% of the purchase price. Ask your Svoboda & Williams agent for specifics concerning your particular circumstances.