Guide for buying property in the Czech Republic
Koutris Efstratios, Monday, 27 January 2014
This article is part of a series of 8 articles about buying property in the Czech Republic. The other articles in the series cover the following topics:
Introduction / Historical analysis
The Czech Republic (Česká Republika, CR) is one of the most popular touristic destinations with millions of visitors every year. Along with its beautiful landscapes, the well preserved architecture, the harmonious blend between the Slavic origins and the Bohemian/Moravian culture, and of course the fact that it is the nexus between Eastern and Western Europe, the Czech Republic is now considered to be one of the top places for real estate investments. Prior to 1989, and much like in any other former communist country, it was the state that used to own most of, if not all real estate properties. The fall of communism, triggered the formation of a suitable environment where the domestic markets were literally overflowing with thriving financial opportunities. Therefore, and due to its strategic location, CR became an extremely attractive target for foreign investments. However, the real estate opportunities were initially available to few privileged people. Foreigners would in most cases be excluded because of the insurmountable domestic barriers and bureaucracy, unless they were powerful enough to overcome such problems. Hence, generally speaking, it was very difficult for a foreigner to directly buy a property, and even in the case where he/she succeeded, the available mortgage loan options were extremely poor. On the other hand, and especially in the Baltics, there were similar difficulties posed to the prospective buyers but in a much lesser degree; and this was the reason why foreigners turned their attention and focus on these countries and not on CR, despite of the initial enthusiasm.
Admission of the Czech Republic in EU and the EU directives
It was not until the beginning of the new millennium, and the forthcoming admission of the Czech Republic in the European Union (2004), that these barriers became more flexible. Nevertheless, foreigners still needed to either hold a Czech residency permit or to commence the respective procedures through an established Czech company (Special Purpose Vehicle - SPV) in order to become eligible to buy properties.
Acquisition of Czech Residence
EU citizens, including citizens from Iceland, Norway and Lichtenstein, could quickly apply and get temporary residence. They just needed to provide two photos, an ID (or passport), and official evidence of paying health insurance and owing sufficient personal income. The same procedure applied to US citizens, with the only difference being that they also needed a visa that allowed them to reside within CR for more than 90 days. The respective laws were a little more complicated for non-EU and non-US citizens. They either needed to reside in CR for more than 7 years, or to marry a Czech person in order to acquire the green card.
SPV
SPV is essentially a company whose only subject of activities is the acquisition of relevant real estates, and it can have the legal form of either a Limited Liability Company (Společnosti s Ručením Omezeným, S.R.O.) or a Joint-Stock company (A.S). SPV was the easiest way for non- EU and non-US citizens to purchase a real estate and it simply required to have an executive director who is either from CR or EU, or in general someone that holds a long-term visa. However, it needs to be mentioned that, even nowadays, buying property through an SPV offers substantial advantages in terms of costs and taxation (for instance the individual will not pay any transfer tax in case he/she decided to sell shares of the property).
Current situation; who is eligible to buy property in the Czech Republic?
Everything drastically changed in 2009 when CR had to comply with the EU directive (article 56 of the EU articles of establishment). This article essentially stipulated that all members of the EU must adopt similar laws when it comes to purchasing property, regardless if that is residential or recreational. It was also clearly stated that there should not be any restrictions for prospective buyers who are Czech citizens, foreigners, or to Legal entities that have their headquarters located in CR. This automatically suggested that foreigners would no longer need to undergo the aforementioned time-consuming procedures imposed by the Czech Land Registry. Nevertheless, the timing could not have been more convenient for both the CR and the prospective buyers.
The buying process (in short)
So what are the essential steps that an individual needs to follow prior and throughout the purchase of a property in the Czech Republic? First of all, the interested party should thoroughly search for a property through either internet or real estate agencies. Keep in mind, that there are two options regarding the ownership; private or/and cooperative. In the latter case the individual will only own a share of the cooperative and not the property itself. The next step would be to physically visit the property and inspect whether it really fits the respective needs (current conditions of the property, surrounding neighbourhood, etc.). Consequently, the individual must double-check the property through the extracts from the Land Registry (including pledges, easement rights, executions etc.). This can also be performed by a lawyer; however, in most cases, each agency will offer to use its own lawyer(s). This can sometimes be tricky due to the fact that these lawyers will not be fully working for the client but instead for the profit of the respective agency. Hence, if the prospective buyer decides to authorize a lawyer to deal with such matters, then he/she should make sure to hire an external one or a trustworthy qualified professional.
Furthermore, the aforementioned double-check needs to include the technical status of the property such as the installation of gas, water, sewerage, etc. This will not only allow the individual to determine whether the property is indeed a worthy investment but also will prompt him/her to estimate the costs for potential reconstruction or restoration. An easy and recommended means of saving money is to utilize an escrow account via a notary or a bank (and not via the real estate agency) in order to settle the purchase price and, thus apply for a mortgage. Once purchase contract is signed, the property ownership is transferred to the individual/SPV and money from escrow will be used to pay the transfer tax to the respective authorities. Finally, and before moving in your property, the last step is to transfer all contracts for deliveries (electricity, gas, water, etc.) from the former owner to your name.
This article is part of a series of 8 articles about buying property in the Czech Republic. The other articles in the series cover the following topics:
Introduction / Historical analysis
The Czech Republic (Česká Republika, CR) is one of the most popular touristic destinations with millions of visitors every year. Along with its beautiful landscapes, the well preserved architecture, the harmonious blend between the Slavic origins and the Bohemian/Moravian culture, and of course the fact that it is the nexus between Eastern and Western Europe, the Czech Republic is now considered to be one of the top places for real estate investments. Prior to 1989, and much like in any other former communist country, it was the state that used to own most of, if not all real estate properties. The fall of communism, triggered the formation of a suitable environment where the domestic markets were literally overflowing with thriving financial opportunities. Therefore, and due to its strategic location, CR became an extremely attractive target for foreign investments. However, the real estate opportunities were initially available to few privileged people. Foreigners would in most cases be excluded because of the insurmountable domestic barriers and bureaucracy, unless they were powerful enough to overcome such problems. Hence, generally speaking, it was very difficult for a foreigner to directly buy a property, and even in the case where he/she succeeded, the available mortgage loan options were extremely poor. On the other hand, and especially in the Baltics, there were similar difficulties posed to the prospective buyers but in a much lesser degree; and this was the reason why foreigners turned their attention and focus on these countries and not on CR, despite of the initial enthusiasm.
Admission of the Czech Republic in EU and the EU directives
It was not until the beginning of the new millennium, and the forthcoming admission of the Czech Republic in the European Union (2004), that these barriers became more flexible. Nevertheless, foreigners still needed to either hold a Czech residency permit or to commence the respective procedures through an established Czech company (Special Purpose Vehicle - SPV) in order to become eligible to buy properties.
Acquisition of Czech Residence
EU citizens, including citizens from Iceland, Norway and Lichtenstein, could quickly apply and get temporary residence. They just needed to provide two photos, an ID (or passport), and official evidence of paying health insurance and owing sufficient personal income. The same procedure applied to US citizens, with the only difference being that they also needed a visa that allowed them to reside within CR for more than 90 days. The respective laws were a little more complicated for non-EU and non-US citizens. They either needed to reside in CR for more than 7 years, or to marry a Czech person in order to acquire the green card.
SPV
SPV is essentially a company whose only subject of activities is the acquisition of relevant real estates, and it can have the legal form of either a Limited Liability Company (Společnosti s Ručením Omezeným, S.R.O.) or a Joint-Stock company (A.S). SPV was the easiest way for non- EU and non-US citizens to purchase a real estate and it simply required to have an executive director who is either from CR or EU, or in general someone that holds a long-term visa. However, it needs to be mentioned that, even nowadays, buying property through an SPV offers substantial advantages in terms of costs and taxation (for instance the individual will not pay any transfer tax in case he/she decided to sell shares of the property).
Current situation; who is eligible to buy property in the Czech Republic?
Everything drastically changed in 2009 when CR had to comply with the EU directive (article 56 of the EU articles of establishment). This article essentially stipulated that all members of the EU must adopt similar laws when it comes to purchasing property, regardless if that is residential or recreational. It was also clearly stated that there should not be any restrictions for prospective buyers who are Czech citizens, foreigners, or to Legal entities that have their headquarters located in CR. This automatically suggested that foreigners would no longer need to undergo the aforementioned time-consuming procedures imposed by the Czech Land Registry. Nevertheless, the timing could not have been more convenient for both the CR and the prospective buyers.
The buying process (in short)
So what are the essential steps that an individual needs to follow prior and throughout the purchase of a property in the Czech Republic? First of all, the interested party should thoroughly search for a property through either internet or real estate agencies. Keep in mind, that there are two options regarding the ownership; private or/and cooperative. In the latter case the individual will only own a share of the cooperative and not the property itself. The next step would be to physically visit the property and inspect whether it really fits the respective needs (current conditions of the property, surrounding neighbourhood, etc.). Consequently, the individual must double-check the property through the extracts from the Land Registry (including pledges, easement rights, executions etc.). This can also be performed by a lawyer; however, in most cases, each agency will offer to use its own lawyer(s). This can sometimes be tricky due to the fact that these lawyers will not be fully working for the client but instead for the profit of the respective agency. Hence, if the prospective buyer decides to authorize a lawyer to deal with such matters, then he/she should make sure to hire an external one or a trustworthy qualified professional.
Furthermore, the aforementioned double-check needs to include the technical status of the property such as the installation of gas, water, sewerage, etc. This will not only allow the individual to determine whether the property is indeed a worthy investment but also will prompt him/her to estimate the costs for potential reconstruction or restoration. An easy and recommended means of saving money is to utilize an escrow account via a notary or a bank (and not via the real estate agency) in order to settle the purchase price and, thus apply for a mortgage. Once purchase contract is signed, the property ownership is transferred to the individual/SPV and money from escrow will be used to pay the transfer tax to the respective authorities. Finally, and before moving in your property, the last step is to transfer all contracts for deliveries (electricity, gas, water, etc.) from the former owner to your name.
All types of property for sale in the Czech Republic by private sellers and estate agents. Find your perfect house or apartment in Bohemia, Moravia, Prague, Hradec Kralove, Ostrava or Plzen.
There are several reasons why individuals should appoint an agent for a prospective property transaction. The primary reason is access. Real estate
agents have easy access to most properties that are ‘for sale’, and therefore, they can recommend several alternatives that can accommodate and satisfy
their clients’ needs and criteria.
More articles