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Inbound Real Estate Investments:

Vox Tax The Dentons global tax report has been prepared with contribution for India from Lakshmikumaran & Sridharan.

dentons.com 1 2 dentons.com Contents

Notes from the Editor 4 Canada 5 China 10 Colombia 14 Costa Rica 17 20 Germany 24 India 28 Italy 32 Kazakhstan 36 Luxembourg 40 Mexico 44 Oman 47 Panama 50 Poland 53 Romania 57 Russia 60 Singapore 64 Spain 68 Ukraine 71 United Kingdom 75 United States 82 Tax Contacts 87

dentons.com 3 Notes from the Editor

Dear reader,

As investors look to diversify real estate investments globally 9. Are capital gains arising on the sale of real estate taxable? If for asset and risk management, one of the key aspects so, what are the rates and are there any exemptions? necessary to understand in order to maximise return on investment, is tax. 10. Is there a withholding tax on rental income and/or capital gains derived from real estate? We have therefore prepared this edition of Vox Tax which provides a high level overview of the key tax consequences 11. Are there any tax-efficient real estate investment vehicles of acquiring and holding real estate investment assets across or structures to acquire, hold and exploit real estate that the globe. clients could utilize?

This comparative study enables investors to consider the 12. Are there any structures commonly used to mitigate real key tax differences which may arise when investing in real estate tax liabilities on acquisition and/or disposal of real estate in a jurisdiction which may be unfamiliar. In addition, estate? with the onset of the OECD's base erosion and profit shifting project (BEPS), traditional tried and tested structures may 13. Are there any material differences in the way individuals no longer be fit for the purpose. In particular, Action Point 2 and companies are taxed on acquiring, letting and/or (Hybrid Mismatch Arrangements) and Action Point 4 (Interest disposing of real estate? Deductions) will have a material impact on how real estate acquisitions are funded. As you will see, the applicable associated with real estate investments in the relevant jurisdictions are numerous and To better understand the nature and scope of the real estate often complex. However, issues can be avoided by careful taxes charged in each country, we have therefore answered planning and structuring and the Dentons Global Tax Group the following 12 questions for each jurisdiction: is here to steer you through the ever more complex tax arena and assist you in achieving your real estate investment goals. 1. Is stamp , or a similar tax payable on the sale, purchase or leasing of real estate? If so, what are the This issue of Vox Tax does not constitute tax advice and rates and who is required to pay the duty or tax? readers should note that the laws of each jurisdiction are 2. Is value added tax, goods and service tax or a similar tax regularly refined and/or revised, so the statements made in payable on the sale or purchase of real estate, and the this report are not definitive. However, this guide does provide letting of real estate? If so, what are the rates and who is a summary overview of the current state of the law and will required to pay the tax? hopefully serve as a useful tool for investors to ensure they understand the unique provisions and distinctions in the 3. Are there any annual taxes that may be payable on the various jurisdictions. ownership of real estate? We want to express our gratitude to all contributors from 4. What is the imposed on rental income? Dentons offices worldwide and from Lakshmikumaran & Sridharan, who together prepared the analysis. 5. Is interest on borrowings used to acquire real estate deductible for tax purposes against rental income? If Please do not hesitate to contact us for any further clarification so, are there any restrictions, such as thin capitalization or assistance. or ? If so, is there any withholding tax on interest? We hope you will enjoy this edition of Vox Tax and look forward working with you in the near future. 6. Are deductions for depreciation and/or building capital allowance available against rental income for tax purposes? Yours sincerely, Allocation between land and building?

7. If so, are there tax deductions for management fees? Alex Thomas 8. Are there any restrictions on the use, and/or the carry- UKMEA Tax Leader forward, of losses? Editor In Chief

4 dentons.com Canada

dentons.com 5 Canada Tony Schweitzer Jesse Brodlieb [email protected] [email protected]

1. Is , transfer tax • 1% on first CA$200,000 fair market HST is payable in Nova Scotia (at 15%), or a similar tax payable on the value of Prince Edward Island (at 14%) and in each of New Brunswick, Newfoundland, sale, purchase or leasing of • 2% on more than CA$200,000, up Labrador and Ontario (at 13%). real estate? to CA$2 million, of fair market value of property A 5% GST is payable in Alberta, British Yes. A property transfer tax or title Columbia, Manitoba, Northwest transfer fee will be levied by provinces • 3% on portion of fair market value Territories, Nunavut, Saskatchewan and and municipalities on the transfer of real above CA$2 million Quebec. Alberta, Northwest Territories, estate through sale, purchase or lease. Nunavut and Yukon do not impose any • Additional 15% on foreign entities in Whether or not there is a property additional . British Columbia, Greater Vancouver Regional District transfer tax or title transfer fee depends Manitoba, Quebec and Saskatchewan also impose an additional sales tax, such on the province. Alberta, Newfoundland Conversely, in Alberta, there is a title and Labrador, Northwest Territories, as the Quebec sales tax. Exemptions and transfer fee on a sale of property, the rebates are available and will depend on Nunavut, Saskatchewan and Yukon rate of which is: all impose a title transfer fee on the use of the property. registrations of title. All other provinces • CA$50 base + CA$1 for every impose a property transfer tax. The purchaser is liable to pay the GST CA$5,000 or portion of the and/or HST, and the vendor is required property value Generally, a disposition of beneficial to collect and remit it to Canadian ownership of Canadian real estate will revenue authorities. • CA$50 base + CA$1 for every trigger tax consequences. In Ontario, CA$5,000 or portion of the a disposition of a beneficial interest The vendor or landlord must first mortgage value in land will occur on the sale, transfer, be registered and remain ultimately assignment or any other change in responsible to remit the tax, unless it is entitlement to beneficial ownership of 2. Is value added tax, goods non-resident or where the purchaser is land. However, the transfer of shares and service tax or a similar registered or opts to self-assess its GST of a corporation that holds Canadian tax payable on the sale or or HST tax liability. real estate will not trigger purchase of real estate, and since this does not constitute a change 3. Are there any annual taxes in beneficial ownership of the land. the letting of real estate? that may be payable on the Shareholders are not automatically If so, what are the rates ownership of real estate (e.g., entitled to beneficial ownership of real and who is required to pay annual land tax, municipal estate held by a corporation on the the tax? transfer of shares. In contrast, a partner taxes, surtaxes, etc.)? that, for instance, sells an interest There are two forms of tax on the sale A property tax is payable on the in a partnership that owns land will of goods and services in Canada: the ownership of property in Canada and be regarded to have disposed of its goods and services tax (GST) and the is administered by municipalities based proportional beneficial ownership in the harmonized sales tax (HST). Either is on their individual needs. land, giving rise to property transfer tax. generally payable on the sale, purchase Rates therefore vary according to the or lease of real estate property. location of the property in a particular a. If so, what are the rates and who is municipality. Property tax rates are required to pay the duty or tax (e.g., seller Exemptions to this general rule exist for calculated with reference to the assessed or buyer, landlord or tenant, etc.)? the sale of used homes and short term current value of the property and the rentals. HST will therefore be payable municipal property tax rate. In the The amount of the property transfer on the sale or lease of property for municipality of Toronto for example, tax or title transfer fee will depend on commercial and industrial activities. The property tax rates consist of a city levy, where in Canada the property to be sold, applicability of a sales tax will depend education levy and transit expansion levy. purchased or leased is located. on the province in which the supply of The total property tax rate for residential For example, for in British property is made. properties in 2016 was 0.6879731% and Columbia that are sold, or leased for a 2.6398602% for commercial property. period of more than 30 years, the rate of The general rule is that the sale is “made” The property tax rate for the municipality property transfer tax is as follows: where the property is located. of Calgary in 2016 was 0.0061738% for residential properties.

6 dentons.com 4. What is the tax rate imposed 5. Is interest on borrowings b. If so, is there any withholding tax on rental income? used to acquire real estate on interest?

deductible for tax purposes Rental income is included in a taxpayer’s There is no withholding tax on the income if it is derived from the renting against rental income? payment of interest to arm’s length of homes, apartments, rooms, office foreign entities. However, where the space and other real or immovable Yes. Interest is generally deductible as parties are not arm’s length, there is a property. The rate of tax will depend on long as it relates to an income-earning 25% withholding tax on interest. This the nature of the taxpayer: whether it purpose, (such as earning rental rate can be reduced if Canada has a tax is an individual, trust, corporation, etc. income), and is based on a reasonable treaty with the foreign jurisdiction. The combined federal and provincial rate of interest. graduated rate for individuals 6. Are deductions for ranges between 20.05% and 53.53% for Capital and current expenses can depreciation and/or building Ontario (for example). The calculation of also be deducted from rental income. capital allowance available Current expenses include recurring this rate will depend on the taxpayer’s against rental income for tax income bracket and province. The costs such as repair, and capital general federal tax rate for corporate expenses can include purchase or purposes? Are there separete is 38%, which can be improvement of property, legal fees and llocations between land reduced subject to certain requirements. furniture costs. and building? a. If so, are there any restrictions (e.g., Non-residents that receive Canadian Yes, capital cost allowance is permitted thin capitalization, transfer pricing, etc.)? rental income can elect to be taxed on on buildings. Land is non-depreciable their net rental income as opposed to under the law, so a reasonable allocation There are thin capitalization rules their gross amount. This is referred to must be made between the building that can affect interest deductibility. as a section 216 election. This will allow and land. non-residents to benefit from allowable Generally, these rules limit the debt to equity ratio for Canadian subsidiaries deductions from their gross rental Capital cost allowance works by of foreign entities to 1.5:1. This is done income, such as capital cost allowances. assigning buildings to the various by limiting the deductibility of interest Withholding tax of 25% will apply if the prescribed classes based on certain paid to non-resident shareholders. taxpayer is a non-resident. criteria. For example, a building may This essentially forces the Canadian belong to class 1, 3 or 6, depending on subsidiary to be financed with at least The rate of tax will also depend on what the building is made of and the 40% equity rather than solely debt. whether the rental income is considered date it was acquired. Once assigned to active business income (ABI) or a class, there is a prescribed percentage Transfer pricing rules can also limit investment income from property. These (ranging from 4% to 10%) that applies to interest deductibility. Generally, these two classifications attract different tax the balance of the class, on a declining rules permit the Canadian tax authority treatments. For example, a taxpayer balance basis, that can be claimed as to re-characterize transactions in that earns ABI may be entitled to a small capital cost allowance for the year. business deduction under Canadian tax accordance with the arm’s length law, which includes a lower tax rate on principle, which essentially aims to 7. Are deductions available their first CA$500,000. price the transaction at issue at the price that would apply between arm’s for management fees length parties. against rental income for tax purposes?

dentons.com 7 Yes, management fees are deductible order to qualify for the exemption, the 12. Are there any structures against rental income as long as they taxpayer must be a resident of Canada commonly used to mitigate are reasonable. For example, an older and the property must be ordinarily Canadian case found that management inhabited by the taxpayer or by his or real estate tax liabilities on the fees paid to a related company were her spouse or common-law partner, acquisition and/or disposal of generally accepted up to a 15% markup former spouse or common-law partner, real estate? over the expenses the company or child. handled. This must be analyzed on a Canadian corporation case by case basis. 10. Is there a withholding For Canadian real estate acquired and tax on rental income and/ sold as inventory, it is generally advisable 8. Are there any restrictions or capital gains derived from to utilize a Canadian corporation on the use and/or the real estate? in order to avoid the requirement carry-forward of losses? to obtain a Section 116 compliance certificate. Section 116 protects the For non-residents, there is a 25% Canadian government’s ability to collect Yes, there are carry-forward restrictions withholding tax rate on rental income tax on capital gains on real estate in on the use of losses in Canada. The and on any capital gains derived from Canada in respect of a disposition by a general rule is that you can carry a real property. non-capital (or operating) loss, arising in non-resident. tax years ending after 2005, back three 11. Are there any tax-efficient years and forward 20 years. Real estate investment trust (REIT) real estate investment A REIT is a trust in which the investments For net capital losses, the general rule vehicles to acquire, hold and of several investors are pooled together is that you can carry those back three exploit real estate that could to invest in real property. In addition years and forward indefinitely. be utilized? to investing in income-producing properties, REITs may also buy, develop, manage and sell a wide variety of real There are also restrictions on claiming There are several methods to structure estate assets. A REIT is structured to flow losses when there is a change of control the purchase of a real estate investment, income earned from the real property of a company. In general, operating including, among others: losses of the seller can potentially still through to the unit holders without trust- level income or taxes. Each investor of be utilized by the buyer, provided that • Corporation the same business is carried on with a REIT will have an undivided beneficial interest in the trust’s income and losses. a reasonable expectation of profit • Personal ownership throughout the particular taxation year. However, net capital losses generally • Partnership (general partnership or Bare trustee/nominee corporations cannot be carried forward after a limited partnership) A common and simple business change of control. structure involves one party (typically a • Co-ownership / joint venture corporation) holding legal title for and 9. Are capital gains arising on on behalf of the beneficial owner(s). The the sale of real estate taxable? • Trust holder of the legal title, known as a “bare trustee” or “nominee,” is disregarded for If so, what are the rates and • Real estate investment trust (REIT) income tax purposes. This is because a are there any exemptions? “disposition,” for Canadian income tax • Mortgage investment corporations purposes, does not generally occur until Yes, capital gains arising on the sale of (MICs) beneficial ownership has changed. real property are taxable. • Pension investment corporations 13. Are there any material Generally, 50% of the capital gain arising from the sale of the real property will • Any combination of the above differences in the way be included in the vendor’s income. individuals and companies The rate of tax will depend on the For example, for rental properties, it may are taxed on acquiring, be advisable for non-resident entities nature of the taxpayer (individual, trust, letting and/or disposing of corporation or partnership). to utilize a non-resident corporation to hold the relevant properties. This will real estate? There is a “principal residence” allow the non-resident corporation to file exemption available to individuals who a return and pay regular tax on the net If the corporation’s principal business dispose of real property that qualify for income from the real property, rather is the sale and purchase of real the exemption. This exemption allows than paying a flat 25% on the property, then it may be entitled to an individual to shelter part or all of the . more favorable tax treatment (such as capital gain that would otherwise be lower tax rates and the ability to defer taxable upon a sale or disposition. In certain taxes) than real property held

8 dentons.com individually. However, if investment in real property is not the primary business of a corporation, then it will be taxed at a higher rate (and may be subject to an additional tax on passive investment income), which will eliminate any over holding real property individually.

Individuals who purchase real property for personal use will also be entitled to the “principal residence exemption,” which allows an individual to shelter part or all of the capital gain that would otherwise be taxable upon a sale or disposition. Corporations do not have access to the principal residence exemption.

*Tax laws in Canada change every Federal budget, around mid-March.

dentons.com 9 China

10 dentons.com China Xuefeng Leng Xiaojing Xie [email protected] [email protected]

1. Is stamp duty, transfer tax The following service taxes also 3. Are there any annual taxes or a similar tax payable on the apply on the VAT payable on the sale, that may be payable on the purchase or leasing of real estate: sale, purchase or leasing of city maintenance and construction ownership of real estate (e.g., real estate? tax, education surcharges and local annual land tax, municipal education surcharges. taxes, surtaxes, etc.)? Stamp duty and deed tax are payable on the sale and purchase of real estate. For the sale and purchase of real estate, The owner of real estate shall be levied Stamp duty is payable on the leasing of if the seller is a general taxpayer in real estate tax annually as follows: real estate. Stamp duty on land is also China, it may opt for the simple VAT payable when a buyer acquires shares in computation method, with a levy rate • The tax will be calculated on the a company holding real estate. of 5%, or the general VAT computation residual value of the real estate at a method, with a rate of 11% for the selling rate of 1.2%, and a. If so, what are the rates and who is of real estate obtained before April 30, required to pay the duty or tax (e.g., 2016. If the seller is a general taxpayer • The tax will be calculated on the seller or buyer, landlord or tenant, etc.)? in China, it shall apply the general VAT rental income from the real estate computation method with a rate of 11% at a rate of 12%, or at a rate of 4% for For the sale and purchase of real estate, for the selling of the real estate obtained individuals, enterprises, institutions, both the seller and the buyer shall be after April 30, 2016. If the seller is a small- social groups and other organizations levied stamp duty at a rate of 0.05% on scale taxpayer in China, it shall apply lease residential houses. the contract amount. The seller shall be the simple VAT computation method levied value-added tax on land, which with a levy rate of 5%. The seller shall The owner of real estate shall be levied adopts four levels of progressive rates also be levied city maintenance and urban land use tax annually at grade— ranging from 30% to 60%. The buyer construction tax at a rate of 7%, 5% or rates on the basis of the actual shall be levied deed tax at rates ranging 1%; education surcharges at a rate of land area occupied. from 3% to 5% on the transaction value. 3%; and local education surcharges at a rate of 1%, in each case on the VAT 4. What is the tax rate For the leasing of real estate, both the actually paid. imposed on rental income? landlord and the tenant shall be levied stamp duty at a rate of 0.1% on the For the leasing of real estate, if the Resident enterprises shall be levied leasing value. Value added to tax on land landlord is a general taxpayer in China, it enterprise income tax at a rate of 25% on is not applicable. may opt for the simple VAT computation the rental income from the real estate. method, with a levy rate of 5%, or the When a buyer indirectly acquires general VAT computation method Non-resident enterprises shall be real estate by purchasing shares in a with a rate of 11%, for the leasing of levied withholding income tax at a company holding such real estate, both the real estate obtained before April rate of 10% on the rental income from the transferor and the transferee shall be 30, 2016. If the landlord is a general the real estate located in China. If a levied stamp duty at a rate of 0.05% on taxpayer in China, it shall apply the non-resident company dispatches the share transfer contract amount. general VAT computation method with employees or entrusts other domestic a rate of 11% for the leasing of the real units or individuals to conduct daily 2. Is value added tax, goods estate obtained after April 30, 2016. If management of the real estate located and service tax or a similar the landlord is a small-scale taxpayer in China, it shall be levied enterprise tax payable on the sale or in China, it shall apply the simple VAT income tax at a rate of 25% on the computation method with a levy rate rental income. purchase of real estate, and of 5%. The landlord shall also be levied the letting of real estate? If so, city maintenance and construction Individuals (resident or non-resident) what are the rates and who is tax at a rate of 7%, 5% or 1%; education shall be levied individual income tax at required to pay the tax? surcharges at a rate of 3%; and local a rate of 20% on the rental income from education surcharges at a rate of 1%, in the real estate located in China. each case on the VAT actually paid. VAT (as opposed to value-added tax on If there is a treaty between China and land, which is a different tax altogether in the mother country of the non-resident China) is payable on the sale, purchase enterprise or individual, the applicable or leasing of real estate. tax rate of the rental income shall be determined according to the treaty.

dentons.com 11 5. Is interest on borrowings For a resident enterprise, the Yes. If the seller is a resident enterprise used to acquire real estate expenditure and/or building capital shall in China, it shall be levied enterprise be allowed for deduction from rental income tax. If the seller is a non- deductible for tax purposes income. For a non-resident enterprise, resident enterprise, it shall be levied against rental income? the expenditure and/or building withholding income tax at a rate of 10% capital shall not be deducted from on such capital gains. If the seller is an For resident enterprises, the interest on rental income. individual (resident or non-resident), it borrowing used to acquire real estate shall be levied individual income tax at shall not be deducted from rental In China, there is no fixed amortization a rate of 20% on such capital gains. income before the real estate reaches rate for land, nor a fixed depreciation the saleable status. When the real rate for buildings. Generally, the Enterprise income tax is levied at a rate estate is saleable, the interest shall be amortization of land use right shall adopt of 25%. Withholding income tax is levied allowed for deduction. the straight-line method, and the rate at a rate of 10%. Individual income tax is of amortization shall be (1/usage term) x levied at a rate of 20%. For non-resident enterprises, the 100. The depreciation of buildings also interest on borrowing used to acquire adopts the straight-line method, and the If there is a treaty between China and real estate shall not be deducted from rate of depreciation shall be ((1 - rate of the mother country of the non-resident rental income whether its real estate is estimated net residual value) / estimated enterprise or non-resident individual saleable or not. useful life) x 100. who is the seller, the applicable tax rate shall be determined according to the a. If so, are there any restrictions on the There are separate minimum periods treaty. There is no exemption according interest (e.g., thin capitalization, transfer of depreciation or amortization period to Chinese tax laws. pricing, etc.)? between land (land use right) and building. The amortization period of 10. Is there a withholding There are restrictions on deduction land use right shall not be less than tax on rental income and/ of the interest of the debt investment 10 years. The minimum period of or capital gains derived from between an enterprise and its related depreciation of buildings shall not be parties. The interest payment expenses less than 20 years. real estate? actually paid by an enterprise to its related parties that do not exceed 7. Are deductions available Yes. The rental income and/or capital the ratio (stipulated below), shall be for management fees gains derived from real estate obtained by non-resident enterprises and/ allowed for deduction. Otherwise, the against rental income for interest payment expenses shall not or individuals shall be subject to tax be deducted. tax purposes? withheld at the source at a rate of 10%, with the payer serving as the For a financial enterprise, the ratio For a resident enterprise in China, withholding agent. The tax payment between the debt investment it reasonable and relevant management shall be withheld from the amount paid accepted from its related parties and the fees against rental income shall or the payable amount due from each equity investment by its related parties be allowed for deduction. For a tax payment and payable amount of the shall be 5:1. For other enterprises, the non-resident enterprise that shall withholding agent. ratio between the debt investment they be subject to tax withheld at the accepted from the related parties and source, management fees shall not It should be noted that if there is a the equity investment by the related be deducted. treaty between China and the home parties shall be 2:1. country of the non-resident enterprise 8. Are there any restrictions or the non-resident individual, the b. If so, is there any withholding tax on on the use, and/or the applicable tax rate shall be determined the interest? carry-forward, of losses? according to the treaty. 11. Are there any tax-efficient There is a 10% withholding income Yes. The period of the carry-forward tax on the interest. If there is a treaty of losses shall not be more than five real estate investment between China and the mother country years. When an enterprise computes vehicles to acquire, hold and of the creditor, the applicable tax rate its aggregate enterprise income tax exploit real estate that could of the interest shall be determined payable, the losses of its overseas be utilized? according to the treaty. business entities shall not be set off against the profits of its business Yes. In general, setting up a real estate 6. Are deductions for entities in China. depreciation and/or building collective is a tax-efficient structure. 9. Are capital gains arising on This is a tax-efficient method as it can capital allowance available be used to accumulate reasonable against rental income for tax the sale of real estate taxable? expenses, which can be deducted from purposes? Are there separate If so, what are the rates and taxable income. allocations between land are there any exemptions? and building?

12 dentons.com 12. Are there any structures commonly used to mitigate real estate tax liabilities on the acquisition and/or disposal of real estate?

Yes. Some transaction structures mitigate the real estate tax liabilities on the acquisition and/or disposal of real estate. For example, instead of purchasing or selling real estate directly, the parties can transfer real estate indirectly by transferring the shares of a non-listed company whose sole or main asset is real estate. This should reduce both the VAT and the VAT on land.

Since there are some differences among the tax policies of different areas in China (for example, the tax-efficient structure above may be re-categorized as selling real estate, and be levied the VAT and VAT on land), the specific of the relevant province should be considered.

13. Are there any material differences in the way individuals and companies are taxed on acquiring, letting and/or disposing of real estate?

Yes. Individuals are levied lower tax than companies on some taxes like real estate tax or VAT. Tax computation methods of some taxes, like VAT or income tax for individuals and companies, are different. The taxation authorities of some taxes, like VAT for individuals and companies, are different. The tax payments of some taxes, like VAT for individuals and companies, are also different.

dentons.com 13 Colombia

14 dentons.com Colombia Camilo Cortés [email protected]

1. Is stamp duty, transfer tax The rate of VAT for the first sale of a. If so, are there any restrictions on the or a similar tax payable on the housing units whose cost exceeds interest (e.g., thin capitalization, transfer 26,800 UVT is 5%. Rental of real estate pricing, etc.)? sale, purchase or leasing of for purposes different from housing and There are thin capitalization rules, under real estate? cultural/artistic performances will be which any debt that exceeds three times taxed with VAT at a 19% rate. the net asset value of the company is not Any transfer of real estate must be made deductible. The interest rate deduction through a public deed that triggers The VAT would be paid by the buyer and is limited to the highest rate that can be notary fees as well as a registration tax collected by the seller. charged by financial institutions, which is and registration rights. There is no stamp around 32%. duty triggered on the lease of real estate. 3. Are there any annual taxes that may be payable on the b. If so, is there any withholding tax on a. If so, what are the rates and who is ownership of real estate (e.g., the interest? required to pay the duty or tax (e.g., annual land tax, municipal seller or buyer, landlord or tenant, etc.)? Interest paid to financial institutions is taxes, surtaxes, etc.)? subject to withholdings by the borrower, Notary fees for the transfer of real estate but the financial institution must make are customarily split between seller There is an annual property tax on the a self-withholding at a 2.5% rate. In any and buyer. Registration tax and rights ownership of real estate. The rate varies other case, if the payer of the interest is are paid by the buyer. Notary fees are depending on the value and authorized a withholding agent, it will be subject to around 0.3%, while registration tax is use of the land. This tax varies by a 7% withholding. 1% and registration rights are maximum municipality, but it typically ranges 0.57%. In general the base is the value between 0.3% and 1.1%. 6. Are deductions for of the transaction, which for liquidation depreciation and/or building 4. What is the tax rate imposed purposes cannot be lower than the capital allowance available taxable base of the annual property tax. on rental income? against rental income for tax 2. Is value added tax, goods Currently, rental income is taxed as purposes? Are there separate and service tax or a similar ordinary income (34% for 2017 or 33% allocations between land tax payable on the sale or for 2018) for corporations. The rate and building? for individuals depends on their tax purchase of real estate, and bracket, which is based on their taxable Depreciation of constructions and the letting of real estate? If so, income, with the highest bracket subject buildings is 2.2% annually, which is what are the rates and who is to income tax at a rate of 35%. Non- deductible for income tax purposes. required to pay the tax? resident corporations are currently taxed Land cannot be depreciated. at a rate of 34% for 2017 and 33% for 2018. Non-resident individuals are taxed As a general rule, the transfer and leasing 7. Are deductions available at a 35% flat rate. of immovable property is not subject for management fees to VAT. As an exception, the first sale 5. Is interest on borrowings against rental income for of housing units whose cost exceeds tax purposes? 26,800 unit of tax value (approximately used to acquire real estate US $285,000) will be taxed with VAT. deductible for tax purposes Management fees are deductible for against rental income? income tax purposes. Rental of real estate used for housing and cultural/artistic performances is not Interest on borrowings used to acquire subject to VAT. Rental of real estate for real estate is usually deductible for tax other purposes will be taxed with the purposes against rental income. general 19% VAT rate.

dentons.com 15 8. Are there any restrictions 11. Are there any tax-efficient is subject to higher rates of property tax, on the use, and/or the carry- real estate investment which can be used in calculating the tax basis on the sale. Profit derived from a forward, of losses? vehicles to acquire, hold and sale when there has been an increase in exploit real estate that could the property tax is not subject to taxes Losses can be carried forward within be utilized? at the corporate level. Therefore, the 12 years. Fiduciary agreements or real estate further distribution of dividends to the shareholders will trigger income tax, 9. Are capital gains arising on funds are tax-efficient vehicles for holding and exploiting real estate. while the sale directly by individuals will the sale of real estate taxable? The sale of rights under the fiduciary not be taxed in any case. If so, what are the rates and agreements or the unit of real estate are there any exemptions? funds do not trigger notary fees and 13. Are there any material registration rights and fees. Foreign differences in the way Profit on the sale of real estate is subject real estate funds may be subject to the individuals and companies to capital gains. The rate of tax applicable special foreign portfolio investment rules are taxed on acquiring, and taxed at a rate of 14%. to capital gains is currently 10% for both letting and/or disposing of residents and non-residents. 12. Are there any structures real estate? 10. Is there a withholding commonly used to mitigate tax on rental income and/ real estate tax liabilities on the There are no material differences in the way companies and individuals are taxed or capital gains derived from acquisition and/or disposal of in real estate transactions. real estate? real estate?

If the purchaser is a withholding agent, it will be subject to income Since the base cost of the property can at a rate of 2.5% for local sellers or 10% be used as a tax basis to determine for non-residents. In the case of rental the sale, it is usual to increase such income, a 2.5% rate applies to locals and base cost, or transfer the property a 15% rate applies to non-residents. (temporarily) to a fiduciary company that

16 dentons.com Costa Rica

dentons.com 17 Costa Rica Daniel Araya [email protected]

1. Is stamp duty, transfer tax 2. Is value added tax, goods The tax rate depends on the taxpayer’s or a similar tax payable on the and service tax or a similar nature and gross income: sale, purchase or leasing of tax payable on the sale or • For individuals, the tax rate ranges real estate? purchase of real estate, and between 0% and 25% the letting of real estate? If so, Yes, there is a Property Transfer Tax for what are the rates and who is • For legal entities, the tax rate ranges the transfer of real estate, regardless of between 10% and 30% the vehicle that is used and regardless of required to pay the tax? whether performed by an individual or When a non-real estate company sells legal entity. Yes, in Costa Rica there is a sales tax on a real estate property, the capital gain goods (with a few exceptions) and on does not incur income tax, but rather This Property Transfer Tax also applies some services specifically included in (see question 9 below). to indirect transfers, i.e., of transfers of the law. The rate is 13%. shares in companies entirely deriving 5. Is interest on borrowings their value from real estate. The sales tax applies on leases of real used to acquire real estate estate for housing purposes and for a deductible for tax purposes A Stamp Tax is also applicable, but only period that does not exceed one month, to direct transfers of real estate. for example, vacation rentals. against rental income? Otherwise, for leases of more than one Yes, under the Income in For real estate rentals, the Stamp Tax month, the sale and rental of real estate Costa Rica, both individuals and legal applies only over leasing of commercial is not subject to sales tax in Costa Rica. entities may deduct from gross income property (as opposed to residential). 3. Are there any annual taxes all the costs and expenses needed to produce taxable income, as long as a. If so, what are the rates and who is that may be payable on the their income tax returns are supported required to pay the duty or tax (e.g., ownership of real estate (e.g., with authorized invoices and as long as seller or buyer, landlord or tenant, etc.)? annual land tax, municipal the borrowings are directly related to income earning purposes. The Property Transfer Tax rate is 1.5% of taxes, surtaxes, etc.)? whichever amount is greater: the fiscal a. If so, are there any restrictions (e.g., value or the transfer value included in Yes, property owners pay an annual thin capitalization, transfer pricing, etc.)? the public deed. property tax in Costa Rica that is administrated by municipalities. In the case of SRLs (Costa Rica’s A National Register Stamp Tax of 0.85% The tax rate is 0.25% of the property equivalent of an LLC), when the also applies to direct transfers by public value. This value is registered at the company pays interest and financial deed. This Stamp Tax does not apply to Tax Authority. expenses to its shareholders, the indirect transfers without public deed, payments are considered “dividends” for example, share purchases. There is a for real estate dedicated to housing (primary and will not be deductible. In the case of indirect transfers by residence), which covers the real estate No specific thin capitalization rules affect private contracts, a 0.5% stamp tax must property of the taxpayer as long as interest deductibility in Costa Rica. be paid according to the estimate of the property value does not exceed the purchase. approximately US$34,000. Costa Rica does have transfer pricing rules. For example, when the loan is The law does not establish who 4. What is the tax rate between related parties (related by is required to pay the transfer tax. imposed on rental income? at least 25% of the equity capital), However, in practice, the buyer normally they must prepare a transfer pricing pays the tax. Individuals and entities with lucrative activities in Costa Rica (including real study that essentially aims to price estate) must declare and pay the transaction at issue at the price income tax. that would apply in the usual market (arm´s length).

18 dentons.com b. If so, is there any withholding tax 8. Are there any restrictions 10. Is there a withholding on interest? on the use and/or the carry- tax on rental income and/or Yes, there is a withholding tax on interest forward of losses? capital gains derived from paid abroad. The rate is 15%. real estate? Yes, there are carry-forward restrictions 6. Are deductions for on the use of losses in Costa Rica, Yes, there is a withholding tax on rental depreciation and/or building as follows: income or earnings from a Costa Rican capital allowance available source being sent outside of the country. • For net capital losses, industrial The tax rate is 15 %. against rental income for companies’ losses may be deducted tax purposes? Are there within the next three tax periods 11. Are there any tax-efficient separate allocations between real estate investment vehicles • In the case of agricultural companies land and building? and starting-up industrial companies, to acquire, hold and exploit their losses may be deducted within real estate that could Yes, a capital cost allowance is permitted the next five years on buildings as long as it fulfils the be utilized? following requirements: • For starting-up companies, they must Under Costa Rican law, there are no tax- be registered with the tax authorities • Purchase of the asset-generating efficient real estate investment vehicles before the beginning of operations taxable income according to the law for this purpose. 12. Are there any structures • Registration of the asset within the 9. Are capital gains arising on company’s accounting commonly used to mitigate the sale of real estate taxable? real estate tax liabilities on the • Start-up of the asset in direct If so, what are the rates and acquisition and/or disposal of generation of taxable income for are there any exemptions? the company real estate? Capital gains are normally taxed at This provision only applies to the a 0% rate. Under Costa Rican law, there are physical building in Costa Rica. Land is no structures that can be used to non-depreciable. Capital gains are defined as income mitigate real estate tax liabilities on the derived from either the transfer of acquisition or disposal of real estate. 7. Are deductions available moveable goods or real property assets: for management fees 13. Are there any material against rental income for • If the taxpayer’s normal activity is differences in the way tax purposes? selling real estate property, gains individuals and companies would be subject to income tax. are taxed on acquiring, letting The Costa Rican tax code criterion is that • If the taxpayer sells an asset subject and/or disposing of both individuals and legal entities may to depreciation, then only a portion real estate? deduct from gross income all costs and of the capital gain would be subject expenses needed to produce taxable to income tax. Both individuals and companies must income in Costa Rica, as long as these pay income tax as long they are carrying expenses are supported by authorized In these two scenarios, the capital gains out business activities. The difference invoices, are directly related with the are considered similar to income and are will be the tax rate, which is calculated production of taxable income and subject to income tax (see question according to the generated are reasonable. 4 above). gross income.

As mentioned above, no tax applies

when only one property is sold, and the

seller’s business is not related to real

estate business activities.

dentons.com 19 France

20 dentons.com France Gianluca Calisti Jessie Gaston [email protected] [email protected]

1. Is stamp duty, transfer tax annual land tax, municipal or storage space. The owner of the or a similar tax payable on the taxes, surtaxes, etc.)? property is liable to the French Treasury, but please note that failing to pay may sale, purchase or leasing of result in subsequent owners of the 3% tax on the market value real estate? premises being jointly liable. Typically, French and foreign legal entities French tax authorities collect this tax Yes, per the below. (corporate bodies, organizations, trusts within two years following the issuance and comparable institutions) that directly of the building permit. a. If so, what are the rates and who is or indirectly own French real estate required to pay the duty or tax (e.g, seller properties, or that hold real property Annual tax on office space or buyer, landlord or tenant, etc.)? rights relating to such properties, are Owners of office or business storage liable to a 3% annual tax on the market premises in the Île-de-France area on Under a standard asset deal, transfer value of such properties or rights, unless January 1 of a given year are liable to an duties will be due by the purchaser on they disclose (or commit to disclose in annual tax, calculated on the basis of the the acquisition price of properties in the event of an audit) the full ownership relevant floor space (i.e., office buildings France. The applicable rates since June 1, structure up to the end beneficial and their immediate and necessary 2016, fall between 5.09% and 5.80665%. owner(s). Certain limits and restrictions dependencies/outbuildings). It also Notary fees should be added to this apply to this tax, and it should be noted applies to parking spaces of at least 500 amount; on average, this is 3% of the that this tax is not intended to be levied. square meters, in relation to the taxable acquisition price. Its purpose is to identify end-owners premises. The tax rate varies according of French-based real estate in order to to the district in which the premises are subject them to ISF (). The 2. Is value added tax, goods located. Taxpayers must file an annual structure to be set up will be subject to and service tax or a similar tax return and pay the corresponding certain compliance obligations in order tax upon filing. The applicable statute tax payable on the sale or to avoid paying this tax. of limitations is three years following the purchase of real estate, and year in which the tax is due. the letting of real estate? If so, Local property tax (taxe fonciére)

Local property tax is a local tax due what are the rates and who is Annual additional tax on parking space annually on all properties owned on Since 2015, owners of parking space required to pay the tax? January 1 of the relevant year. The tax is located in the Île-de-France area on due by the owner and applies to both January 1 of a given year must file an The sale of French properties may be developed and undeveloped property annual return and pay the corresponding subject to VAT at 20%, depending on the located in France. The tax on developed tax upon filing. The tax is calculated VAT regime of the seller and whether or property applies to property located on the basis of the surface area of not the property is considered as new in France. The tax is computed by the parking lots, and its rate varies (less than five years since construction factoring a specific coefficient to half depending on the districts in which or reconstruction). The sale of shares, the notional rental value of the property the latter parking lots are located. The however, is not a transaction liable to as determined by the local land registry. applicable statute of limitation is three VAT. The rental of non-furnished property This tax is levied on an annual basis and years following the year in which the tax will be subject to VAT in very specific issued under the name of the owner of is due. cases. The rental of non-furnished the property. professional premises is not, in principle, subject to French VAT, but the lessor has CFE (cotisation fonciére des Tax on the creation of office premises entreprises) the option of subjecting rents to VAT The construction of office space or The CFE applies to properties subject at the rate of 20%. VAT is then paid by commercial premises in the Île-de- to local property tax and is due by the lessor (charged to the tenant) and France area (i.e., Paris and its suburbs) companies who let and/or sublet real can be deducted if the tenant is itself is subject to a tax on the creation of estate property. The CFE is an annual liable for VAT. office space that is attached to the tax assessed on the rental value of the building permit. It is due when building real estate property subject to land tax, 3. Are there any annual taxes works result in the creation of new office for the fiscal year of two years prior that may be payable on the premises or in the conversion of pre- (e.g., the assessments for the purposes existing premises into office, commercial ownership of real estate (e.g., of the 2015 CFE take into account

dentons.com 21 the property used during fiscal year Please note that French tax authorities same limits. Losses may also be carried 2013). The applicable rate of the CFE consider that French real estate held by back and generate a tax receivable, may vary depending on the location of non-resident companies hold source which may be reimbursed under certain the property. income to be determined in accordance conditions and limits. with French standard corporate 4. What is the tax rate imposed income tax rules. Therefore the above 9. Are capital gains arising on on rental income? rules may apply. the sale of real estate taxable? If so, what are the rates and b. Is there any withholding tax on As regards companies subject to are there any exemptions? corporate income tax (CIT), rental interest? income is considered a profit submitted Capital gains resulting from the sale to the standard rate of 33.33%. French There is no withholding tax on interest. of properties or of the intermediate or foreign companies (partnerships or holding vehicle (whose assets consist corporations) owning property in France 6. Are deductions for of more than 50% real estate assets) are typically taxed in France at 33.33% depreciation and/or building would be taxed at the rate of 33.33% on their rental income, regardless of the capital allowance available when the seller is a corporation, or is ownership structure above the property against rental income for tax a see-through entity with an ultimate and on the basis of the double shareholder subject to corporate dispositions signed by France. purposes? Are there separete locations between land taxation. Most double tax treaties signed by France enable the government Please note that certain investment and building. to tax such capital gains when the vehicles (SPPICAVs and SIICs, French underlying property is located in France closed-end real estate investment Depreciation on certain property-related (see question 10). funds and French REITs) may benefit expenditures is deductible if the entity from a full CIT exemption in France declaring the income in France is subject 10. Is there a withholding on their profits if certain conditions to corporate taxation in France (or to tax on rental income and/ are met. Please contact us for more an equivalent tax if established outside details on this matter. of France). Real estate construction or capital gains derived from expenditure can be amortized at real estate? 5. Is interest on borrowings set rates on its different parts on a used to acquire real estate duration-of-use basis. The depreciation French real-estate-sourced income deductible for tax purposes of land is not possible according to of non-resident companies is subject against rental income? French tax rules. Annual depreciation to corporate income tax in France of expenditure is deductible from the and taxed at a rate of 33.33%, since taxable profits (including rental income) as mentioned above, most double tax Interest on borrowings used to finance of the owner company. treaties signed by France enable the the acquisition of French real estate government to tax such income when property is generally deductible from 7. Deductions for the underlying property is located the taxable profits of the borrower, albeit in France. with certain limitations. management fees?

Capital gains arising from the sale of real a. If so, are there any restrictions (e.g. thin Management fees are usually deductible estate property or shares held in a real- capitalization, transfer pricing etc.)? for tax purposes, unless they are estate-predominant company are subject unusually high in respect of the services to a withholding tax set at the standard The main limitations to the deduction provided. Management fees that are not corporate income tax rate of 33.33%. of interest provided for by French thin considered to be at arm’s length may be Please note, however, that a reduced rate capitalization rules are threefold: challenged according to the “irregular management act” principle (l'acte applies to the transfer of shares held by certain real estate investment vehicles • The first limitation relates to the anormal de gestion). (SPPICAVs and SIICs, about which more maximum interest rate applicable for information is located below). related-party debts 8. Are there any restrictions on the use and/or the 11. Are there any tax-efficient • The second relates to the debt-equity carry‑forward of losses? real estate investment ratio and interest coverage ratio of the borrower (related-party debt and As a general rule, tax losses incurred vehicles to acquire, hold and debts secured by a related company) during a given fiscal year may be carried exploit real estate that could forward and offset against available • The third is a general capping be utilized? profits of subsequent fiscal years for up mechanism: Companies with financial to €1 million per year, increased by 50% expenses exceeding €3 million We usually recommend implementing of the taxable profits exceeding the €1 (including but not limited to interest), for each property acquired a simplified million threshold. Please note that the as regards both related-party loans purchase structure via a French special remaining tax losses can be carried and third-party loans, can deduct up purpose vehicle (SPV). One such forward indefinitely and used within the to 75% of the interest amount example is a société civile immobiliére

22 dentons.com (SCI), a French real estate partnership. If 13. Are there any material any commercial activity were to actually differences in the way be developed, a more sophisticated tax structure may be envisaged, such as individuals and companies having the SPV held through a holding are taxed on acquiring, company, French or foreign. Certain letting and/or disposing French real estate investment vehicles of real estate? such as OPCIs provide for tax relief on capital gains and real estate income; The main differences concern the sale they can also be set up as companies of properties. Individuals are subject to (SPPICAV) or funds (FPI). Please note, social contributions on their property however, that their tax exemption income at a rate of 15.5%, in addition to status is subject to certain compliance income tax. As a result when the seller obligations, including but not limited is an individual or a see-through entity to distributional quotas. Please also (with an ultimate shareholder being note OPCIs are regulated vehicles an individual), capital gains resulting with the AMF, the French financial from the sale of properties or of the markets regulator, and are subject to intermediate holding vehicle (whose investment ratios. assets consist for more than 50% of 12. Are there any structures real property) are taxed at 34.5% (19% tax plus 15.5% of social contributions). commonly used to mitigate Individuals do, however, benefit from real estate tax liabilities on the progressive holding period discounts— acquisition and/or disposal of up to a 100% discount on income tax real estate? after 22 years and up to a 100% discount on social contributions after 30 years. They may also be fully exempt from tax The most commonly used structures are on the gains resulting from the sale of SCIs and SPPICAVs. their .

The acquisition of shares in a real- A specific additional progressive capital estate-predominant company, defined gains levy applies to sales, on the basis as a company with real estate assets of a specific calculation formula. This that exceed 50% of its total assets, are special tax is levied on capital gains subject to transfer duties in France at realized directly or indirectly (via see- the flat rate of 5% of the purchase price through partnerships) by individuals. (presumed to be the fair market value The rates range from 2% for a gain of of the shares). No notary fees should be €50,000 to 6% for a gain of €260,000. added to this price, as the transaction is Rates are calculated based on specific mainly handled by lawyers. formulae.

Real estate lease registration is subject to a €25 registration fee.

dentons.com 23 Germany

24 dentons.com Germany Michael Graf Thomas Voss [email protected] [email protected]

1. Is stamp duty, transfer tax VATable and not-VAT-exempt supplies or However, in an international context, or a similar tax payable on the services. In this case, the VAT is payable real estate transactions are typically by the landlord, who receives it as part structured in a way so that no TT falls sale, purchase or leasing of of the rent from the tenant. From a due. This typically involves the use of a real estate? landlord’s perspective, a VATable lease company being resident abroad, which offers the opportunity for a respective holds the German real estate. In case Germany does not levy a stamp duty. It input-VAT refund or credit. of a domestic company, which holds does, however, levy a real estate transfer the real estate, proper tax structuring tax (RETT), among other taxes interalia, There are no other goods and services may lead to a TT exemption for income on the direct sale of real estate. or similar taxes in Germany levied in generated from the lease or sale of the connection with the sale, purchase or real estate. a. If so, what are the rates and who is letting of real estate. required to pay the duty or tax (e.g., 5. Is interest on borrowings seller or buyer, landlord or tenant, etc.)? 3. Are there any annual taxes used to acquire real estate that may be payable on the deductible for tax purposes The RETT rate is currently between 3.5% ownership of real estate (e.g., and 6.5% depending on where the real against rental income? estate is located. The seller and buyer annual land tax, municipal are jointly and severally liable for the taxes, surtaxes, etc.)? In general, interest on borrowings used RETT. However, it is typically agreed in to acquire real estate is deductible for the respective purchase agreement that Germany levies real estate tax on the tax purposes against rental income. the purchaser will bear the full burden. holding of real estate. Real estate tax must be paid by the owner of the real a. If so, are there any restrictions (e.g., 2. Is value added tax, goods estate. The real estate tax rate depends thin capitalization, transfer pricing etc.)? and service tax or a similar on the type and location of the real The German Interest Barrier Rule (IBR) tax payable on the sale or estate. It is applied to a special value of the real estate determined by the tax may limit the deductibility of interest purchase of real estate, and authorities, which is typically much lower payments for tax purposes. Under the letting of real estate? If so, than its fair market value—resulting in a the IBR, interest expenses of a given what are the rates and who is real estate tax typically far below 1% of business are tax-deductible only up to an amount equal to the sum of (i) the required to pay the tax? the fair market value of the real estate per annum. Additionally, the real estate interest income of such business in tax is typically borne by the tenant in the the same fiscal year, and (ii) the offset- Germany is part of the European VAT form of a surcharge on normal rent. able EBITDA of such business (being system and as such levies VAT at a defined as 30% of the EBITDA calculated regular rate of 19%. 4. What is the tax rate for tax purposes). imposed on rental income? In general, the sale of real estate is There are three exemptions to this either not within the scope of VAT or general rule. The IBR is therefore not Corporations are subject to German is VAT-exempt. If it is VAT-exempt, the applicable if one of these applies: seller may “opt for VAT” under certain corporate income tax (CIT) at a rate of 15% plus 5.5% solidarity surcharge, circumstances. If the option for VAT is • The net interest expense of a thereon resulting in an overall CIT rate exercised, the transaction falls within the business is below €3 million in a of 15.825%. Additionally, corporations scope of the reverse charge procedure given fiscal year so that the buyer is required to pay the are typically subject to tax (TT) at a rate of between 7% and about 17%, VAT and can deduct it as input VAT to • The business does not belong to a depending on where the respective the extent that the real estate is used consolidated group of companies for VATable supplies or services and corporation maintains its German not-VAT-exempt supplies or services. (s). The overall • The indebtedness of the whole tax rate for corporations, which is also consolidated group is not more Letting real estate can be either a applicable to rental income, is therefore than two percentage points higher VATable or a VAT-exempt service. The between 22% and about 33%. than the indebtedness of the landlord can "opt for VAT," to the extent given business that the tenant uses the real estate for

dentons.com 25 For the latter two exemptions there are A tax loss carry-back is limited to an 9. Are capital gains arising on counter-exemptions, which are fairly amount of €1 million. Tax losses carried the sale of real estate taxable? complicated. Overall, if the interest forward can be deducted in subsequent expenses in question are €3 million or year(s) by up to €1 million per year If so, what are the rates and higher per fiscal year, there are several without any limitations. If the loss are there any exemptions? structuring options, which may result in exceeds €1 million, it can be additionally the IBR not being applicable. deducted by 60% of the amount by Capital gains are taxable for which the income exceeds €1 million. corporations at the regular tax rates of b. Is there any withholding tax 15.825% CIT and (if not avoided) between on interest? Tax losses and tax loss carry-forwards 7% and about 17% TT. of a corporation may be forfeited in In general no, assuming a fixed full or in part if the shares or voting One exemption is to not sell the real interest rate applies. rights in the corporation are transferred estate itself, but rather the shares in the to another entity. The extent of the company holding the real estate. Even 6. Are deductions for forfeiture depends on the proportion in a purely German situation, capital depreciation and/or building of share capital or voting rights gains realized by one corporation, by capital allowance available transferred. A transfer of more than 50% way of the sale of the shares in a 100% of the share capital or voting rights in a corporate subsidiary, are in general against rental income for tax corporation will, in general, result in the 95% tax-exempt so that only 5% of such purposes? Are there separate entire forfeiture of the tax losses this capital gain is subject to CIT and, if locations between land corporation is carrying forward. If more applicable, TT. and building? than 25%, but not more than 50%, of the share capital or the voting rights are 10. Is there a withholding transferred, the tax loss carry-forwards For buildings, a tax-deductible straight- tax on rental income and/ will be forfeited proportionally (e.g., a line depreciation is available at a rate or capital gains derived from transfer of 30% of the share capital will of either 2% or 3% per year, depending result in the forfeiture of the tax loss real estate? in particular on the type of building. carry-forward to the extent of 30%). No depreciation or capital allowance Several transfers of the share capital No. is available for the land. An overall or the voting rights within five years purchase price for the land and building will be summed up for the purpose of 11. Are there any tax-efficient is allocated according to the fair market determining the extent to which the tax real estate investment value of both. Allocating the purchase loss carry-forwards are forfeited (e.g., price for the respective land and vehicles to acquire, hold a transfer of 25% of the share capital in building in the purchase agreement is, and exploit real estate that 2016 followed by a subsequent transfer among third parties, an indication of of 30% in 2017 will result in the entire could be utilized? the respective fair market values and forfeiture of all tax loss carry-forwards in hence may avoid discussions with the In an international context, German real 2017). These loss deduction rules apply tax authorities. estate is typically acquired through a to shares directly held and indirectly held foreign PropCo (in many cases resident through another corporate entity. 7. Are deductions available in Luxemburg) to avoid a German TT charge. As a result, there is no for management fees As an exemption to these rules, tax tax reason for a German real estate against rental income for losses and tax loss carry-forwards are investment vehicle. tax purposes? not forfeited if the transferor and the transferee are both subsidiaries, directly Nevertheless, proper tax structuring Management fees are deductible for tax or indirectly, held and wholly owned may lead to a TT exemption for income purposes to the extent that the "arm’s by the same parent company. If this generated from the lease or sale of length" principle is met. exemption, known as the Group Clause, the real estate in case of a domestic does not apply, tax losses and tax company, which holds the real estate. 8. Are there any restrictions loss carry-forwards may be preserved on the use and/or the carry‑ to the extent the corporation owns assets containing unrealized gains 12. Are there any structures forward of losses? which, if realized, would be taxable in commonly used to mitigate Germany. This is known as the Hidden real estate tax liabilities on the Tax losses which cannot be set off Reserves Clause. against earnings of the same fiscal year acquisition and/or disposal of can be carried over to other fiscal years. Additionally, if the business of the real estate? The taxpayer may choose between a tax respective corporation is continued If due to factual circumstances the loss carry-back to the previous year (only without any change after the transfer real estate itself needs to be acquired available for CIT purposes, not for TT of shares or voting rights, the tax loss or sold, there is no way to avoid purposes) and an infinite tax loss carry- carry-forwards may on application be German RETT. forward to subsequent years (available preserved, if certain further, formal for both, CIT and TT purposes). requirements are met.

26 dentons.com However, if instead of the real estate of the shares in such corporation are The taxation systems for individuals itself, it is possible to sell the interest (directly or indirectly) unified in “one and for corporations are completely in a real estate holding partnership, hand,” where one hand is either an different and hardly comparable. For or the shares in a real estate holding individual, an entity or a group of entities individuals, there is no fixed income corporation, one may make use of the related in a certain way. Again, the real tax rate, but a progressive income tax 95% threshold rule in respect of the estate does not have to be the sole or rate. In the context of real estate, an shares or partnership interests that need main asset of the corporation for the individual may sell a certain number of to be sold, transferred or unified in order RETT to accrue. real estate assets during a certain period for RETT to be triggered. of time and with a certain minimum Additionally, there are several other holding period without the capital gains RETT also falls due if, within a period of ways for a RETT charge to be triggered being subject to any income taxation. five years, 95% or more of the real estate in dealing with German real estate (e.g., Furthermore, individuals do not pay interest in a partnership holding German the economic unification of 95% or trade tax unless their activities exceed a real estate is (directly or indirectly) more of the direct or indirect economic certain threshold, in respect of relevant transferred. The real estate does not interest). These need to be taken into "trading activities." have to be the sole or main asset of the account when structuring a real estate partnership for the RETT to accrue; it is transaction in Germany. sufficient for the partnership to hold any German real estate. 13. Are there any material differences in the way Furthermore, RETT falls due on any act or transaction in which either (a) 95% individuals and companies or more of the shares in a corporation are taxed on acquiring, holding German real estate are (directly letting and/or disposing of or indirectly) transferred, or (b) 95% real estate?

dentons.com 27 India

28 dentons.com India V. Lakshmikumaran L. Badri Narayanan [email protected] [email protected]

1. Is stamp duty, transfer tax Service tax will be applicable on letting PGBP treatment allows deductions or a similar tax payable on the out of immovable property. for all expenses incurred on the real estate, including depreciation, repair sale, purchase or leasing of VAT rates differ from state to state and charges to the building, full interest and real estate? are based on the material value of the management charges. real estate. The rate of VAT ranges from Yes, every instrument of sale, purchase 5% to 14%. While 5% is applicable for Whether under a particular set of facts or leasing of real estate will attract industrial goods, 14% is the residual rate. and circumstances the income will stamp duty. There are various composition schemes be treated as IHP or PGBP is a highly in force for the discharge of VAT liability contentious issue. The answer in each No stamp duty on land will be triggered on real estate. case will depend on deeper scrutiny of on the sale or purchase of shares in a facts and relevant documents. company that holds real estate in India. Service tax is currently applicable at 15%, Since there is no instrument for transfer based on the value of the service. Other taxes of land, and since it continues to be held The owner of the real estate is also be by the company, there will be no stamp 3. Are there any annual taxes liable to pay the property tax levied by duty implications on land. that may be payable on the the municipal corporations. Property tax ownership of real estate (e.g., is also levied in leases of real estate, in a. If so, what are the rates and who is which case either the lessor or the lessee required to pay the duty or tax (e.g., annual land tax, municipal shall discharge the liability, as agreed. seller or buyer, landlord or tenant, etc.)? taxes, surtaxes, etc.)? The rate of property tax differs between The rate of stamp duty will vary from Income tax various localities. The average rate of state to state. For example, depending Indian income tax law provides for a property tax for residential buildings is on the location of the property within levy tax on the notional rental income around 30%. The property tax may be or outside of a particular municipal derived from buildings and from land demanded monthly or six-monthly. The corporation, stamp duty is payable at 5% they are on. Income tax would be rate is applied to the annual value of of the market value of the property in levied on the higher of (a) rent that the the property. Maharashtra and 8% in Tamil Nadu, and property would generally fetch or (b) at 5% of the consideration set forth in actual rent received. 4. What is the tax rate imposed the sale document for property in Delhi. on rental income? However, there are two exceptions to Stamp duty is payable only once, this rule. First, individuals are granted an Rental income classified as IHP or PGBP either by the buyer/lessee or by the exemption on one property (generally will be subject to tax at the normal seller/lessor, as dictated by their their own residence). Second, for rate applicable to the taxpayer. For inter-se agreement. businesses, any building or land that is individuals, the rate of tax varies as per occupied for business or professional the slabs prescribed. For companies, 2. Is value added tax, goods purposes is exempted from notional there is a flat rate of tax with surcharge and service tax or a similar income treatment. Such notional income and cess. Domestic companies are taxed tax payable on the sale or is taxed under the category “income at 30%, foreign companies at 40%. from house property” (IHP). Actual rental purchase of real estate, and income in some cases, such as when Annual income of up to INR 0.25 million the letting of real estate? If so, the person is engaged in the business is not subject to income tax. Beyond this what are the rates and who is of renting of house properties, can be threshold, the tax rates progressively required to pay the tax? treated as taxable under the category vary in slabs. For example, annual “profits and gains from business or income of more than INR 1 million is profession” (PGBP). VAT is not applicable on the sale or taxed at 30%. purchase of completely constructed IHP treatment allows for the following real estate or the sale or purchase of Service tax deductions: (a) standard deduction of land. However, VAT will be applicable Service tax is applicable at the rate of 30%, (b) municipal and local taxes paid on the sale or purchase of an under- 15% if the receipts from rental income or and (c) eligible interest deduction. construction real estate property. any other taxable service in the financial year exceeds INR 1 million.

dentons.com 29 5. Is interest on borrowings tax treaties may also need to be factored other income (such as salary, business used to acquire real estate in. As such, India has only a limited right income or capital gains) earned during to tax such interest, and withholding the same year. The remaining loss, if any, deductible for tax purposes tax will also be subject to a limited can be carried forward to subsequent against rental income? rate. For example, an Indian company years (subject to a maximum of eight paying interest to a UK lender would years), but can be offset off only by IHP. Yes, interest on borrowings used to withhold tax at only 15%, due to the However, Finance Bill 2017 proposes to acquire real estate is deductible in application of the India-UK tax treaty. limit the maximum amount of loss that computing rental income. Some treaties exempt interest taxation can be offset by any other income to INR when interest is paid to central banks or 0.2 million in a year. a. If so, are there any restrictions on the specified organizations. interest (e.g., thin capitalization, transfer Losses incurred on a real estate property pricing, etc.)? 6. Are deductions for taxable as PGBP can be offset by any depreciation and/or building other income earned during the same When income is treated as IHP capital allowance available year. The remaining loss can be carried If a house property is being used by the forward to subsequent years (subject to owner as a residence, such deduction is against rental income for tax a maximum of eight years), but can only limited to INR 0.2 million (from notional purposes? Are there separate be offset by income from business. income even if it is NIL). In the case of allocations between land let-out properties, the full interest is and building? 9. Are capital gains arising on available as a deduction. the sale of real estate taxable? Indian tax law provides for depreciation If so, what are the rates and When income is treated as PGBP on buildings. However, such Thin capitalization rules have been are there any exemptions? depreciation can only be deducted from proposed by Finance Bill 2017. As per the rental income if the same is treated proposed provisions, if the interest paid Long-term capital gains (i.e., when the as PGBP. to a non-resident associated enterprise asset is held for more than 36 months, (AE) exceeds 30% of EBITDA, then the though this is proposed to be reduced Depreciation rates for buildings vary excess is denied deduction in that year. to 24 months by Finance Bill 2017) are from 5% to 100%. While residential Such excess can however be carried taxable at 20%. Short-term capital gains buildings depreciate at 5% and hotels at forward to subsequent years for a (i.e., when the asset is sold within 36 10%, purely temporary structures (such maximum of eight years. months, or 24 months as proposed) are as wooden ones) depreciate at 100%. taxable at the normal rates in force. Further, the interest payment might Plant and machinery are reduced at be subject to transfer pricing audit Business profits are also taxed at normal 15%, though special rates may apply. For if borrowings are obtained from an rates in force. For example, rate of tax example, ships and vessels depreciate at AE. In such case, if the Indian tax for a company is 30%, plus surcharge 20%, computers at 60% and renewable authorities conclude that the interest and cess. energy devices such as windmills is paid at a rate higher than the arm’s at 80%. length rate, the excess interest can be Various exemptions are available denied deduction. for capital gains. However, these Land is a non-depreciable asset. exemptions depend on (a) the nature of the asset transferred, (b) the amount b. If so, is there any withholding tax on 7. Are deductions available the interest? reinvested, (c) the asset in which the for management fees amount is reinvested, (d) the time period It is required to withhold tax on the against rental income for within which the reinvestment is made payment of interest. In India, withholding tax purposes? and (e) the period for which reinvested tax on interest is generally levied at 20%. asset is held by the taxpayer. As above, deduction would be available For example, capital gains arising out of If the lender is an Indian resident, tax is for management fees if the rental the sale of real estate are exempt to the to be withheld from interest payment at income is treated as PGBP. Further extent of reinvestment into a residential the rates in force. Certain lenders, such deduction of such remittances may house. Another exemption often availed as banks, statutory corporations and be subject to a cap of 5% of the is through investments in certain insurances companies, are excluded taxpayer’s income, computed in a specified bonds, whereby capital gains from the purview of such withholding. prescribed manner. are exempt to the extent of the amount However, interest paid to non-residents 8. Are there any restrictions so invested. is subject to withholding tax at 5% under on the use, and/or the carry- certain conditions. Finance Bill 2017 10. Is there a withholding proposes to extend this concessional forward, of losses? tax on rental income and/ rate to interest on rupee-denominated or capital gains derived from Losses incurred on a real estate property bonds as well. If monies have been real estate? borrowed from a non-resident lender, taxable as IHP can be offset by any

30 dentons.com Rental income earned by a person who 13. Are there any material resides in India would be subject to differences in the way withholding tax of 10% on the rent, if the amount of rent payable exceeds INR 0.18 individuals and companies million per year (it has been proposed to are taxed on acquiring, extend the limit to INR 0.6 million). Rental letting and/or disposing of income earned by a non-resident would real estate? generally be subject to withholding tax of 40%. The difference in taxation of rental income and capital gains depends Capital gains earned by a non-resident on the purpose for which the asset is owner/seller would be subject to held, i.e., whether for earning passive withholding tax at 20%. rental income or for use in the owner’s 11. Are there any tax-efficient business of letting out. real estate investment There are no material differences in vehicles to acquire, hold and the way individuals and companies are exploit real estate that could taxed, except for the minimal benefit be utilized? that an individual would derive because of being taxable at slab rates, rather than at a blended rate in the case of a India introduced a separate scheme corporate entity. for taxation of real estate investment trusts (REITs) in 2014. The REIT is treated as a transparent vehicle and the holder of the unit would be taxable as if the assets were directly held by the owner. This avoids additional tax liability where assets are held through an investment vehicle.

12. Are there any structures commonly used to mitigate real estate tax liabilities on the acquisition and/or disposal of real estate?

Real estate investors use various structures depending on the nature of the investment target, exit strategies, the form in which capital is to be introduced and other factors. However, these structures do not provide for any significant income-tax advantage. India’s tax regime does not provide significant scope of though the structuring of holdings in the real estate sector.

Stamp duty, which is a state levy, is generally levied at a higher rate on real estate than on shares held in companies. Some taxpayers transfer their shares of real estate companies rather than transferring the underlying real estate, so as to mitigate stamp duty.

dentons.com 31 Italy

32 dentons.com Italy Andrea Fiorelli Luca Guidotti [email protected] [email protected]

1. Is stamp duty, transfer tax Lease contracts shall be registered of commercial real estate is normally or a similar tax payable on the within 30 days from stipulation and are exempt from VAT. subject to the application of: sale, purchase or leasing of Sales of commercial real estate are real estate? • A proportional 2% registration tax subject to VAT at a rate of either 10% (for on the annual rent for residential renovated property) or 22% rate if the Yes. On the sale of real estate property, buildings rented by owners that do seller is a construction company, and if registration tax and cadastral and not apply VAT the sale takes place less than five years mortgage taxes are due. On the lease of from the construction or the renovation real estate property, only the registration • A flat registration tax of €67 on the works, or in any other event if the seller tax is due. lease of residential buildings by opts for the application of VAT in the owners applying VAT. deed of sale. a. If so, what are the rates and who is required to pay the duty or tax (e.g., • A proportional 1% registration tax for In the case of the lease, an optional VAT seller or buyer, landlord or tenant, etc.)? commercial buildings, whether or not regime may be exercised by the lessor, VAT is applied through a specific clause in the relevant For the sale of real estate property, the lease agreement, in the following cases: application of the above-mentioned Normally the registration tax due in taxes varies depending on certain connection with a lease agreement is • The leasing or renting of residential features of the transaction, such as the borne equally by both parties. immovable property executed nature of the property, the seller and the by construction or refurbishment purchaser. It also depends on whether 2. Is value added tax, goods companies, without any time limit VAT is applied. and service tax or a similar from the date of completion of the tax payable on the sale or construction or refurbishment works; For residential real estate: purchase of real estate, and the applicable VAT rate will be 10% • If exempt from VAT, the sale is the letting of real estate? If so, • The leasing or renting of residential subject to registration tax at a rate of what are the rates and who is property falling within the definition 9% or 2% on the sale consideration, required to pay the duty or tax of social housing; the applicable VAT and subject to cadastral and (e.g., seller or buyer, landlord rate will be 10% mortgage taxes at the fixed amounts of €50 each or tenant, etc.)? • The leasing or renting of commercial immovable property; the applicable • If VAT applies, the sale is subject to Generally, both the purchase and VAT rate will be 22% registration, cadastral and mortgage the letting of a real estate property taxes at the fixed amounts of (residential or commercial) are exempt Normally the VAT is paid by the buyer €200 each from VAT. and the tenant.

The acquisition of commercial real estate, However, the VAT may apply depending 3. Are there any annual taxes whether VAT-exempt or not, is subject on the nature of the seller (e.g., if the that may be payable on the to registration tax at the fixed amount of seller is a so-called “construction or ownership of real estate (e.g., €200, to cadastral tax at 0.5% or 1% and refurbishment company”3) and on the to mortgage tax at 1.5% or 3%. nature of the real estate property. annual land tax, municipal taxes, surtaxes, etc.)? Normally the buyer pays all three taxes, Sales of residential real estate are but both parties are jointly and severally subject to VAT at a rate of either 10% or Yes. Owning real estate properties liable vis-à-vis the tax office. 22% (for "luxury housing") if the seller (buildings, land suitable for building and In the case of the lease of real estate is a so called “construction company,” rural land) in Italy is subject to municipal property, the application of the and if the sale takes place less than tax on real estate properties (IMU) at registration tax depends on certain five years from the construction/ a 0.76% rate (which municipalities can features of the transaction, such as the renovation works or if the construction increase or decrease by up to 0.3%) nature of the property and of the lessor. It company opts for the application of and to annual tax for non-divisible local also depends on whether VAT is applied. VAT in the deed of sale. The acquisition services (TASI) at a 1% rate. The taxable

dentons.com 33 basis for both IMU and TASI is computed, As a general rule, interest expenses are • An insurance company established in the case of buildings, as 105% of the fully deductible up to an amount equal and licensed under the law of an EU cadastral value (i.e., the imputed income to interest income accrued in the same Member State registered in the cadastre on January tax period. 1 of the relevant year) multiplied by a • An institutional investor, whether or coefficient (depending on the nature Any excess over that amount is not subject to tax, set up in a country of property). deductible to the extent of 30% of gross included in the Italian white list and operating income (EBITDA). Any excess subject to regulatory supervision in However, ownership of foreign real of interest expenses above this threshold its home country estate properties by Italian resident may be carried forward for deduction in taxpayers is subject to the so-called the following tax periods. imposta sul valore degli immobili esteri 6. Are deductions for (IVIE) at a rate of 0.76% on the value as If an Italian corporate vehicle is focused depreciation and/or building declared in the purchase agreement on real estate management activities, capital allowance available the or the fair market value set in and provided that certain conditions against rental income for tax the country in which the property is are met, interest due on loans that located. For immovable property are secured by mortgages over real purposes? Are there separate located in an European Economic estate for letting is not subject to allocations between land Area country, the reference value for the 30% threshold, and is therefore and building? IVIE is the value used in the relevant fully deductible. foreign country as the taxable base Yes. As a general rule, depreciation for the purposes of any property or b. If so, is there any withholding tax on of tangible assets is permitted on a transfer taxes. interest? straight-line basis, by applying to the assets’ cost price the coefficients 4. What is the tax rate imposed In general, interest payments to non- periodically established by the Ministry on rental income? resident companies are subject to a final of Finance. These vary depending on withholding tax at the rate applicable the type of property and the sector Taxable income from lease activity to interest paid to residents, 26%. of activity. Rates for buildings range generated by corporate entities, However, the tax rate of the domestic between 3% and 5%. calculated under general rules, is withholding tax could be reduced by the subject to 24% CIT (IRES, in its Italian application of a double-taxation treaty Land is not depreciable. acronym), and to regional income tax in force between Italy and the lender’s on productive activities (IRAP) at 3.9%, home country. 7. Are deductions available which rate can be locally increased or for management fees decreased by up to 1%. Furthermore, under the domestic law implementing the provisions of the against rental income for When a corporate entity has an EU Interest and Royalties Directive, tax purposes? insufficient level of revenue, it is outbound interest is exempt from any considered a dormant company Italian tax, provided that (a) the recipient Yes. As a general rule, costs and (so-called “società di comodo”). As "is an associated company" of the paying expenses may be deducted only if consequence, the company may declare company and is resident in another they are incurred for the production a presumptive minimum taxable income Member State, or (b) such a company’s of income. that should be subject to taxation at permanent establishment is situated in a rate as high as 34.5% (versus the another Member State and the relevant 8. Are there any restrictions ordinary rate of 24%). The companies must have a legal form listed on the use, and/or the carry- application of the tax regime under in the Annex of the Directive and be forward, of losses? discussion may be rebutted only by subject to a corporate income tax. In addition, the domestic law implementing submitting an advance ruling to the Yes. As a general rule, losses may be the EU Directive requires a one-year Italian Tax Authority. carried forward indefinitely, but may not holding period. be used to offset more than 80% of the 5. Is interest on borrowings taxable income in any tax year. used to acquire real estate Finally, provided that certain regulatory provisions are respected, no withholding Losses accrued during the first three deductible for tax purposes tax is levied on interest on medium- years of business may be carried against rental income? term or long-term loans granted to forward without limitations and set off enterprises when the lender is any of in full against the taxable income of Yes, interest is generally deductible. the following: any subsequent tax year, provided that the losses originate from a new activity a. If so, are there any restrictions on the • A bank established under the law of (i.e., an activity that was not previously interest (e.g., thin capitalization, transfer an EU Member State carried on by another person, even one pricing etc.)? unrelated to the taxpaying entity). • An entity listed in article 2(5), No. 4 to 23, of Directive 2013/36/EU

34 dentons.com 9. Are capital gains arising on However, a more tax-efficient structure by a regional surcharge that ranges the sale of real estate taxable? is available under Italian law: investment from 1.23% to 3.33%. The rates may through real estate investment funds. also be increased by municipal and If so, what are the rates and If such an investment is carried out by provincial surcharges, determined by are there any exemptions? institutional investors (such pension each municipality and province, at an funds or other collective investment aggregate rate of up to 0.9%. Capital gains on the sale of property entities), any income deriving from the (calculated as the difference between lease of the real estate property, as well • Taxation of rental income: The the book value of the property at the as any capital gain from the sale of that taxable base for rental income is time of the sale and the agreed purchase property, is included in the fund’s net the higher of (a) its cadastral value price) is subject to IRES and to IRAP at income (which is exempt from both or (b) its rental value reduced by the ordinary rates. For assets held for at IRES and IRAP). That income is taxed the maintenance expenses, up least three years, the capital gain from (a) upon the distribution of income to to a maximum of 5% of the rental disposal may be spread evenly over a the investor (b) upon redemption of value. A further flat deduction period of five years. the units with the application of a final of 30% of taxable income, as withholding tax at the rate of 26%. If determined above, is provided for When a foreign entity sells real estate, certain requirements set forth by the rentals of dwellings located in major any relevant DTT is applicable to law are met, the latter withholding tax cities, if rents are those that have determine if the capital gain may be may be excluded in case the proceeds been agreed upon between the taxed in Italy. Tax treaties signed by of the fund are distributed to certain landlords’ and tenants’ associations. Italy generally give the country the right type of investors. Alternatively, the taxpayer may opt to tax capital gains on the sale of real for income derived from property estate located in Italy. 12. Are capital gains arising on rented out for use as a dwelling to be the sale of real estate taxable? subjected to a substitute tax at a rate 10. Is there a withholding of 21%. If so, what are the rates and tax on rental income and/ are there any exemptions? • Taxation of capital gains: Capital or capital gains derived from gains derived by individuals on the real estate? One possible way to mitigate tax disposal of immovable property liabilities is to acquire a business and/ situated in Italy (other than in the All types of income derived from a or a branch of a business containing the course of a business or profession) real estate property (such as ongoing real estate properties. In this case, the are taxed as miscellaneous income. rental income or the capital gain earned buyer will be liable only up to an amount However, such gains are exempt from disposal of the asset) should be equal to the value of the business. In from tax if the seller has held the subject to under the order to ring-fence the buyer’s liabilities, property for more than five years. general rules. both parties may request a certificate from the Italian tax authorities. This This means that a property’s owner/ certificate specifies the amount of the investor should declare all income business-related tax liabilities pertaining on their annual Italian income tax to the business as of the acquisition return, regardless of their nation of date. Once this certificate is issued, the . buyer’s exposure will be limited to the liabilities resulting therefrom. 11. Are there any tax-efficient real estate investment 13. Are there any material vehicles to acquire, hold and differences in the way exploit real estate that could individuals and companies be utilized? are taxed on acquiring, letting and/or disposing of All tax treatments described in real estate? the previous answers refer to the acquisition, management and disposal Yes. Some of the major differences are of Italian real estate assets through an outlined below: Italian corporate vehicle. In particular, they refer to transactions through the • Tax rate: Individuals resident in Italy two major forms of resident companies: are subject to PIT on their aggregate the joint stock company (SpA) and the worldwide income at progressive limited liability company (Srl). The Italian tax rates ranging from 23% to 43%, tax code doesn’t provide for any rules depending on their total income that allow such vehicles to minimize declared in their annual income tax their tax burden other than those return. These rates are increased described above.

dentons.com 35 Kazakhstan

36 dentons.com Kazakhstan Kanat Skakov Stanislav Lechshak [email protected] [email protected]

1. Is stamp duty, transfer tax 2. Is value added tax, goods Generally, legal entities are liable to or a similar tax payable on the and service tax or a similar property tax at the rate of 1.5% of average book value of taxable objects (i.e., sale, purchase or leasing of tax payable on the sale or buildings and constructions). real estate? purchase of real estate, and the letting of real estate? If so, The rate of land tax payable depends The Code of the Republic of Kazakhstan what are the rates and who is upon several parameters of land, such on Taxes and Other Obligatory payments as the type of land and the purpose No.99-IV, dated December 10, 2008, required to pay the tax? of its use. Broadly speaking, the rates does not include stamp duty or transfer of land tax for land plots not used for tax. However, it should be noted that Certain transactions involving land agricultural or industrial purposes, based registration of title and other rights to and residential buildings are exempt upon location, range from 0.48 tenge immovable property with the respective from VAT in Kazakhstan. In particular, per square meter (in rural areas) to 28.95 state authority is subject to a state sale of a residential building (or part of tenge per square meter (in Almaty). registration fee. a residential building), as well as the The rates of land tax may be increased lease and sub-lease of such property, or decreased by the decision of local a. If so, what are the rates and who is are exempt from VAT. However, this authorities up to 50% of the base rates. required to pay the duty or tax (e.g., exemption does not apply if the property seller or buyer, landlord or tenant, etc.)? is used for provision of accommodation 4. What is the tax rate imposed services (e.g., hotel services), except for on rental income? The rates of the registration fee several types of dormitories. are based on monthly calculation There is no special tax regime applicable Where payable, the standard rate of VAT indexes (MCI), determined annually, to rental income. which for 2017 is 2,269 Kazakh tenge in Kazakhstan is 12%, which should be accrued and paid to the state budget by (approximately €6.5). Legal entities are subject to 20% the recipient of the income (that is, the corporate income tax (CIT). Net taxable owner of the property or the landlord), The amount of the registration fee income for CIT purposes should be which must be registered as a VAT payer depends on the type of immovable determined as aggregate taxable with the tax authorities. property and the type of right subject revenues less deductible expenses, to registration. For instance, registering 3. Are there any annual taxes subject to requirements and limitations rights to an individual apartment and provided by the tax code. Under private house carries a fee of 0.5 MCI. that may be payable on the provisions of the tax code a rental For a multi-apartment building, the rate ownership of real estate (e.g., income is considered as sales income is 8 MCIs. For non-residential property annual land tax, municipal and, therefore, should be included complexes, the fee varies from 10 MCIs taxes, surtaxes, etc.)? in aggregate taxable revenues for to 25 MCIs, depending on amount of CIT purposes. objects in the complex. Registration of encumbrances on real estate is subject Ownership of an immovable property or 5. Is interest on borrowings to a fee of 0.5 MCI. land entails payment of property tax and/ or land tax on an annual basis. used to acquire real estate Based on this, if one buys a residential deductible for tax purposes property, the registration fee payable for Generally, these taxes are payable by against rental income? the registration of the respective rights the legal owner, however, in certain (title) would be 0.5 MCI, or approximately cases this obligation may be transferred Generally, expenses incurred by a €3.25, regardless of the price of property. to a third party. For example, under a taxpayer in order to generate taxable trust management, a trustee may be revenues may be deducted for The registration fee is payable by the responsible for payment of such taxes. CIT purposes. person or entity on behalf of which the respective rights are registered. The tax code provides for different ways The tax code provides that taxpayers’ for the calculation and payment of these expenses on construction and taxes by individuals and legal entities.

dentons.com 37 acquisition of fixed assets, as well as respective treaty fixed asset for taxation and accounting other capital expenditures, should be (DTT), if applicable, subject to certain purposes will be subject to CIT. Normally, capitalized and deducted through administrative requirements. a gain realized on the sale of a real depreciation charges. Therefore, interest estate object should be calculated as on loans obtained for acquisition Any kind of income (including interest) a positive difference between sales of real estate should be capitalized payable to a resident of a state with price and remaining depreciation and deducted through annual preferential taxation is subject to balance of the real estate calculated for depreciation charges. withholding tax at the maximum rate taxation purposes. of 20%. a. If so, are there any restrictions on the For individuals, any capital gain from interest (e.g., thin capitalization, transfer 6. Are deductions for the sale of real estate is subject to pricing, etc.)? depreciation and/or building personal income tax, subject to certain capital allowance available exceptions. Namely, capital gains realized Thin capitalization rule exist in the form by individuals on sale of certain property of limitation of deductible interest on against rental income for tax (e.g., residential buildings, land plots) loans extended by related parties, loans purposes? Are there separate may be exempt from 10% personal secured by related parties and loans allocations between land income tax, provided that such property extended by residents of jurisdictions and building? was owned more than one year. with preferential taxation. Interest on the loans not included in any of these The current rate of CIT is 20%. For Yes. Depreciation of fixed assets should categories may be deducted in full. individuals, the current rate of personal be calculated under the declining This limitation does not apply unless income tax is 10%. balance method. The depreciation rate the average annual amount of debt of for buildings and constructions (except the company exceeds four times the 10. Is there a withholding oil and gas wells and transmission average annual equity (or seven times for devices) is currently 10% per annum. tax on rental income and/ financial organizations). or capital gains derived from 7. Are deductions available For example, if a company attracts loans real estate? from related parties or from residents for management fees of countries with preferential taxation, against rental income for Capital gains realized by a non-resident or loans secured by related parties, the tax purposes? from sale of a Kazakh property is subject deductible amount of interest paid by to 15% withholding tax, whereas residents of states with preferential taxation are the company in respect of such loans The tax code does not envisage subject to 20% withholding tax. will be calculated under the formula: any special restrictions in respect of (average annual equity / average deduction of the management fees. There is no withholding tax on rental annual debt) multiplied by four or Therefore, to be deductible, such income received by residents and non- seven (as appropriate), then multiplied expenses should comply with the residents acting through a permanent by the interest on the restricted general tax code requirements (i.e., establishment in Kazakhstan. loans. Therefore, if the amount of the incurred in connection with taxable company’s debt exceeds four times the revenues) and should be confirmed with 11. Are there any tax-efficient amount of the company’s equity, the necessary documents. interest on certain loans would not be real estate investment deducted in full. 8. Are there any restrictions vehicles to acquire, hold and on the use, and/or the carry- exploit real estate that could Kazakh law on transfer pricing applies to any cross-border transaction, including forward, of losses? be utilized? financial services. Therefore, interest rates on loans extended by foreign Tax losses on entrepreneurial activity A foreign entity may acquire, hold and entities to residents of Kazakhstan may (including losses from sale of real estate exploit real estate in Kazakhstan either be subject to transfer pricing scrutiny. objects) may be carried forward for the through its Kazakh branch or through The tax authorities have the right to next 10 years inclusive and may be offset a local subsidiary. The organizational adjust taxable objects (revenues and against taxable revenues during these form that is often used for establishing expenses) if the transaction price tax periods. a Kazakh subsidiary of foreign entities deviates from the range of market prices. is a limited liability partnership, a legal 9. Are capital gains arising on entity that might be established by a b. If so, is there any withholding tax on the sale of real estate taxable? single or several participants with the the interest? If so, what are the rates and minimum charter capital of 100 MCIs (approximately €650). are there any exemptions? Interest payable to a foreign entity is subject to 15% withholding tax There are several differences in the A gain realized by a Kazakh legal entity taxation of branches and subsidiaries. in Kazakhstan. The applicable tax or a branch of a foreign entity on the rate might be reduced under the The key difference lies in taxation of net sale of a real estate recognized as a income. Branches of foreign entities are

38 dentons.com subject to 15% net income tax, which is Please note that the new tax code letting and/or disposing paid annually, whereas subsidiaries pay concept does not provide for the of real estate? 15% tax on dividends whenever dividends aforesaid exemption of dividends. are distributed. Therefore it might be the case that The tax code envisages different such exemption will be eliminated in requirements for taxation of individuals Applicable rates of net income tax the future. and legal entities holding real estate. and withholding tax on dividends may Similarly to legal entities, individuals are be reduced under provisions of the 12. Are there any structures obliged to pay property tax and land tax, relevant DTTs. Moreover, under the tax commonly used to mitigate however, the amounts of these taxes are code, exemption from withholding tax calculated in a different ways. on dividends may be achieved if the real estate tax liabilities on the following conditions are met: (i) the acquisition and/or disposal of If an individual receives an income recipient of dividends is not registered real estate? from letting real estate that exceeds in a country with preferential taxation; the minimal threshold set out by the (ii) the share or participating interest in There are no special structures or tax code (which, for 2017, was 293,508 a Kazakhstan entity in respect of which special tax regimes that may be used for tenge, or approximately €840), such the dividends are paid is owned for more this purpose. individual would be obliged to register than three years; and (iii) the dividend- as an individual entrepreneur (without paying company is not a subsoil user in 13. Are there any material establishing of a legal entity) and to pay Kazakhstan and does not derive more differences in the way taxes in accordance with applicable than 50% of its property from a property individuals and companies tax regime. of a subsoil user. are taxed on acquiring,

dentons.com 39 Luxembourg

40 dentons.com Luxembourg Frederic Feyten Jean-Dominique Morelli [email protected] [email protected]

Raphaële Kamoun Ngoc-My Nguyen [email protected] ngocmy.nguyen @dentons.com

1. Is stamp duty, transfer tax cumulated value of the rent on the total Under certain conditions, the owner or a similar tax payable on the duration of the lease, as well as a 1% of real estate property has the option transcription tax for leasing of at least 9 to waive the VAT exemption. This may sale, purchase or leasing of years, are due. entitle the owner to deduct, to a certain real estate? extent, the value of any VAT incurred. If the lease is subject to VAT (see below), Please refer to the answer below, as only a fixed registration duty of €12 Sale of real estate certain duties apply to the sale and lease is due. If the seller is an entity conducting an of real estate. economic activity (as defined by VAT Please note that as of January 1, 2017, laws) and sells the real estate in the a. If so, what are the rates and who is there is no longer a requirement course of the said activity, it may be required to pay the duty or tax (e.g., to register leases, subleases and subject to VAT at the standard rate of seller or buyer, landlord or tenant, etc.)? subrogation of leases within three 17% on the net price. (The reduced 3% months of their signature. VAT rate may be applicable to the sale Sale of real estate / properties under of residential property provided certain construction conditions are met.) The seller must file The sale of a Luxembourg real estate/ 2. Is value added tax, goods and hold a valid option to do so. Among property located in Luxembourg entails and service tax or a similar other factors, the proper VAT treatment payment of the following duties: tax payable on the sale or of the sale of real property depends on whether: • A 6% registration duty purchase of real estate, and the letting of real estate? If so, • The object of the sale is classified as • A municipal surcharge of 50% of what are the rates and who is a going concern; if so, the sale falls the above registration duties for real outside the scope of VAT estate located in Luxembourg city required to pay the tax? and affected to commercial use • The plot of land subject to the sale Transactions exempt from VAT include: is developed or not; if a plot of land • A 1% transcription tax is developed, the VAT treatment of • The supply of a building or parts land follows the VAT treatment of thereof, and of the land on which The above gives rise to an aggregate buildings or constructions (or their it stands, other than the sale of transfer tax of 10% in Luxembourg parts) developed thereon City for commercial properties, and buildings under construction or to be of 7% elsewhere in the country and constructed at the time of signature • The undeveloped land is in Luxembourg City for residential of the sales agreement designated for other purposes than properties. This charge is computed development; if so, such supply is • The leasing or letting of on the sale price as determined by the generally exempt from VAT parties. It must correspond at least to immovable property the estimated fair market value of the Lease services The exemption does not cover: real estate and it is payable by the buyer Lease are VAT-exempt unless an option to (unless otherwise provided by contract). tax has been submitted and agreed by the • The provision of accommodation in When the construction already existed VAT authorities. If so, they are subject to hotels or similar establishments at the date of the sale, it is not subject to 17% VAT. However, the lease of residential VAT. However, if the construction is to be units for housing purposes is VAT-exempt. • The letting of premises and sites for erected after the date of the sale it will The lease of furnished offices is usually the parking of vehicles be subject to VAT. considered as a supply of service and not a letting of property, and is therefore • The letting of permanently installed Lease of real estate fully taxable at the 17% standard rate. equipment and machinery Voluntarily lease registration are subject to the following registration duties: • The renting of safety deposit boxes If the lease is not submitted to VAT, a proportional duty of 0.6% on the

dentons.com 41 3. Are there any annual taxes Corporate taxpayers • Interest on certain income sharing that may be payable on the Luxembourg capital companies or non- type instruments residents companies acting through a ownership of real estate (e.g., Luxembourg PE must pay Luxembourg • 20% WHT applied on certain interest annual land tax, municipal corporate income tax (CIT) and MBT, paid to Luxembourg individual taxes, surtaxes, etc.)? levied at the combined standard rate of residents, under what is known as the 27.08% for resident capital companies or Relibi Law Yes. Luxembourg PEs located in the City of Luxembourg. These taxes are due on any Property tax (impôt foncier) rental income derived from real estate 6. Are deductions for Property tax is charged annually properties located in Luxembourg. The depreciation and/or building by municipalities at varying rates, rate in 2018 will be 26.01%. capital allowance available depending on the location and nature against rental income for tax of the property, applying on the unitary For non-resident corporate taxpayers, in value of the properties. the absence of PE, rental income is only purposes? Are there separate subject to CIT at 20.33% (19.26% in 2018). allocations between land and The unitary value of the properties building? reflects the theoretical value of the property as of January 1, 1941. Therefore 5. Is interest on borrowings Yes, deductions for depreciation are it is usually minimal of the market value used to acquire real estate available against rental income for tax of the property. deductible for tax purposes purposes. against rental income? Net wealth tax for collective entities Real estate rented out is subject to tax (impôt sur la fortune) depreciation at a rate ranging from 2% Yes, subject to the arm’s length principle Real estate properties located in to 6% for new real estate finalized within and certain thin capitalization rules Luxembourg held by a Luxembourg the last six years. when the loan is granted or secured by a company or by a non-resident through a related party. Luxembourg permanent establishment Land is not subject to depreciation. (PE) are also subject to annual net wealth a. If so, are there any restrictions on the tax applying on the unitary value of interest (e.g., thin capitalization, transfer the properties (levied at 0.5% up to net 7. Are deductions available pricing, etc.)? wealth of €500 million and at 0.05% for for management fees net wealth of more than €500 million. For corporate owners of real estate, the against rental income for Certain minimum net wealth tax rules funding of the acquisition of real estate also apply from 2017. tax purposes? will need to comply with Luxembourg thin-cap rules. Real estate properties abroad are Business expenses such as management excluded from the net wealth tax basis fees are normally deductible if (i) they Unless the Luxembourg company can of Luxembourg companies/Luxembourg remunerate services actually rendered prove the debt-to-equity ratio under PE to the extent exclusively taxable in in direct relationship with the relevant which a third party would fund the the source state under an applicable activity, (ii) they are at arm’s length and company having the assets of the double tax treaty (DTT). (iii) they are not economically related to company as sole collateral, an 80/20 an exempt income. debt-to-equity ratio is used by the tax 4. What is the tax rate authorities as safe harbor. 8. Are there any restrictions on the use, and/or carry-forward, imposed on rental income? Such a debt to equity ratio must be overall observed in presence of a partial of losses? Individual taxpayers bank financing and a partial intra-group For individuals acting in the course financing to the extent the bank debt is For all Luxembourg resident taxpayers, of the management of their private guaranteed by the shareholder of the as of January 1, 2017, the carry-forward wealth, net rental income is subject to Luxembourg company. is limited to 17 years. Tax losses incurred progressive personal income tax from between January 1, 1991, and December 0% to a maximum effective marginal tax b. If so, is there any withholding tax on 31, 2016, can still be carried forward rate of 45.78%. the interest? without any limitation in time. The old tax losses are to be deducted first. For individuals, acting in the course Interest payments are in principle of a professional activity, the rental not subject to withholding tax (WHT). For individual Luxembourg resident income is a business income subject to Exceptions include: taxpayers, the carry-forward of progressive personal income tax from income tax losses is only possible 0% to 45.78% (or half the global tax • Interest paid not at arm’s length; for losses deriving from commercial rate under certain conditions), but also excessive interest on borrowing may activities, farming or independent subject to municipal business tax (MBT) be requalified as hidden dividend in professional activities. levied at the nominal rate of 6.75% per principle subject to a 15% WHT year in Luxembourg City.

42 dentons.com 9.Are capital gains arising on allocated to a PE in Luxembourg. real estate (see below comments on the sale of real estate taxable? Capital gains on shares of corporation share deals), the other commonly used holding a Luxembourg real estate vehicles are the specialized investment If so, what are the rates and are property realized by a resident of a tax fund (SIF); the securitization vehicle (SV); there any exemptions? treaty country is generally not taxable the risk capital investment company in Luxembourg. (société d’investissement en capital à Yes, capital gains arising on the sale of real risque, or SICAR); and the Reserved estate are taxable. Capital gains on shares of a Luxembourg Alternative Investment Fund (RAIF). corporation holding a Luxembourg real For individuals taxpayers estate property is in principle not taxable 12.Are there any structures Capital gains realized by individuals in in Luxembourg if the Luxembourg commonly used to mitigate the course of the management of their corporation is held by non-resident private wealth, are taxable either as shareholders (certain exceptions apply). real estate tax liabilities on speculative gains if realized within 2 years Capital gains on shares of a Luxembourg acquisition and/or disposal of of the acquisition or as an extraordinary corporation holding a Luxembourg real estate? gain on sale. real estate property realized by a Luxembourg fully taxable resident The majority of transactions are • Speculative gains are subject to corporation is taxable in Luxembourg generally carried out through a share progressive income tax (minimum 15% but could benefit from a capital deal rather than an asset deal, as the for non-resident taxpayers) gain exemption (parent-subsidiary target company that holds the real directive regime). estate can carry forward its losses and • Gains realized upon on the sale of the purchaser can avoid registration real estate (after 2 years) benefit from 10.Is there a withholding duties (i.e., 0% vs. 10%). In addition, a €50,000 (€100,000 with spouses) capital gains realized on shares of a tax allowance (abattement fiscal) and tax on rental income and/ Luxembourg PropCo may be exempt are taxed at half the or capital gains derived from under the conditions of the parent/ rate for gains, or one quarter of the real estate? subsidiary regime. progressive tax rate for gains realized during a transitional period ending on No. December 31, 2017. 13.Are there any material 11.Are there any tax-efficient differences in the way An exemption applies to gains realized real estate investment individuals and companies upon the sale of the main residence. are taxed on acquiring, Capital gains realized by individuals in the vehicles to acquire, hold and course of their profession are taxable at exploit real estate that could letting and/or disposing of progressive income tax rate and are also be utilized? real estate? subject to MBT at 6.75% per year. Capital gains realized on the disposal Luxembourg’s legal framework offers For corporate tax payers of real estate properties in Luxembourg different investment vehicles and various Gains realized upon the sale of real estate will be taxed at 27.08% CIT/MBT for 2017 structures for the holding of real estate. are fully taxable at 27.08% CIT and MBT. (26.01% for 2018), versus a maximum 21% Both regulated as well as unregulated personal income tax rate for individuals vehicles are available. Most of these Capital gains realized upon the sale under certain conditions. vehicles are tax neutral or almost tax of a real estate property located in neutral. However, the tax neutrality may Luxembourg by a foreign entity is taxable Individuals, including individual be organized differently from one vehicle in Luxembourg. They will be subject to CIT enterprises, are not subject to net to another. at 20.33% if the asset is not attributable wealth tax. Apart from the fully taxable company to a Luxembourg PE, or to CIT and MBT (SOPARFI) used as PropCo holding the at 27.08% if the Luxembourg property is

dentons.com 43 Mexico

44 dentons.com Mexico Joaquín Contreras [email protected]

1. Is stamp duty, transfer tax 3. Are there any annual taxes Yes. For example, where a company or a similar tax payable on the that may be payable on the borrows from a related party, the transaction must be within the arm’s- sale, purchase or leasing of ownership of real estate (e.g., length standard and supported by a real estate? annual land tax, municipal transfer pricing study. taxes, surtaxes, etc.)? Yes. Sales and purchases of real estate b. If so, is there any withholding tax on can be subject to such taxes. Depending Yes. There are annual local real estate the interest? on the type and use of the real estate ownership taxes (prediales) collected (land, fixed assets or construction, by the cities based upon the value There is no withholding tax on such housing) and the acquiring/selling party of the property. For example, the of interest payments. (company or private individual), such prediales for property in Mexico City is taxes will be levied, or the transaction currently 1%. 6. Are deductions for may be exempt. For example, sales of depreciation and/or building homes by private individuals are exempt 4. What is the tax rate imposed capital allowance available from such tax. on rental income? against rental income for tax Where non-exempt, purchases are purposes? Are there separate Rental income for companies is normally subject to a local acquisition accumulated as part of the company’s allocations between land of assets tax. Leasing of real estate is annual taxable income (30% rate and building? broadly not subject to a transfer tax applicable to profits). similar to the acquisition of assets tax. Yes. For building constructions in For individuals, rental income is subject general, a 5% depreciation rate should a. If so, what are the rates and who is to income tax at up to 35% (if the be available. required to pay the duty or tax (e.g., individual uses deductions from rental seller or buyer, landlord or tenant, etc.)? income). If the individual does not use No such depreciation rate is available deductions from rental income, they can for land. The buyer is responsible for the be subject to a flat rate of income tax acquisition of assets tax. The rate of of 25%. 7. Are deductions available such tax depends upon on the state for management fees or city in which the property is located 5. Is interest on borrowings (the common rate is 2% as used in against rental income for used to acquire real estate Mexico City). tax purposes? deductible for tax purposes 2. Is value added tax, goods against rental income? Yes, however to be deductible, and service tax or a similar the company must show that the tax payable on the sale or Interest on borrowings used to acquire management fees are: (i) strictly purchase of real estate, and real estate is not deductible for necessary for the business of the private individuals, subject to certain company, (iii) duly documented (by fiscal the letting of real estate? If so, exceptions. For example, under a recent invoice) and (iii) actually paid via a legal what are the rates and who is reform, interest paid by individuals for means of payment. required to pay the tax? house mortgages can be deducted, but only if the interest is less than 10%. 8. Are there any restrictions Sales of goods are subject to VAT. In the on the use, and/or the case of real estate, only land or fixed For companies, interest may be carry-forward, of losses? properties that are sold to be used as deductible if it can be shown that the loan was strictly necessary to houses or homes are exempt from VAT. In general, losses have to be used to comply with the business purpose of The lease of real property (with the offset taxes in the same fiscal year they the company. exemption of houses) is subject to VAT. are accrued. However, balances can be The rate of VAT is 16% for real estate carried forward, subject to a maximum a. If so, are there any restrictions on the supplies that are not exempt. of 10 years. interest (e.g., thin capitalization, transfer pricing, etc.)?

dentons.com 45 9. Are capital gains arising on transaction). The rate of withholding estate trust that holds the property, the sale of real estate taxable? depends upon certain elements, the buyer has to pay the normal taxes including the nature of the party, year of as described. If so, what are the rates and acquisition, price paid and profit of the are there any exemptions? seller. The taxable income of the seller is 12. Are there any structures accumulated annually. The highest rate commonly used to mitigate Yes, but only when said capital gains are of withholding tax is currently 20%. real estate tax liabilities on the deemed to be “income.” 11. Are there any tax-efficient acquisition and/or disposal of Capital gains can be treated as income real estate investment real estate? when they are the result of sales of vehicles to acquire, hold and properties that were not destined by the Due to the tax efficiency described company to be sold as part of the core exploit real estate that could above, FIBRAs and SIBRAs structures business of the company. be utilized? are often used to acquire or dispose of real estate. The rate of capital gains tax is 30% for Yes, the so-called Real Estate companies and 16% for individuals. Infrastructure Companies and Trusts 13. Are there any material (“FIBRAs” and “SIBRAs,” in their Spanish differences in the way 10. Is there a withholding acronyms) are used for tax efficiency individuals and companies tax on rental income and/ in holding property in Mexico. In such are taxed on acquiring, or capital gains derived from structures, income tax can be deferred until the property is actually sold by the letting and/or disposing of real estate? FIBRA. The owner of the property placed real estate? in a FIBRA receives a FIBRA Certificate Other than in relation to sales of homes for the value of the property. Yes, as the taxes are levied at different by private individuals (which are rates. Individuals are generally taxed exempt), private individual sellers must Under the FIBRAs and SIBRAs structures more, with the only exception being in pay a withholding tax on the price paid described above, if the buyer purchases relation to the sales of homes. for the real estate (which is retained the property by acquiring shares (real by the Public Notary at moment of estate certificates) issued by a real

46 dentons.com Oman

dentons.com 47 Oman Nick Simpson Umaima Al-Wahaibi [email protected] [email protected]

1. Is stamp duty, transfer tax VAT has not yet been introduced value of related party transactions can or a similar tax payable on the in Oman. be ignored if the price or terms agreed result in a determination of a lower sale, purchase or leasing of 3. Are there any annual taxes taxable income or higher loss allowable. real estate? that may be payable on the ownership of real estate (e.g., b. If so, is there any withholding tax on Yes, transfer tax on land is payable interest? on the purchase, and municipality annual land tax, municipal tax is payable on the lease, of real taxes, surtaxes, etc.)? Oman has introduced a 10% withholding estate in Oman by both companies tax on interest accrued in Oman and and individuals. No annual property taxes currently apply paid to foreign companies that do not in Oman. have a permanent establishment in the No stamp duty on land or municipality country. The law does not clearly set tax is triggered by the transfer of 4. What is the tax rate imposed out the type of interest (e.g., interest on shares in a company holding real estate on rental income? loan, penalty interest) that would attract in Oman. withholding tax. Amendments to the Companies and branches of foreign implementing regulations of the tax Only Omani and GCC nationals and companies registered in Oman are law have been proposed that may soon corporate entities that have 30% Omani subject to income tax on income clarify this. shareholding can own property in Oman, derived from property. Income derived other than in specifically created zones from property (including rental income) 6. Are deductions for known as integrated tourism complexes. is taxed at the rate of 15% on taxable depreciation and/or building income. capital allowance available a. If so, what are the rates and who is against rental income for tax required to pay the duty or tax (e.g., Tax on rental income is not applicable seller or buyer, landlord or tenant, etc.)? to individuals, as individuals do not pay purposes? Are there separate income tax in Oman. allocations between land and Transfer tax applies to the purchase building? of real estate at the rate of 5% of the 5. Is interest on borrowings purchase price, payable by the transferor used to acquire real estate Deductions for depreciation are not or transferee, as per agreement by available for land. the parties. deductible for tax purposes against rental income? Depreciation deductions are however A municipality fee of 5% of the total available for buildings. This is calculated value of the lease is applicable on Yes, interest on loans taken to acquire at a rate of 4% for permanent buildings the lease rent and is generally paid property is deductible from rental and 15% for semi-permanent buildings by the landlord. income for tax purposes. that are constructed with selected materials, as specified by the decision Some application fees are also levied for a. If so, are there any restrictions (e.g., issued by the secretary general. registering documents with the Ministry thin capitalization, transfer pricing, etc.)? of Housing, the cost of which ranges Deductions to account for the from OMR 5 to OMR 50. Under the thin capitalization rules, depreciation of plant and machinery are interest payable on related party loans also available at varying rates, depending 2. Is value added tax, goods with a debt-to-equity ratio that exceeds on the nature of the fixtures, as follows: and service tax or a similar 2:1 is not deductible. tax payable on the sale or • 33% for tractors, cranes and other Transfer pricing is not well developed heavy equipment and machinery of purchase of real estate, and yet in Oman. The country’s income tax a similar nature, vehicles, computers, the letting of real estate? If so, law in Oman does not specifically refer computer software and intellectual to transfer pricing. However, it includes what are the rates and who is property rights, fixtures, fittings related party provisions, under which the required to pay the tax? and furniture

48 dentons.com • 10% for drilling rigs amended. For such companies, the net Investment funds are often used for loss of the first 5 years of the exemption such transactions. Income derived from • 15% for all other equipment period may be carried forward and investment funds established in Oman deducted. Such deduction and carry- and from funds established outside 7. Are deductions available forward in this case shall be made for Oman dealing in Omani securities listed for management fees any number of tax years, until the whole on the Muscat Securities Market (MSM) against rental income for of the net loss is set off. are exempt from tax in Oman. These exemptions are for indefinite periods. tax purposes? A loss may not be deducted in cases other than those specified above, unless 12. Are there any structures Yes, management fees are deductible it is the result of a deal or transaction of against rental income for tax purposes. commonly used to mitigate any kind resulting in earning a taxable real estate tax liabilities on income during the same tax year in Management fees accrued in Oman and which the loss was incurred. acquisition and/or disposal of paid to a foreign company that does real estate? not have a permanent establishment 9. Are capital gains arising on in Oman shall be subject to a 10% It can be more tax-efficient to buy withholding tax. the sale of real estate taxable? If so, what are the rates and shares in a company that owns real estate rather than buying property 8. Are there any restrictions are there any exemptions? directly, because the purchaser would on the use and/or the carry- not be subject to the land transfer tax forward, of losses? Yes. Currently gains made on the applicable when buying property. disposal of property are taxable at 15%. Losses can be carried forward for up The relevant authorities are working There is no difference between the to 5 years, commencing from the end on introducing regulations for real scheme of tax for commercial and of the tax year during which the loss estate investment trusts (REIT) that may residential property. Only corporate was incurred. introduce new tax-efficient structures. landlords are taxed, individuals are not taxed. Where a foreign person carries on 13. Are there any material several businesses through permanent 10. Is there a withholding differences in the way establishments, the loss, which is individuals and companies incurred in any tax year from carrying tax on rental income and/ are taxed on acquiring, on any business, may be carried forward or capital gains derived from and deducted, but only after reducing real estate? letting and/or disposing of there from the taxable income of the real estate? other permanent establishments owned No withholding tax is imposed on rental by that person. income or real estate in Oman. The main difference is that only individuals are subject to the No loss may be deducted or carried 11. Are there any tax-efficient municipality charge and transfer tax forward if such loss was incurred from real estate investment upon the sale or purchase of property. carrying on any business exempted However, companies may, in addition to from tax, either under any law except vehicles to acquire, hold and being charged the aforementioned fees/ for establishments or Omani companies exploit real estate that could taxes, be charged tax on rental income. that are exempted under Article 118 of be utilized? the Income Tax Law (SD 28/2009) as

dentons.com 49 Panama

50 dentons.com Panama Gisela Porras [email protected]

1. Is stamp duty, transfer tax service tax is applicable to leasing of authority to verify whether the landlord or a similar tax payable on the residential property. is complying with its tax obligations. sale, purchase or leasing of 3. Are there any annual taxes a. If so, are there any restrictions (e.g., real estate? that may be payable on the thin capitalization, transfer pricing, etc.)? ownership of real estate (e.g., Yes. Transfer tax will be levied on the Panama has no thin capitalization rules transfer of real estate through sale. Since annual land tax, municipal in these cases, and transfer pricing rules the deed of transfer must be a public taxes, surtaxes, etc.)? do not apply. deed, stamp tax will also be paid on the transfer of real estate. However, transfer Yes. There is property tax payable b. If so, is there any withholding tax on tax is not payable if the real estate is on a yearly basis, which is payable to interest? transferred to a trust or as a result of a the Treasury (for the benefit of the court order executing a guarantee. municipality where the property is No. located), at a rate of up to 2% of the In Panama, leasing of real estate is cadastral value of the real estate. 6. Are deductions for not subject to transfer tax, as there is depreciation and/or building no transfer of domain. However, if the Property tax is levied on both the value capital allowance available leasing agreement is entered into via a of the land and any improvements public deed (which is not compulsory), made thereupon, unless the against rental income for tax stamp tax will also be payable. construction is a new one and qualifies purposes? Allocation between for the exemption. Improvements have land and building. a. If so, what are the rates and who is exempted periods that could go up required to pay the duty or tax (e.g., to 20 years for residential property Yes, capital cost allowance is permitted seller or buyer, landlord or tenant, etc.)? and up to 10 years for commercial on improvements on real estate at a rate property. The term granted depends of 20% per year. Transfer tax is levied at 2% of the higher on several factors, including the value of the cadastral value or sale price of of the improvements and/or the date Land is non-depreciable for tax the real estate. Such transfer tax is of construction. purposes, so a reasonable allocation payable by the seller. must be made between the value of the 4. What is the tax rate improvements and the land. Stamp tax is currently charged at imposed on rental income?? US$8.00 per page. 7. Are deductions available The rate of tax imposed on rental 2. Is value added tax, goods for management fees income is 25%, which is levied on the against rental income for and service tax or a similar net taxable income (i.e., less any relevant tax payable on the sale or costs and expenses), whether received tax purposes? by an individual or a corporation. purchase of real estate, and Yes. Management fees will be subject to the letting of real estate? If so, 5. Is interest on borrowings 7% VAT, and the landlord would have to what are the rates and who is used to acquire real estate report the manager so the tax authorities can verify compliance by said manager. required to pay the tax? deductible for tax purposes against rental income? 8. Are there any restrictions No. There is no value-added tax, goods and services tax or similar tax payable on the use and/or the carry- Yes. Those that have borrowed to on the transfer of real estate. forward of losses? acquire real estate may deduct interest payable on that loan from their taxable Service tax is levied on the leasing of Losses can be carried forward for up to income. However, if the debtor is a commercial property at a rate of 7%, five years to offset income. taxpayer and takes such deduction, it payable by the tenant, though the will be obliged to declare the identity landlord is considered the ultimate The general rule for income tax is that of the creditor in order for the tax taxpayer by the tax authority. No such the taxpayer is liable to pay tax on the

dentons.com 51 higher of 25% of net taxable income or The concept of withholding in Panama income no matter how or by whom it 1.4% of gross income. is related to the provision of services is earned (save in the case of rentals outside of Panamanian territory. It is not by the developer of a zone, 9. Are capital gains arising on related to concepts such as resident or which are exempted). the sale of real estate taxable? taxpayer. Rent is considered as income If so, what are the rates and generated locally, and therefore the 12. Are there any structures landlord is obliged to file its tax return. are there any exemptions? commonly used to mitigate real estate tax liabilities on the No withholding tax is required for capital Yes, where a capital gain arises on the gains from transfer of real estate. acquisition and/or disposal of sale of real estate, such gain is subject real estate? to tax at 3% of the difference between 11. Are there any tax-efficient the sale price and the cadastral value of real estate investment As mentioned above, acquisition of the property at the time of acquisition. vehicles to acquire, hold and shares in corporate entities holding real However, the cadastral authority can estate would not attract transfer tax. update the value ex officio. Such exploit real estate that could capital gains tax is payable by the seller be utilized? There are no structures commonly used together with the transfer tax mentioned to mitigate real estate tax liabilities on above. It is a prerequisite to include the When acquiring real estate through the the acquisition or disposal of real estate. receipt evidencing payment of such tax acquisition of shares in corporate entity in the deed of transfer in order for the holding, such as real estate, transfer tax 13. Are there any material notary public to be able to close it. is not levied. Furthermore, tax levied differences in the way on the seller on any capital gain would individuals and companies Certain special regimes exempt also be waived on the transfer process. payment of capital gains tax on the The tax will be paid on the transfer of are taxed on acquiring, sale of certain real estate, such as the the shares only. Acquisition of such letting and/or disposing of legislation on free trade zones. The law shares attracts a 5% capital gains tax to real estate? grants tax incentives to investors in a be withheld by the purchaser, which is private free zone. The property being levied on the sale price of the shares and No. used for such purpose is exempted. The paid to the tax authority. same applies to hotel developments, but the exemption is only for 20 years. The same happens in case of a split- off—except the rule requires that the 10. Is there a withholding transfer is made to related parties. The tax on rental income and/ split-off requires the resulting company or capital gains derived from to have the same board of directors and real estate? the same shareholders. Rent is taxable

52 dentons.com Poland

dentons.com 53 Poland Karina Furga -Dąbrowska Tomasz Krasowski [email protected] [email protected]

1. Is stamp duty, transfer tax The proper VAT treatment of the sale • For buildings, or parts thereof, used or a similar tax payable on the of real property depends on whether, for business activity: PLN 22.66 per among other factors: square meter of usable surface area sale, purchase or leasing of real estate? • The object of the sale is classified as • For constructions or parts thereof a going concern; if so, the sale falls used for business activity: 2% of their Yes. Tax on civil law transactions (PCC, outside the scope of VAT initial value (from the tax books) in its Polish acronym) is similar to stamp adopted for income tax depreciation duty in other countries. It may be • The plot of land subject to the sale purposes levied on certain civil law transactions, is developed or not; if a plot of land including sales agreements concerning is developed, the VAT treatment of 4. What is the tax rate real properties or parts thereof, if they land follows the VAT treatment of imposed on rental income? benefit from a VAT exemption or fall buildings or constructions (or their outside the scope of VAT. parts) developed thereon The taxable income from lease activity generated by corporate entities (legal Leasing of real estate does not • The undeveloped land is persons) is subject to 19% corporate trigger PCC. designated for other purposes than income tax (CTI) and is calculated under development; if so, such supply is general rules. a. If so, what are the rates and who is generally exempt from VAT required to pay the duty or tax (e.g., seller 5. Is interest on borrowings or buyer, landlord or tenant, etc.)? Lease services Lease services are generally subject used to acquire real estate PCC is levied at 2% of the fair market to 23% VAT. However, the lease of deductible for tax purposes value of real estate. PCC is payable by residential units for housing purposes is against rental income? the buyer. VAT-exempt. Yes. Interest is generally deductible on a 2. Is value added tax, goods Generally, VAT is payable by the seller. cash basis when paid or compounded. and service tax or a similar 3. Are there any annual taxes a. If so, are there any restrictions on the tax payable on the sale or that may be payable on the interest (e.g., thin capitalization, transfer purchase of real estate, and ownership of real estate (e.g., pricing, etc.)? the letting of real estate? IF so, annual land tax, municipal what are the rates and who is Yes. Polish thin capitalization rules put taxes, surtaxes, etc.)? restrictions on companies deducting required to pay the tax? interest on loans granted by either: Yes. Real estate tax (RET) is an annual Generally yes, VAT is payable, as set tax which generally applies to the • One or more shareholders holding, out below. owners, perpetual usufructuaries and directly or indirectly, a total of at least freeholders of properties. RET applies 25% of the voting rights, Sale or real estate to: (i) land, (ii) buildings or parts thereof If the seller is an entity conducting the and (iii) constructions or parts thereof • Another company if the same economic activity (within the meaning connected with business activity. RET is shareholder holds, directly or of the VAT laws) and sells the real estate payable to local authorities in monthly indirectly, at least 25% of the voting in the course of the said activity, it may instalments in case of legal persons. rights in each of these companies, if be subject to VAT at the standard rate the debt-to-equity ratio exceeds 1:1 of 23% on the net price. The reduced The maximum RET rates applicable in on the day interest is paid 8% VAT rate may be applicable to the 2017 (local authorities may adopt lower sale of residential property, provided rates) are as follows: Interest on loans in excess of the above certain conditions are met. Under certain ratio is not tax-deductible for the borrower. conditions, sale of the real estate may be • For land used for business activity: exempt from VAT. PLN 0.89 per square meter CIT regulations also introduce the possibility of selecting an alternative thin capitalization “interest ceiling” regime

54 dentons.com based on the value of the debtor’s 6. Are deductions for signed by Poland provide the right to tax assets. Under this method, the limit of depreciation and/or building the capital gains on the sale of real estate interest deducted as tax costs is based located in Poland. on the product of National Bank of capital allowance available Poland reference rate (currently 1.5%, against rental income for tax Some of Poland’s DTTs include a so- as of March 2017) plus 1.25 percentage purposes? Are there separate called “real estate clause,” which allows points and the tax value of taxpayer’s allocations between land Poland to tax capital gains realized by assets (excluding intangible assets). foreign investors on the sale of a Polish Moreover, the value of tax-deductible and building? company that owns real estate in Poland. interest cannot exceed 50% of the The treaties with Germany, Spain and operating profit. This limit shall not apply Yes. Deductions for depreciation are Luxembourg, for example, include this to, among other entities, banks, credit available against rental income for tax clause. Others, such as those with the institutions and leasing companies purposes. New commercial buildings are Netherlands and Cyprus, do not. subject to additional requirements. subject to tax depreciation at a maximum annual rate of 2.5%. Acquired buildings 10. Is there a withholding Under this method, a limit of (used by the former owner) can be tax on rental income and/ depreciated for tax purposes during the deductibility of interest is applicable or capital gains derived from to all loans from both related and period equal to the difference between unrelated lenders. The interest not 40 years and the number of years that real estate? deducted in a given year (i.e., interest have passed since the building was put exceeding limits) will be deductible over into use for the first time. However, that Generally, no. If a foreign entity owns the following five years. period cannot be shorter than 10 years. real estate located in Poland, any rental income or capital gains from the direct The conditions of loans from related Land is not subject to tax depreciation. sale of such property should be subject companies should be at arm’s length. Therefore, if real estate is acquired, it is to under general Otherwise, Polish transfer pricing recommended that the sales price be CIT rules. This means that the foreign regulations may be used by tax divided in the sales agreement between investor should register in Poland for CIT authorities to reassess the income of the building and the land. purposes and pay CIT. the borrower. 7. Are deductions available 11. Are there any tax-efficient b. If so, is there any withholding tax on for management fees real estate investment the interest? against rental income for vehicles to acquire, hold and tax purposes? exploit real estate that could Interest paid from Poland to a foreign lender is generally subject be utilized? Generally, yes. to 20% withholding tax, unless a A Polish limited liability company is relevant double-taxation treaty (DTT) 8. Are there any restrictions provides otherwise. perhaps the vehicle used most often on the use, and/or the carry- for structuring investments on the Usually the withholding tax rates on forward, of losses? Polish real estate market. In recent interest under a relevant DTT ranges years, partnerships, especially limited between 5% and 10%. Some of Poland’s Tax losses may be carried forward for five partnerships, have been used more DTTs provide for a 0% withholding rate consecutive years and fully offset against frequently to conduct business activities on interest (e.g., with the United States, tax profits during that time. However, in Poland. Spain and France). In order to apply a not more than 50% of the tax loss may withholding tax rate resulting from a be offset against tax profits in any one A limited partnership is transparent for DTT, a valid certificate confirming the of these five years. Tax losses cannot be CIT purposes. Therefore, its earnings tax residence of the foreign lender must carried back. and costs are split pro rata among the be obtained. partners, who, depending on their legal 9. Are capital gains arising on status (whether they are legal persons or Poland implemented EU Directive the sale of real estate taxable? individuals), are then individually assessed for either 19% CIT or the applicable 2003/49/EC on a common system If so, what are the rates and are of taxation applicable to interest and personal income tax (PIT) rate. royalty payments made between there any exemptions? associated companies of different Moreover, it is possible to use a The taxable income from the sale of real Member States. Therefore, interest Polish investment fund to structure estate generated by corporate entities payments between a parent and a real estate investments in Poland. A (legal persons) is subject to 19% CIT and is subsidiary, and between direct sister Polish investment fund is a legal entity calculated under general rules. companies, are free from withholding regulated by the Investment Funds In case of the sale of real estate by tax if certain conditions are met. and Managing Alternative Investment a foreign entity, the relevant DTT is Funds Act. One of the most popular applicable to determine if the capital types of Polish investment funds is the gain may be taxed in Poland. Tax treaties closed-end investment fund (FIZ, in its

dentons.com 55 Polish acronym), which may be closely Therefore, as of January 1, 2017, FIZs 13. Are there any material controlled by the investors(s). may no longer benefit from the CIT differences in the way exemption if they generate income from Until the end of 2016, income generated partnerships. However, FIZs still benefit individuals and companies are by FIZs from all sources was CIT-exempt from CIT exemption if they own real taxed on acquiring, letting and/ in Poland. As of January 1, 2017, the estate directly. or disposing of real estate? CIT exemption is no longer available with respect to FIZ income from: (a) Currently, there is ongoing legislative work Yes, for example: participation in tax-transparent entities, in Poland on drawing up the REIT fund act (b) capital gains from sale of securities that should introduce a new CIT-exempt • CIT is 19%. PIT ranges from 18% to issued by such tax-transparent entities vehicles for certain real estate investments 32%. The rate is 19% for individuals and shares thereof, (c) interest on taxed as entrepreneurs. loans and other receivables owed 12. Are there any structures by these tax-transparent entities to commonly used to mitigate • Specific exemptions, such as a PIT the fund, and on securities issued by real estate tax liabilities on the exemption regarding own-residential these entities); and (d) certain other purposes, may apply. income related to participation in such acquisition and/or disposal of tax-transparent entities. real estate? • Individuals have the option to pay a flat 8.5% rate on rental revenue, if No. certain conditions are met.

56 dentons.com Romania

dentons.com 57 Romania Andrei Vartires [email protected]

1. Is stamp duty, transfer tax • Delivery of buildings, including the For non-residential buildings owned or a similar tax payable on land which they are built on, for natural persons, the tax rate is between town halls 0.2% and 1.3% on the taxable value the sale, purchase or leasing of the building. That value may be of real estate? If so, what are • Delivery of buildings, including determined by: the rates and who is required the land which they are built on, to pay the duty or tax (e.g., for nursing homes for old people • The amount resulting from an and pensioners evaluation report prepared up by an seller or buyer, landlord or authorized evaluator, during the five tenant, etc.)? • Delivery of buildings, including years preceding the reference year the land which they are built No transfer taxes apply to the sale of real on, for orphanages, recovery • The final value of construction works estate. However, stamp duties apply to centers for underage people and and new buildings built in the five registering real estate with the relevant disabled people years preceding the reference year land books. 3. Are there any annual taxes • The value of buildings resulting Acquiring shares in Romanian that may be payable on the from the act of transfer ownership, companies is not subject to any ownership of real estate (e.g., acquired in the five years preceding transfer tax. the reference year annual land tax, municipal a. Is it payable on the transfer of shares taxes, surtaxes, etc.)? If the value of the building cannot be in a company or an interest in an entity calculated according to the above, the whose sole or main asset is real estate? Yes, there are annual taxes on both land tax is calculated by applying the rate and construction. of 2% on the taxable value determined As a general rule, the buyer will be under applicable residential buildings required to pay the notary fees along Land tax owned by individuals. with the land registration office fees. Land tax is calculated by a complex formula that includes a variety of factors: In regard to legal persons, the tax code the type of land, its location, its total area provides the following tax rates: 2. Is value added tax, goods in hectares and its category as classified and service tax or a similar by a local council. The formula differs for • For residential buildings, the tax rate land located within urban areas and land is established of between 0.08% tax payable on the sale or outside urban areas. Land tax is due for and 2% on the taxable value of purchase of real estate, and the entire fiscal year, paid by the person the building the letting of real estate? If so, who owns the land as of December 31 of what are the rates and who is the previous fiscal year. • For non-residential buildings, the tax rate is established between 0.2% required to pay the tax? Building tax and 1.3% on the taxable value of Building tax is set by local authorities the building Yes, the sale of Romanian properties may (e.g., local councils of towns/communes) be subject to a 19% VAT, depending on and by the General Council of Bucharest 4. What is the tax rate the VAT regime of the seller and whether or local councils of Bucharest districts, imposed on rental income? or not the property is considered new. within the limits established by the However, the sale of shares is not a VAT- Fiscal Code. This tax is paid annually The tax rate imposed on rental income is liable transaction. and differs depending on whether a 16% flat rate. the building is residential or non- In the following cases, the VAT rate residential, and on whether the owner With respect to the income paid by is 5%: is an individual (aka, a “natural person”) natural persons, the 16% rate is applied • Delivery of apartments with a floor or a corporation/other legal entity (a to a net income of 60% (as 40% is area of maximum 120 square meters, “legal person”). deducted from gross income). Natural excluding household annexes, the persons must also pay a compulsory value of which, including the land Thus, for residential buildings and contribution to the state health system on which it stands, does not surpass buildings owned by natural persons, of 5.5% of gross income. RON 450,000 (€100,000), purchased the Fiscal Code provides for a tax rate by any single person or by a family between 0.08% and 0.2% of the taxable value of the building.

58 dentons.com 5. Is interest on borrowings 8. Are there any restrictions A joint stock company must have used to acquire real estate on the use, and/or the carry- minimum of two shareholders and a minimum capitalization of RON 90,000 deductible for tax purposes forward, of losses? (approximately €25,000). It has a more against rental income? complex management structure than Losses can be carried forward for a an LLC. Yes. maximum of seven years. 12. Are there any structures 9. Are capital gains arising on a. If so, are there any restrictions (e.g., commonly used to mitigate thin capitalization, transfer pricing, etc.)? the sale of real estate taxable? real estate tax liabilities on the If so, what are the rates and acquisition and/or disposal of Interest is deductible subject to thin are there any exemptions? capitalization limitations as well as real estate? transfer pricing, if applicable. Yes, capital gains resulting from the A commonly used structure would sale of properties are taxed at a flat rate b. Is there any withholding tax consist of incorporating one or two of 16%. on interest? special purpose vehicles, both LLCs. 10. Is there a withholding One would hold real estate (in the event Romania implemented the EU Interest real estate is acquired, not leased); the Royalty Directive as of January 2011. tax on rental income and/ other would be operational, to perform Thus, there is generally no withholding or capital gains derived from other activities. tax applicable to outbound interests real estate? paid to residents of EU Member States 13. Are there any material (subject to the relevant 10% holding For individuals, rental income derived differences in the way of the shares for a period of one from real estate is taxed at a 16% rate, individuals and companies year). Otherwise, withholding tax is which is applied to a net income of 60% are taxed on acquiring, applicable based on relevant double- (as 40% is deducted from the gross taxation treaties as the case may be or, income). In addition, a 5.5% compulsory letting and/or disposing of otherwise, 16%. contribution to the state health system real estate? is due. As a general rule, interest expenses will As of February 1, 2017, the seller pays be entirely deductible in the event that For companies, the proceeds from the a 3% tax on the sale of real estate the debt-to-equity ratio calculated for sale of real estate go to the tax base for (including land and/or construction). the Romanian entity receiving the non- corporate income tax purposes. The bank loan is not higher than 3:1. applicable rate is 16% flat. If the value of the sale is below RON 450,000 (€100,000), the transaction is 6. Are deductions for 11. Are there are tax-efficient tax exempted. If the transaction exceeds depreciation and/or building real estate investment RON 450,000, taxation will amount to capital allowance available vehicles to acquire, hold and the value exceeding that amount. against rental income for tax exploit real estate that could The above rules only apply to natural purposes? Are there separate be utilized? persons. Companies are subject to a flat allocations between land 16% rate. and building? Yes, there are two options in this regard: either a limited liability company (in Land cannot be subject to depreciation, Romanian, societate cu raspundere only buildings. General limitations apply limitata) or a joint stock company to deductible expenses apply. (societate pe acţiuni).

7. Are deductions available A limited liability company (LLC) is for management fees the most common type of company structure. It may be established by one against rental income for member or by as many as 50 members. tax purposes? It has a minimum capitalization of just RON 200 (approximately €45). Management fees fall within the Compared to other companies category of deductible expenses. structures, an LLC has simpler However, evidence of relevant service management-related requirements, must be produced. greater flexibility and lower share capital requirements.

dentons.com 59 Russia

60 dentons.com Russia Anna Knelz Valentin Larin [email protected] [email protected]

1. Is stamp duty, transfer tax of the real estate to foreign individuals The tax rates are: or a similar tax payable on the and legal entities accredited in Russia is exempt from VAT provided foreign • 0.1% for residential properties sale, purchase or leasing of individuals are residents (legal entities (including buildings under real estate? are incorporated) in the countries listed construction), garages, parking lots by the Russian government or in the and amenities Russia imposes no transfer tax on the countries where the same rules apply to sale, purchase or leasing of real estate. lease of real estate to Russian residents • 2% for real estate properties that are and legal entities. The exemption put on the list of properties taxed at At the same time, notarization of a is mandatory. their cadastral value approved by the real estate purchase agreement is local authorities, as well as real estate subject to notary fees. Notarization is 3. Are there any annual taxes properties worth more than RUR 300 generally non-mandatory (subject to million. From 2015 through 2018, certain exceptions). that may be payable on the ownership of real estate (e.g., the amount of tax calculated at the cadastral value is paid in the reduced a. If so, what are the rates and who is annual land tax, municipal amounts—roughly 20% in 2015, 40% required to pay the duty or tax (e.g., taxes, surtaxes, etc.)? in 2016, 60% in 2017 and 80% in seller or buyer, landlord or tenant, etc.)? 2018—of the full amount of tax Corporate property tax Notary fees includes a state fee of Russian and foreign legal entities that • 0.5% for other real estate properties 0.5% of the acquisition price (but own Russian real estate properties not less than RUR 300 and not more qualifying as fixed assets are liable for This tax is levied on an annual basis and than RUR 20,000). Registration of the annual corporate property tax. The is charged to the owner of the property. the title to the real estate, as well as maximum rate is currently 2.2% of the For real estate properties taxed at their registration of a leasing agreement, average net book value of the fixed cadastral value, such cadastral value is is subject to a registration fee of RUR assets, but rates may vary depending on set by local authorities on January 1 of 2,000 for individuals and RUR 22,000 regional laws. Specific rates are set by each year. for companies. local authorities. Land tax Commercial property (including Land tax is a local tax payable on land 2. Is value added tax, goods business or shopping centers) as well that is owned by a resident or non- and service tax or a similar as residential properties not booked as resident legal entity or individual. The tax tax payable on the sale or fixed assets are taxed at a rate of 2.2% base is the cadastral value of land, which is set by local authorities on January 1 of purchase of real estate, and of their cadastral value, provided such real estate properties are included in each year. The rates vary depending on the letting of real estate? If so, the specific list of properties subject the specific types of land. The maximum what are the rates and who is to taxation based on the cadastral rate is 0.3% for land used for agricultural required to pay the tax? value, which is approved by the local or housing properties and 1.5% for other authorities. The cadastral value is types of land. Specific rates are defined The sale of commercial real estate may determined by such authorities on by the local authorities. be subject to VAT at 18%, depending on January 1 of each year. the VAT regime of the seller. The sale 4. What is the tax rate of residential property and land plots, Individual property tax imposed on rental income? however, is not a VAT-liable transaction. Russian and foreign individuals who own The rental of real estate may be subject Russian real estate properties are liable As regards companies subject to to VAT at 18%, depending on the VAT for the annual individual property tax. corporate profits tax (CPT), rental regime of the lessor. VAT is charged income is subject to the standard rate to the tenant and can be offset by the The tax is levied on different kinds of real of 20%. Russian or foreign companies tenant, if it is VAT-liable. However, lease estate properties, excluding land plots. owning property in Russia are typically

dentons.com 61 subject to CPT on their rental income. 6. Are deductions for of up to 50% of total profits for the In the case of a foreign entity letting depreciation and/or building corresponding fiscal year only. real estate properties, tax should be withheld and paid by the lessee, unless capital allowance available Please note the remaining tax losses can such foreign entity has a permanent against rental income for tax be carried forward indefinitely and used establishment in Russia that is letting purposes? Are there separate within the same limits. such real estate properties. In the latter allocation between land case, the tax shall be paid by the foreign 9. Are capital gains arising on and building? entity on its own. the sale of real estate taxable? 5. Is interest on borrowings Depreciation of property is deductible if If so, what are the rates and used to acquire real estate the entity declaring income in Russia is are there any exemptions? subject to corporate deductible for tax purposes (or to an equivalent tax established Capital gains resulting from the sale of against rental income? outside of Russia). Real estate properties or of an intermediate holding constructions can be depreciated at vehicle (whose assets consist of more Interest related to loans aimed at rates set on the basis of their duration than 50% of real property located in the acquisition of Russian real estate of use. Annual depreciation expenses Russia) would be taxed at the rate of property is generally deductible for are deductible from the taxable 20%, if the seller is a corporation. DTTs Russian CPT purposes. profits (including rental income) of the signed by Russia also mainly provide for owner company. Russia’s right to tax such capital gains a. If so, are there any restrictions (e.g., when the underlying property is located thin capitalization, transfer pricing, etc.)? Depreciation of land is not available in in Russia (see question 10). Russia. However, the purchase price The main limitations for the deduction of paid for the land can be deducted at the Capital gains resulting from the sale of interest are stipulated by Russian transfer moment of its sale. stock in a property-rich company may pricing rules and thin capitalization rules be exempt from taxation, provided with the following effects: Because of the different tax treatment that the shares are held by a high-tech of acquisition costs for buildings and for company, that they qualify as listed and • If the loan is provided between the land plots, asset purchase agreements that their holding duration is at least five interdependent parties, the interest should account for these costs years starting from 2011. rate is limited by the upper and lower separately. limits depending on the currency of 10. Is there a withholding the loan 7. Are deductions available tax on rental income and/or for management fees capital gains derived from real • If interest is payable (directly or against rental income for indirectly) to a foreign legal entity estate? or the loan is secured by a foreign tax purposes? legal entity, the amount deductible Russian real-estate-sourced income of by the Russian borrower can be Management fees are usually deductible non-resident companies is subject to reduced subject to a specific thin for tax purposes, unless those are corporate profits tax in Russia and taxed capitalization formula; the excess unreasonably high and inconsistent at a rate of 20%, since most DTTs signed amount is requalified into dividends with the nature and volume of services by Russia enable Russia to tax such provided. Fees that are not considered income when the underlying property is b. Is there any withholding tax on as being at arm’s length may be located in Russia. interest? challenged on the basis of Russian transfer pricing rules or on the basis of Also, capital gains arising from the sale Interest paid to a foreign company unsubstantiated tax benefit concept. of real estate property or shares in a that has no PE in Russia is subject to property-rich company are subject to withholding tax (WHT) at the rate of 8. Are there any restrictions WHT at the standard CPT rate of 20%. 20%. Interest requalified into dividends on the use, and/or the carry- in accordance with thin capitalization forward, of losses? 11. Are there tax-efficient real rules is generally subject to 15% WHT. estate investment vehicles to The amount of tax can be reduced in As a general rule, tax losses incurred acquire, hold and exploit real accordance with a double-taxation during a given fiscal year may be carried estate that could be utilized? treaty (DTT) concluded between Russia forward and offset against the available and the interest recipient’s country profits of subsequent fiscal years, with As already mentioned above, capital of residence. some restrictions. For the fiscal years gains resulting from the sale of stock from 2017 through 2020, special rules in a property-rich company may be provide for the possibility to carry exempt from taxation provided that the forward and offset losses in the amount shares are held by a high-tech company,

62 dentons.com that they qualify as listed and that their holding duration is at least five years starting from 2011.

Also, capital gains derived from the sale of shares in a holding vehicle may be tax-exempt, provided that the holding duration of the shares is at least five years starting from 2011, and that assets of the holding company consist of less than 50% of real property located in Russia.

12. Are there any structures commonly used to mitigate real estate tax liabilities on the acquisition and/or disposal of real estate?

Currently no specific structures would enjoy real estate income and capital gains tax relief, except for those mentioned in question 11. Special structures could be elaborated depending on the types of immovable property, purposes of its use, its acquisition history and other aspects.

13. Are there any material differences in the way individuals and companies are taxed on acquiring, letting and/or disposing of real estate?

The main differences concern the sale of properties. Individuals are subject to personal income tax on their property income at a rate of 13% for Russian tax residents and 30% for non-residents.

As a result, if the seller is an individual, capital gains resulting from the sale of properties or of the intermediate holding vehicle (whose assets consist of more than 50% of real property) are taxed at 13% or 30%. No social contributions apply to sale of real estate properties. However, an exemption of capital gains derived from the disposal of real estate is available for Russian tax-resident individuals, provided that property is held for more than five years (under certain conditions the minimum holding period may be reduced to three years) and is used for private purposes only.

dentons.com 63 Singapore

Effective March 11, 2017, additional conveyance duties (ACD) apply to the purchase or sale of shares or units (“equity interests”) in property-holding entities (PHEs) that own primarily residential properties in Singapore. The ACD applies to the purchase or sale of equity interests by persons or entities who are significant owners of the PHE, or who become so after the purchase. ACD has been implemented with the intention of closing the previous stamp duty rate differential between a direct asset purchase or sale of residential properties, and an indirect purchase or sale of equity interests in PHEs owning primarily residential properties.

64 dentons.com Singapore Edmund Leow Jia Xian Seow Winnie Liew [email protected] [email protected] [email protected]

1. Is stamp duty, transfer tax or a similar tax A lease with premium is one for which there is a lump-sum payable on the sale, purchase or leasing of payment. Stamp duty is payable on the premium based on the BSD rates. If there is a rental in addition to the premium, real estate? stamp duty is payable on the rental based on lease duty rates.

Yes, stamp duty is applicable on instruments for the sale, Sale or purchase purchase or lease of immovable property in Singapore. For a sale or purchase of immovable property in Singapore, the following duties are payable on the relevant instrument(s): For a sale or purchase of residential property, the following duties apply: Residential property • BSD:The purchaser of the property is required to pay BSD • Buyer’s stamp duty (BSD) based on the higher of the purchase price or the market • Additional buyer’s stamp duty (ABSD) value of the property, which is generally payable at the following rates: • Seller’s stamp duty (SSD) for residential property

Purchase price or market Effective March 11, 2017, additional conveyance duties BSD rates value of the property (ACD) apply to the purchase or sale of shares or units ("equity interests") in property-holding entities (PHEs) that First S$180,000 1% own primarily residential properties in Singapore. The Next S$180,000 2% ACD applies to the purchase or sale of equity interests by persons or entities who are significant owners of the Remaining amount 3% PHE, or who become so after the purchase. ACD has been implemented with the intention of closing the previous • ABSD: The purchaser of the residential property may also stamp duty rate differential between a direct asset purchase be required to pay ABSD in addition to BSD, once again or sale of residential properties, and an indirect purchase based on the higher of the purchase price or the market or sale of equity interests in PHEs owning primarily value of the property, depending on the profile and residential properties. residency status of the purchaser and the relevant count

of residential properties, as follows: For a sale or purchase of non-residential property, the following duties apply: Profile of purchaser ABSD rates • BSD Singaporean citizen (SC) buying N/A • SSD for industrial property first residential property a. If so, what are the rates and who is required to pay the duty SC buying second residential 7% property or tax (e.g., seller or buyer, landlord or tenant, etc.)? SC buying third and subsequent 10% Lease residential property Generally, for the grant of a lease of immovable property in Singaporean permanent resident 5% Singapore with fixed rent, the tenant is required to pay stamp (SPR) buying first residential duty based on the higher of contracted rental or the market property rental at the following lease duty rates: SPR buying second and 10% subsequent residential property Average annual rent (AAR) Lease duty rates Foreigners and entities buying any 15% residential property Does not exceed S$1,000 Exempted Exceeds S$1,000 and: Lease period of 4 years or less 0.4% of total rent for the period of the lease Lease period of more than 4 0.4% of 4 times the AAR years or for any indefinite term for the period of the lease

dentons.com 65 • SSD for residential property: The seller of the property 2. Is value added tax, goods and service may be required to pay SSD based on the higher of the tax or a similar tax payable on the sale or sale price or the market value of the property, depending on the seller’s holding period (from the date purchase of real estate, and the letting of of purchase to date of sale) of the property, as follows real estate? If so, what are the rates and who (assuming a date of purchase on or after is required to pay the tax? January 14, 2011): The sale, purchase and lease of residential properties in Singapore are exempted from goods and services tax SSD rates (GST) in Singapore, although where any such residential Date of purchase Date of property is furnished, the supply of movable furniture and Holding period between purchase fittings (not including any fixtures to the property) therein is January 14, 2011 – on or after GST-chargeable. March 10, 2017 March 10, 2017 On the other hand, the sale, purchase or lease of non- Up to 1 year 16% 12% residential properties are subject to GST. More than 1 year 12% 8% and up to 2 years GST is currently chargeable at 7%, and is typically added More than 2 years 8% 4% to the price charged to the purchaser. It is required to be and up to 3 years charged, collected and accounted for by relevant sellers More than 3 years who are GST-registered in Singapore. 4% and up to 4 years No SSD payable More than 4 years No SSD payable 3. Are there any annual taxes that may be payable on the ownership of real estate • ACD for equity interests in PHEs: In addition to (e.g., annual land tax, municipal taxes, existing stamp duty for shares, ACD applies to qualifying surtaxes, etc.)? transfers of equity interests in a PHE as follows, based on the prevailing market value of the PHE’s underlying Property tax is imposed on the annual value of immovable residential property at the time of the qualifying equity properties in Singapore. The annual value of a property transfer, pro-rated by the percentage of the beneficial is generally derived based on the estimated annual equity interest transferred in the PHE: rent the property could fetch if it were rented out on an unfurnished basis. o Additional conveyance duties for buyers (ACDB) . Existing BSD at 1% to 3%; and Property tax rates are applied on a progressive scale from . ABSD at 15% (flat rate) 0% to 16% for owner-occupied residential properties, and from 10% to 20% for non-owner-occupied residential o Additional conveyance duties for sellers (ACDS) properties. For non-residential properties, such as . SSD at 12% (flat rate) for sales within the first three commercial and industrial buildings and land, the property years of purchase tax rate is 10%.

Non-residential property 4. What is the tax rate imposed on rental • BSD: The BSD for non-residential property is payable income? by the purchaser at the same rates as in residential property above. There is no specific tax rate on rental income, which is taxed at local personal income tax rates (progressive; • SSD for industrial property: The seller of the property currently from 0% to 22%) or the local corporate income tax may be required to pay SSD depending on the seller’s rate (currently 17%), as the case may be. holding period of the property, as follows (assuming a date of purchase on or after January 12, 2013): 5. Is interest on borrowings used to acquire real estate deductible for tax purposes Holding period SSD rates against rental income?

Up to 1 year 15% Deductions are allowed in Singapore on expenses that More than 1 year and up to 2 years 10% are incurred wholly and exclusively in the production of the rental income and during the period of tenancy. In this More than 2 years and up to 3 years 5% regard, interest paid on the loan taken to purchase the More than 3 years No SSD payable property that is rented out is generally tax deductible.

66 dentons.com a. If so, are there any restrictions on the are required to justify that the amount lack of tax on dividends and capital interest (e.g., thin capitalization, transfer paid is at market rate and commensurate gains, and a relatively low corporate tax pricing, etc.)? with the services rendered. rate), real estate investment vehicles in Singapore are often simply organized in There are no thin capitalization rules in 8. Are there any restrictions the form of limited liability companies. Singapore. Loans entered into between on the use, and/or the related parties are, however, subject carry-forward, of losses? 12. Are there any structures to transfer pricing rules, under which commonly used to mitigate interest is to be determined for tax Unutilized trade losses may be carried real estate tax liabilities on the purposes at an arm’s-length rate. forward indefinitely and deducted acquisition and/or disposal of against future income, subject to b. If so, is there any withholding tax on real estate? the satisfaction of the continuity of the interest? substantial shareholders test, i.e., at least 50% of the relevant entity’s total number Due to the difference between BSD The withholding tax rate on interest of issued shares must be beneficially (as explained above) on a purchase of paid to non-residents is 15%, subject owned by the same person(s) between immovable property and stamp duty to any reduced rates in any applicable the last day of the year in which the on a purchase of shares in Singapore avoidance of double taxation treaties. losses were incurred, and the first day of (being 0.2% of the market value of the shares), acquisitions and/or disposals of 6. Are deductions for the year of in which the losses are to be deducted. immovable property in Singapore may depreciation and/or building be structured in the form of share, as capital allowance available 9. Are capital gains arising on opposed to asset, sales. against rental income for tax the sale of real estate taxable? However, the recent legislative changes, purposes? Are there separate If so, what are the rates and which apply ACD to the acquisition allocations between land are there any exemptions? and/or disposal of equity interests in and building? PHEs, are likely to stem such structuring There is no tax on capital gains in to a certain degree in the residential Capital allowances on qualifying Singapore. Gains from the sale of real properties sector. No announcement as expenditures incurred on buildings or estate in Singapore will, however, be yet has been made on the commercial structures for qualifying activities may taxable if they are of an income nature. properties sector. It remains to be seen be deductible against rental income, in if such structuring may now be caught addition to the deduction of allowable 10. Is there a withholding under the general anti-avoidance expenses of a revenue nature. There is tax on rental income and/ provision in the law. no tax depreciation available on land. or capital gains derived from 13. Are there any material real estate? 7. Are deductions available differences in the way for management fees There is no withholding tax on rental individuals and companies against rental income for income from immovable property, nor are taxed on acquiring, tax purposes? any tax on capital gains in Singapore. letting and/or disposing of real estate? Costs of engaging a third party (e.g., a 11. Are there any tax-efficient property agent) to carry out property real estate investment Apart from the differences in individual management activities, such as ensuring vehicles to acquire, hold and corporate income tax rates, and rentals are paid promptly or performing and exploit real estate that the fact that companies are subject to maintenance and upkeep of properties, could be utilized? higher ABSD rates than individuals for are generally considered allowable acquisitions of residential property, there expenses against rental income. are no material differences. However, where the management fees Due to the generally advantageous tax are paid to a related party, the owners regime in Singapore (for example, the

dentons.com 67 Spain

68 dentons.com Spain Jose Ramon Vizcaino de Casadevante [email protected]

1. Is stamp duty, transfer tax 2. Is value added tax, goods 5. Is interest on borrowings or a similar tax payable on the and service tax or a similar used to acquire real estate sale, purchase or leasing of tax payable on the sale or deductible for tax purposes real estate? purchase of real estate, and against rental income? the letting of real estate? If so, Acquisition/purchase: The acquisition of what are the rates and who is Broadly, the deductibility of interest is real estate is either subject to transfer tax limited to up to 30% of the operating (TT) or value-added tax (VAT). Broadly, required to pay the tax? profit (as defined in the CIT Act) of the VAT applies if the asset is purchased Spanish entity. Nevertheless, there is from a VATable person, but VAT See question 1 above. a minimum € 1 million threshold that is exemptions could lead to the application deductible in any case. of TT. VAT is generally recoverable (with 3. Are there any annual taxes some relevant exceptions), while TT that may be payable on the a. If so, are there any restrictions (e.g., represents a real cost for the purchaser. ownership of real estate (e.g., thin capitalization, transfer pricing, etc.)? annual land tax, municipal Stamp duty is triggered when a real The interest paid must also comply with estate acquisition is subject to VAT. taxes, surtaxes, etc.)? transfer pricing rules if the loan is made by a related party. Leasing: This would mainly depend on Yes. Property tax is a local tax that is the type of asset, the type of lease and levied annually for the ownership of Generally, non-resident entities acting if the lessor is a VATable entity or not. real estate assets. The tax due ranges without a PE cannot deduct the Generally, if the lessor is a VATable entity, from 0.4% to 1.1%, depending on the interest expense. the leasing will be subject to VAT. There municipality, over the cadastral value are also relevant exceptions. of the asset (an administrative value b. Is there any withholding tax of the property). on interest? a. If so, what are the rates and who is required to pay the duty or tax (e.g., Depending on the municipality of where Generally, if the lender is an EU resident seller or buyer, landlord or tenant, etc.)? the asset is located, minor taxes such as (other than a blacklisted territory), it the garbage tax or the parking rate could would benefit from a withholding tax Depending on the type of asset, VAT be triggered. exemption on interest payments, subject would be either a super-reduced rate of to anti-abuse provisions. 4%, a reduce rate of 10% or the standard 4. What is the tax rate rate of 21%. VAT is normally paid by the imposed on rental income? 6. Are deductions for purchaser/tenant but the application depreciation and/or building of the “reverse charge mechanism” Taxable income obtained by a Spanish capital allowance available generally reduces the VAT leakage on entity from the exploitation of a real the acquisition of real estate. estate asset (i.e., the net rental income) is against rental income for tax subject to corporate income tax (CIT) at purposes? Are there separate TT rates range from 6% to 11%, a 25% rate. allocations between land depending on the region where the and building? asset is located). Reduced rates could Non-resident entities could benefit apply under certain circumstances. This from a reduced 19% rate on lease Provided the real estate asset is recorded tax is paid by the purchaser. income, under certain circumstances as a fixed asset on the balance sheet and provided that they will not of the Spanish entity, the accounting Stamp duty rates range from 0.5% to be acting in Spain through a depreciation would be deductible 2.5%, depending on the region where permanent establishment (PE). for tax purposes. the real estate asset is located. This tax is paid by the purchaser. Plots of land cannot be depreciated.

dentons.com 69 7. Are deductions available However, this tax is heavily contested Not really. This will generally depend for management fees by taxpayers when the sale of the asset on the type of asset and the particular results in a loss. The Constitutional Court circumstances of the seller, such as against rental income for of Spain (the nation’s highest court) has whether it has tax debts pending or to tax purposes? recently aligned with taxpayers. be paid, the nature of such tax debts, the nature of its activities and other factors. Management fees are deductible for CIT 10. Is there a withholding purposes, provided certain conditions tax on rental income and/ Provided that the underlying real estate are met. For example, the effectiveness or capital gains derived assets are devoted to business activities, and reality of the services must be no VAT or TT is triggered on the transfer proven, the services must represent a from real estate? of shares. real economic or commercial interest to the Spanish entity, there must not Rental income: If the lease agreement 13. Are there any material be any duplicity in these services, the is between Spanish entities, it is most differences in the way likely that the rental income would be services must be duly accounted for individuals and companies and they must be calculated on an arm’s subject to a 19% withholding tax. This length basis. withholding tax would be deductible are taxed on acquiring, from the CIT amount due. Nevertheless, letting and/or disposing of 8. Are there any restrictions provided certain conditions are met real estate? on the use and/or the (e.g., the cadastral value of the lessor’s properties is higher than €600,000), the Yes. Individual taxation is slightly carry‑forward of losses? withholding tax may not apply. different from Corporate taxation. For individuals, it is important to consider Carry-forward tax losses can be used to Capital gains: Capital gains generated whether the individual is tax-resident in offset the CIT taxable income, but only by a Spanish entity are not subject Spain or not, and whether the individual up to 70% of the taxable income. In any to withholding taxation. Conversely, will be exploiting the real estate asset case, up to €1 million of carry-forward transfer of a real estate property by a within a business activity or not. losses may be offset against CIT taxable non-Spanish resident entity (without a income without limitation. PE) is subject to a 3% withholding rate that applies in respect of the purchase Additional restrictions apply when price (i.e., total consideration). the turnover of the company exceeds €20 million. 11. Are there any tax-efficient 9. Are capital gains arising on real estate investment the sale of real estate taxable? vehicles to acquire, hold and If so, what are the rates and exploit real estate that could are there any exemptions? be utilized? Yes, one could incorporate a Spanish Capital gains arising from the sale of REIT. In a nutshell, a 0% rate would real estate assets by a Spanish entity are apply provided certain conditions are taxed at a 25% rate for CIT purposes. met. For example, the properties should be rented out for at least a three-year Certain exemptions/non-taxation rules period, and shareholders with at least could apply if the Spanish entity is a 5% stake should then be taxed at under a special tax regime. For instance, a minimum 10% rate. Nevertheless, capital gains on the sale of real estate because this structure is intended for properties created by Spanish real estate institutional investors, the REIT must be investment trusts (REITs, or Spanish listed on a regulated market. SOCIMIs) would be exempt, provided certain conditions are met. There is also a special tax regime for entities that lease residential properties The transfer of real estate could also as their main activity. This, for example, be subject to a municipal tax on the may result in an 85% reduction in the CIT increase in value of the urban land (in tax liability. Spanish, plusvalía municipal). This tax would be payable by the transferor upon 12. Are there any structures the transfer of the assets, based on the deemed increase in the value of the land commonly used to mitigate which forms part of the property. The real estate tax liabilities on the applicable tax rate may vary depending acquisition and/or disposal of on the municipality where the real estate real estate? assets are located, with a 30% limit.

70 dentons.com Ukraine

dentons.com 71 Ukraine Igor Davydenko [email protected]

1. Is stamp duty, transfer tax 2. Is value added tax, goods The real estate tax is imposed on or a similar tax payable on the and service tax or a similar owners of residential and nonresidential property, individuals and legal entities, sale, purchase or leasing of tax payable on the sale or including non-residents. The annual real estate? purchase of real estate, and tax rate is set by rural, city or district the letting of real estate? If so, authorities. It should not exceed 1.5% The sale, purchase, mortgage or lease what are the rates and who is of the minimum wage effective as of (if the lease is concluded for more than January 1 of the reporting (tax) year per three years) of real estate is subject to required to pay the tax? square meter. (The minimum wage as of notary certification. January 1, 2017, is approximately €108). Generally, the sale, purchase or leasing Notary certification of the agreements of real estate is subject to 20% VAT, The following real estate residential with real estate by public notaries excluding the sale of land plots or objects are exempt from real estate requires the payment of the stamp duty, the sale (except for the first sale) of tax: residential apartments of less than by private notaries. The amount of the residential property. 60 square meter, houses of less than notarial fee is determined by the private 120 square meters and other types of notary and the individual or legal entity, The 20% VAT is determined in the property of less than 180 square meters. but must not be less than the rates of contract (agreement) based on the sale state duty, which is levied by public or purchase price and is paid by the Land tax is paid by the owners and users notaries for similar notarial acts. buyer. The seller is required to report VAT of the land, depending on whether the tax liabilities in its tax books. The seller is land is owned or leased. The tax applies In addition to the stamp duty, a required to issue a VAT invoice with the equally to individuals or non-person legal purchaser of real estate is required to amount of VAT and register the invoice entities. The tax rate of 1%, 3%, 5% or 12% pay pension fund duty at the rate of 1% in the electronic register of VAT invoices. depends on the classification, type and based on the estate value. The buyer pays VAT and has the right to location of the land and on whether the offset VAT credit against its VAT liabilities. land value has been assessed. Ukraine does not impose any other transfer tax. Please note that the purchase of The tax rate of up to 3% (except for residential real estate is exempt from cultivated agricultural lands and a. If so, what are the rates and who is VAT, except of the first supply operation. common-use lands) applies to settled required to pay the duty or tax (e.g., The first supply means the first sale of land with the normative monetary seller or buyer, landlord or tenant, etc.)? residential real estate (i.e., the transfer value, the tax rate of up to 5% applies of title to the newly erected real estate) to other types of assessable land. The Notary certification of the sale and or, alternatively, the supply of services tax rate of up to 12% of the normative purchase of real estate by public on construction of such residential real monetary value applies to land plots notaries is subject to 1% of stamp estate, including cost of construction permanently used by the subjects of duty, based on the amount stated in materials. This first supply is subject to economic activities (except for state the agreement. The lease of an estate 20% VAT and is paid by the buyer. and communal property). The marginal certified by public notaries is subject to measure of land tax rates related to stamp duty of 0.01% of the mortgaged The letting and leasing of real estate cultivated agricultural lands is up to 1% object’s value. However, this duty is is subject to 20% VAT and is paid by of their normative monetary value. bounded by a minimum and a maximum the lessee. amount, even if the assessed duty falls 4. What is the tax rate outside this range. As of March 2017, the No VAT applies to the acquisition of land imposed on rental income? minimum is equivalent to approximately plots, except for land plots acquired together with the real estate objects that €2.80 and the maximum is equivalent Rental income from legal entities is constitute an integral part of real estate. to approximately €28. The mortgage subject to Ukrainian corporate profit tax certified by public notaries is subject to (CPT) at the rate of 18%. 0.01% stamp duty. 3. Are there any annual taxes that may be payable on the Rental income received by individuals, The law does not establish the party that ownership of real estate (e.g., both Ukrainian tax residents and non- is liable to pay the stamp duty or the annual land tax, municipal residents, is subject to personal income notarial fee. As a matter of practice, this taxes, surtaxes, etc.)? tax at rates of 18% as well as temporary issue is resolved at the parties’ discretion. military tax at the rate of 1.5%.

72 dentons.com 5. Is interest on borrowings used to acquire 6. Are deductions for depreciation and/ real estate deductible for tax purposes against or building capital allowance available rental income? against rental income for tax purposes? Are there separate allocations between land There are no special rules with respect to deductibility of and building? interest on borrowings used to acquire real estate objects for tax purposes against rental income. As a general rule, Ukrainian tax law allows deductions for depreciation and/or legal entities can deduct interest if such borrowing is used in building capital allowance against rental income or any other their business activities, such as for acquiring real estate for income for tax purposes, if real estate object qualifies as fixed business purposes. asset. The assets (construction objects) may be depreciated using one of the methods over the period of an asset’s lifetime, a. If so, are there any restrictions on the interest (e.g. thin provided that they are used in business activity of the entity capitalization, transfer pricing etc.)? (production fixed assets). General thin capitalization rules in Ukraine normally apply to Land plots are not subject to depreciation. loan transactions with related parties, non-residents, where the debt-to-equity ratio exceeds 3.5:1. The ratio is computed Tax depreciation terms for fixed assets are outlined in the as total amount of arithmetical average of borrowings to total following chart: amount of arithmetical average of equity at the beginning and the end of the tax period (year). N Fixed assets Term The deduction of interest paid on loans exceeding this ratio is limited to 50% of profits before tax (plus the amount of interest 1 Group 1 - Land plots - expense and accounting depreciation) in a specific tax period. Group 2 - Improvements of land 15 years 2 The profit before tax in Ukraine is computed based on national not related to capital construction accounting standards (NAS) or international financial reporting 3 Group 3 - Construction objects 20 years standards (IFRS), depending on which type of reporting standards the taxpayer would choose. The non-deducted 4 Structures/buildings 15 years portion of interest can be carried forward to future periods subject to the same limitation, but the balance carried forward The calculation of depreciation for land and real estate is should be reduced annually at 5% of the interest amount until carried out according to NAS or IFRS and is subject to certain the interest if fully relieved. limitations by law.

As a general comment, Ukrainian transfer pricing rules apply 7. Are deductions available for management in each case when a transaction is recognized as controlled transactions with non-residents, related parties and some fees against rental income for tax purposes? other non-residents when the taxpayer’s annual income exceeds the equivalent of €5 million, and when the volume of Management fees are usually deductible against any of the transactions with each counterparty exceeds the equivalent of taxpayer’s income, including rental income, provided that €330,000. such fees are related to business activity of the taxpayer and computed at arm’s length, if applicable. b. If so, is there any withholding tax on the interest?

As a matter of Ukrainian banking law, a borrower will be 8. Are there any restrictions on the use, and/or disallowed from paying interest to a foreign lender in excess of the carry-forward, of losses? the maximum interest rate, which is currently established to be: Generally, Ukrainian companies can carry forward business • 9.8% per year for fixed-rate loans with a maturity of up to losses and capital losses indefinitely. The change of control one year should not, in principle, affect the taxpayer’s right to carry forward and utilize accumulated tax losses in subsequent • 10% per year for fixed-rate loans with a maturity between tax periods. one and three years 9. Are capital gains arising on the sale of real • 11% per year for fixed-rate loans with a maturity of longer estate taxable? If so, what are the rates and are than three years there any exemptions? • For floating-rate loans, LIBOR for three-month US dollar deposits plus 750 basis points Income from the disposal of real estate exceeding its book value (i.e., a capital gain) is subject to 18% CPT. Such taxable Interest payable to a non-resident creditor is subject to 15% income may be offset against any allowable deductible of Ukrainian withholding tax (WHT), unless a relevant double- expenses of the seller. taxation treaty (DTT) provides a reduced or zero rate of WHT.

dentons.com 73 The 15% WHT applies to income derived We usually recommend implementing In certain cases, when more by a non-resident from the sale of real a simplified purchase structure via a sophisticated holding structures are estate, unless the non-resident has Ukrainian special purpose vehicle (SPV) implemented (for instance, through the permanent establishment in Ukraine. If so, for each real estate property acquired. If non-resident holding SPV) the sale of then such income is subject to 18% CPT. any commercial activity were actually to shares of such non-resident holding SPV be developed, a more sophisticated tax may be applied. No specific exemptions apply to taxation structure could be envisaged (e.g., having of capital gains arising from the sale of the SPV held through a holding company, 13. Are there any material real estate. either Ukrainian or foreign). differences in the way individuals and companies 10. Is there a withholding tax Regarding investment structure for the on rental income and/or capital purchase of the agricultural land, the are taxed on acquiring, gains derived from real estate? two-tier structure is recommended due letting and/or disposing of to the following. Under Ukrainian law, real estate? only domestic companies have the right The 15% withholding tax applies to to own agricultural land. In this case rental income, unless a non-resident has For Ukrainian individual residents, more sophisticated structuring should permanent establishment in Ukraine. If so, income derived by the seller from the apply, and a two-tier structure should be then such income is subject to 18% CPT. sale of commercial and residential real established. Under the two-tier structure, estate property is subject to 5% personal the underlying company that owns the As a general rule, 15% WHT applies income tax (PIT) and 1.5% temporary agricultural land is a Ukrainian company to a capital gain from the sale of real military tax. Individuals are also required established by another Ukrainian estate property or the sale of shares to pay 1% stamp duty. The buyer should company, whose founders are resident in a Ukrainian company that owns real pay 1% of pension fund charge based on and non-resident. estate property. the asset’s value. 12. Are there any structures Relief applies, and the capital gain from The sale of residential property owned the sale of shares is exempt from 15% commonly used to mitigate for more than three years, provided this WHT, in cases when a DTT exempts real estate tax liabilities on the is the individual’s first sale of residential capital gains from the sale of shares. acquisition and/or disposal of property during current tax period (one year), is exempt from PIT and temporary Usually this relief applies if shares real estate? derive their value directly or indirectly military tax. from immovable property for less than If a real estate structure is arranged via 50%. Otherwise, if the greatest part of Income derived by non-residents the a Ukrainian SPV, in the case of disposal shares value (more then 50%) directly or from sale of real estate is subject to 18% we recommend selling the shares of indirectly derives value from immovable PIT and 1.5% temporary military tax. that SPV. property situated in Ukraine, 15% WHT will apply. Most DTTs signed by Ukraine Income derived by residents and non- The sale of shares transaction (a share enable the country to tax such income as residents from the lease of real estate is deal) is not subject to 20% VAT. No stamp described above. subject to 18% PIT and 1.5% temporary duty or pension fund duty applies. Thus military tax. 11. Are there any tax-efficient the share deal is viewed to be more tax- efficient than the sale of real estate assets real estate investment vehicles The tax consequences for companies (an asset deal). are described above. to acquire, hold and exploit real estate that could be utilized?

74 dentons.com United Kingdom

dentons.com 75 United Kingdom Alex Thomas [email protected]

1. Is stamp duty, transfer tax or a similar tax Residential property payable on the sale, purchase or leasing of The current basic rates of SDLT for acquisitions of residential property are as follows: real estate?

Yes, stamp duty land tax (SDLT) is payable on the direct Property value SDLT rate purchase or leases of property situated in the UK. 0% No SDLT is payable on the purchase of shares in a company Up to £125,000 that owns or leases UK property. If the shares purchased are 2% in a UK company stamp duty at 0.5% may be payable instead. The portion from £125,001 to £250,000 Stamp duty is generally not payable on the transfer of shares in 5% a non-UK company. The portion from £250,001 to £925,000

10% a. If so, what are the rates and who is required to pay the duty The portion from £925,001 to £1.5 million or tax (e.g., seller or buyer, landlord or tenant, etc.)? 12% The portion over £1.5 million SDLT is payable by the buyer or tenant on increasing portions of the chargeable consideration, at a rate that depends upon the commercial or residential use of the property and the type If the acquisition is of a new leasehold interest, SDLT is of consideration. payable on the lease premium as per the above rates, and, if the net present value of rent over the life the lease is more Where two or more property transactions are "linked" and than £125,000, SDLT is payable at 1% on the portion above the parties are "connected," the rates apply to the total £125,000. Where a lease is assigned, SDLT is only payable on consideration of all such transactions. the lease premium.

Commercial and mixed-use property If a company, partnership with a corporate member or The current rates of SDLT for acquisitions of commercial, collective investment scheme purchases high-value residential or mixed-use (i.e., mix of commercial and residential use) property (currently anything more than £500,000), SDLT property are as follows: is payable at 15% on the entire purchase price. There are, however, reliefs available from the 15% rate, including for high-

value residential properties purchased as part of a property Property value (including any VAT) SDLT rate development, property rental or property-trading business.

0% Up to £150,000 If an individual buys residential property otherwise than to replace their existing main residence, the buyer must pay an 2% The portion from £150,001 to £250,000 additional 3% on each portion of the consideration or lease premium paid, at the rates above. 5% The portion above £250,000 2. Is value added tax, goods and service tax or a similar tax payable on the sale or purchase of In relation to leases of commercial UK property, SDLT is payable on the premium at the above rates and, in the case of real estate, and the letting of real estate? If so, new leases (rather than existing assigned leases), SDLT is also what are the rates and who is required to pay payable on rent as follows: the tax?

Net present value of rent (including any VAT) SDLT rate Supplies of interests in land or buildings are generally exempt supplies for VAT purposes, subject to certain exceptions, and depending on whether the property is commercial or residential. 0% Up to £150,000 No VAT is chargeable on the supply of assets or services of a business where that business is transferred as a going concern 1% £150,000 to £5 million (a TOGC), in which case the totality of transferred assets will be treated as neither a supply of assets nor goods, so long as: 2% More than £5 million

76 dentons.com • The transfer is between taxable persons, or in the case Similar to the 15% SDLT charge on high value residential of the transferee, persons liable to be VAT registered as a property, there are reliefs available for (among others) result of the transfer (if not already VAT registered) property rental businesses, property development and property dealers. • The business is capable of being carried on as an independent economic activity, and ATED does not apply to individual purchasers of UK residential property, nor to UK commercial property. • The transferee intended to use the assets in the same kind of business as carried on by the transferor 4. What is the tax rate imposed on rental income? If the UK property sold or purchased is rented at the time of disposal, the transfer is likely to be considered a TOGC, and UK companies are subject to corporation tax on (worldwide) hence not subject to VAT. rental income, which is currently chargeable at a rate of 19% but is proposed to fall to 17% in April 2020. Where an exception applies, the supply may be standard or zero-rated, depending on the type of property. Non-resident corporate landlords are subject to income tax at the basic rate of 20%, rather than the corporation tax rate of The main exceptions, which are standard-rated at the 19%. Tenants/letting agents are required to deduct the basis current rate of 20%, are the sale of a freehold interest in an rate of income tax from rental payments unless the non- uncompleted commercial building; the sale of a freehold resident landlord has applied under the Non-Resident Landlord interest in a commercial building completed less than three Scheme (NRLS) to receive payments of rent gross. years before the sale; and any supply of an interest in land or buildings where an option to tax has been exercised by the Individuals are subject to income tax charged on a progressive supplier in relation to such land and has not been revoked. scale, which is currently 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers. A landlord of a commercial building who makes exempt supplies, and is therefore not able to recover any VAT incurred Non-residents that are also taxed in their country of residence in making its supply, may "opt to tax" the property so that it on UK income may be able to claim tax relief under the terms charges an amount of VAT at the standard 20% rate and can of any double-taxation agreement with the UK. recover the VAT incurred on costs relating to its supply of the property. On the basis that the property supplied to tenants is predominantly non-residential, there should generally be no 5. Is interest on borrowings used to acquire restrictions to input tax recovery for the landlord. real estate deductible for tax purposes A conversion of a commercial building into a residential against rental income? building, which is then disposed of, is a zero-rated supply. The seller need not charge VAT, but can recover any VAT it has UK tax-residents are generally entitled, for corporation tax incurred in making that supply. purposes, to deduct interest on borrowings used to acquire UK property against other profits (either income or capital), 3. Are there any annual taxes that may be subject to certain restrictions. payable on the ownership of real estate (e.g., annual land tax, municipal taxes, Non-residents, however, fall within the UK's income tax regime, which permits the deduction of interest only if it is incurred surtaxes, etc.)? "wholly and exclusively" for the purpose of their property rental business. The entire amount of the expenditure must be made There is an annual tax on enveloped dwellings (ATED) for the purpose of the business. This should be the case where payable in relation to each day that a corporate entity holds borrowed money is used to directly fund the acquisition of a UK residential property valued at more than £500,000. The property. However, if the expenditure had a dual purpose or current annual charges are as follows: was used to acquire an interest in a property holding vehicle, it may not be deductible. Property value ATED charge The UK government is consulting on whether to bring non- residents out of the UK income tax regime and into the More than £500,000 but not more £3,500 UK corporation tax regime, to provide consistency of tax than £1 million treatment. The consultation document indicates that the aim More than £1 million but not more £7,000 of the proposal is to apply the new corporate interest and loss than £2 million relief reforms to non-resident investors in UK real property. More than £2 million but not more £23,350 A key question for consultation is whether this can be done than £5 million within the existing income tax regime or whether it is more More than £5 million but not more £54,450 appropriate to apply those reforms within the corporation tax than £10 million regime. We expect that, following consultation later in 2017, the More than £10 million but not more £109,050 government's preference will be to apply the reforms within the than £20 million corporation tax regime, possibly with effect from April 2018. More than £20 million £218,200

dentons.com 77 a. If so, are there any restrictions (e.g., have little external debt, who would Where the conditions for a deduction/ thin capitalization, transfer pricing, etc.)? therefore be caught by the previous non-inclusion mismatch are met, the Worldwide Debt Cap, are unable to mismatch is counteracted by denying Yes. UK residents are subject to take advantage of the new Fixed Ratio the UK deduction. However, the rules restrictions including the UK's new Rule by gearing up to 30% of the UK provide potential relief, as the amount of corporate interest restriction and hybrid group's EBITDA. the restricted deduction may be allowed mismatch rules. Both UK residents and as a deduction from any "dual inclusion" non-residents are subject to the UK's Overriding all of the new rules is a £2 income of the hybrid payer. Broadly, transfer pricing rules. million annual interest allowance. This dual inclusion income means income is significant as it ensures that the UK that is ordinary income of the UK payer New corporate interest restriction group may deduct £2 million of net for corporation tax purposes and is also The UK corporate interest restriction, interest expense each year, irrespective ordinary income of the offshore payee imposing a fixed and group interest-to- of whether it is in breach of the Fixed for the offshore country's tax purposes, EBITDA (earnings before interest, tax, Ratio Rule, Group Ratio Rule or the which arises in connection with the loan depreciation and amortization) ratio, Modified Debt Cap. This is intended arrangement. The restricted deduction is intended to take effect from April 1, to assist small businesses but in fact is set first against dual inclusion income 2017. The rules have not yet received assists any business that has net interest arising in the same accounting period, Royal Assent, but we expect this to be expense. We would expect the amount with unused amounts carried forward to arranged by the new government later of the £2 million allowance to be later accounting periods. in 2017 after the general election, with increased over time if UK interest rates effect from April 1, 2017. rise substantially. For mismatches resulting in a deduction offshore with no corresponding income The restriction follows recommendations New hybrid mismatch rules in the UK, the counteraction would be to by the Organization for Economic The new UK hybrid mismatch rules came treat the amount of the interest income Cooperation and Development's (OECD) into force on 1 January 2017. They are as taxable income in the UK. BEPS project in October 2015 and a UK intended to implement the OECD's final government consultation from 2015 to recommendations on BEPS Action 2. Corporation tax rules connected with 2016. It includes two formal ratio rules, HMRC provided updated draft guidance tax avoidance might also be applied, the Fixed Ratio Rule and the Group Ratio on the new rules in March 2017 and including the "unallowable purpose" Rule. It also retains a modified form of additional updates are expected, due rule which can apply to disallow debits the previous Worldwide Debt Cap. to the complexity of the rules and or reduce credits if a loan has a tax the difficulties encountered during avoidance purpose. Broadly, the Fixed Ratio Rule permits tax their implementation. deductions for UK net interest expenses Transfer pricing up to the amount of 30% of the UK An aim of the rules is to disallow a The UK's transfer pricing rules can group's taxable EBITDA. The UK group deduction of interest, for corporation limit the deductibility of interest on a may allocate restricted interest between tax purposes, where the interest loan, particularly where the loan-to- group companies. The restricted interest is deductible in the UK without a value percentage or the interest rate may be carried forward and deducted in corresponding amount of income being margin is excessive. There is no single future years if there is sufficient capacity taxable for another person (known as a test to determine whether a company within the 30% limit, and spare capacity "deduction/non-inclusion" mismatch). is in breach of the rules. Instead, the may be carried forward and used in They may also apply where interest is UK applies the arm's length principle subsequent periods for up to five years. deductible from more than one person's pursuant to which Her Majesty's Revenue This means that if a group does not income or for the purposes of more than and (HMRC) can treat the use its capacity in the early years of a one tax (a "double deduction" mismatch). terms of the actual transaction as having project, it may claim deductions when it instead taken place on the independent, makes a profit. Some of the transactions that may give arm's length terms. As a result of this rise to mismatches include shareholder principle, a company's liability may be The Group Ratio Rule provides relief for loans, Luxembourg financing, UK adjusted. For example, if the interest groups with third-party interest expenses companies with overseas permanent rate is excessive then the deduction for above the fixed ratio, by allowing interest establishments, companies operating interest payments may be denied. deductions for UK net interest expenses through a UK permanent establishment up to the amount of the group's ratio and US "check the box" regime and Loans from third-party providers of worldwide net interest expense hybrid entities. For example, there is a (such as bank loans) will generally to worldwide EBITDA, capped at a risk that a UK payer of interest that is be considered to be on arm’s length maximum ratio of 100% of EBITDA. "checked open" for US tax purposes terms, as they are negotiated between may be regarded as a person for UK unconnected parties in the course of a The Modified Debt Cap broadly applies tax purposes but not under the law commercial transaction, and so should to restrict interest deductions to the of the US, so that it is entitled to a tax not be subject to any transfer pricing extent that the UK net interest exceeds deduction in the UK for its interest adjustments. However, if guarantees are the worldwide group's total external expense, but no corresponding amount given by entities within the group this interest expense. In the context of the of income is taxable in the US, as the will need to be taken into account. new rules, the Modified Debt Cap will payment is ignored. apply to ensure that any groups which

78 dentons.com The UK transfer pricing rules may apply location of any security. HMRC’s view The availability of capital allowances to shareholder loans if the shareholder is that the residence of the debtor is may be restricted however, depending loans have non-arm's length terms that the most important criterion, together on the tax history of the property reduce the UK tax liability of an entity. with the location of the debtor’s assets, and allowances claimed by previous In particular, the UK rules may apply because this is where a creditor would owners (due to the pooling and fixed to deny the for interest usually seek to enforce a debt. When value requirements imposed on payments if (i) the loan to value ratio determining the residence of a debtor, it commercial buildings). (LTV) is greater than a normal third-party is necessary to look at where their main loan or a loan would not be made at all seat of business or center of activity is, Capital allowances are not deductible at arm's length; or (ii) the interest rate or other form of principal establishment for non-resident landlords that are not margin exceeds an arm's length amount (not the same as tax residence). within the NRLS. (or other terms are agreed that would not be agreed at arm's length). An exemption from interest withholding 7. Are deductions available tax may be available if the lender for management fees In these instances there is an element of qualifies for a domestic exemption against rental income for subjectivity as to what is an appropriate (e.g., if it lends through a London LTV and what is an excessive rate branch and is therefore within the tax purposes? of interest. It is necessary to gather scope of UK corporation tax), or if objective evidence to justify the interest the lender is eligible under a relevant Deductions for management fees are deductions and this is generally done double taxation treaty to receive generally available for UK-residents in one of three ways, depending on interest payments gross. under the corporation tax regime, the complexity of the arrangements: (i) provided that the amount of the fees is entering into advance agreement with 6. Are deductions for calculated at arm's length for transfer HMRC; (ii) benchmarking the proposed depreciation and/or building pricing purposes. structure usually an internally produced capital allowance available economic analysis; or (iii) commissioning Non-residents under the income tax a report by a third-party transfer against rental income for tax regime must ensure that the fees are pricing specialist. purposes? Are there separate incurred "wholly and exclusively" in the allocations between land course of their business. They must also comply with transfer pricing principles. b. Is there any withholding tax on and building? the interest? Non-resident landlords outside of the NRLS may only deduct expenses that a Capital allowances are available on UK withholding tax on interest may be tenant (or agent) has paid. qualifying capital expenditure on payable, at a rate of 20%, if the loan is capital assets for use wholly or partly intended to continue for at least one for a taxable business, which reflect year and the interest payable on the loan 8. Are there any restrictions on depreciation of those assets. is deemed to have a UK source. the use, and/or carry-forward, Buildings themselves do not usually of losses? Whether interest has a UK source qualify for capital allowances, but capital depends on a number of criteria. The key allowances are available for most plant UK-resident companies can set off factors to consider are the residence of and machinery (for which the allowance trading losses of a property business the debtor, the place of performance of is 18% per year). Certain "special rate" against all profits (whatever the trade the contract, the method of payment, plant and machinery (including integral of origin) within the same accounting the governing law of the contract and features such as electrical systems, lifts period, or an accounting period in the jurisdiction for proper enforcement, and escalators) attracts a reduced 8% preceding one year. Until recently, a UK the residence of any guarantor and rate of written down allowance. company could not carry forward its

dentons.com 79 losses into future years to set those losses they are in fact UK-resident or they Jersey property unit trusts (JPUTs) are off against profits of other companies in are carrying on a trade of dealing in or frequently used to acquire and hold its UK group. It could only set those losses developing UK land. interests in UK commercial real estate. off against its own profits. The main advantage is that they provide UK-resident individuals are subject to transparency for income tax purposes, Under the new carried forward loss capital gains tax (CGT) at 10% or 20% provided the trust deed is drafted as rules effective from April 1, 2017 (which, (with a surcharge of 8% for disposals a "Baker" trust that gives unitholders like the corporate interest restriction, of residential property), depending entitlement to their share of the income are expected to receive Royal Assent on their level of taxable income in the of the trust as and when it arises, and later in 2017), carried-forward losses relevant tax year. Individuals and trust they can be treated as opaque for UK arising on or after April 1, 2017, can benefit from an annual exempt amount capital gains tax purposes, so that an be set off against the profits of other (currently £11,100). No CGT charge arises exemption applies, provided that they are companies within a UK group. Coupled if a UK individual disposes of their only or a "unit trust scheme" for the purposes of with this new flexibility, however, is a main residence. the Financial Services and Markets Act new restriction to limit the set-off to 50% 2000 and are managed and controlled of group profits exceeding £5 million Non-residents disposing of residential outside the UK. per year. These restrictions apply to property are subject to non-resident all existing and future carried-forward capital gains tax (NRCGT) (where ATED- Real estate investment trusts (REIT) that losses, not just those arising on or after related CGT does not apply, which takes carry on a property-letting business April 1, 2017. For pre-April 2017 carried- precedence over NRCGT), subject to and are quoted on a recognized stock forward losses, therefore, there is no certain carve outs for trade-related exchange can be tax-efficient for holders flexibility to set off losses against profits disposals. NRCGT is chargeable at 18% of multiple property, as a REIT is exempt of other group members, and they are or 28% for individuals (depending on from corporation tax on income and subject to the 50% limitation from April their level of total taxable income and gains from its qualifying rental business if 1, 2017. Carried-forward losses arising gains in the relevant tax year), 28% for certain conditions are met. from April 1, 2017, however, can be used trustees and 20% for companies (rather flexibly among UK group members, than corporation tax). As with UK CGT, In relation to residential property, prior subject to the 50% restriction on profits principal private residence relief should to the recent changes, companies were exceeding £5 million, calculated on a negate any NRCGT that would otherwise often used to hold UK property. However, group-wide basis. be payable for an individual disposing of with the introduction of the 15% SDLT their only or main residence. charge and ATED charges on enveloped Non-resident companies can generally Companies (UK and otherwise) that UK property, this has now become less set off trading losses of a property are subject to ATED may be subject to tax-efficient. business against property income or, ATED-related CGT, where the relevant in limited circumstances, against other high-value residential property is later 12. Are there any structures net income (e.g., if the losses have a disposed of. ATED-related CGT is commonly used to mitigate capital allowances connection). Losses chargeable at 28%. real estate tax liabilities on the can only be carried forward and set against income from the same property acquisition and/or disposal of business for the following tax year. 10. Is there a withholding tax real estate? However, if non-residents are brought on rental income and/or capital into the corporation tax regime following gains derived from real estate? It is common for UK commercial property the current consultation, we expect that to be owned by an offshore special the new carried-forward loss rules will purpose vehicle (in jurisdictions such as Non-resident landlords are subject to also apply to them. Jersey, BVI and Luxembourg). The reason withholding tax at the basic rate (20%) for this is twofold: 9. Are capital gains arising on on rental income. Such non-resident landlords may apply for the NRLS, • firstly, an offshore vehicle can dispose the sale of real estate taxable? under which applicants can apply for of UK commercial investment If so, what are the rates and the rental income to be paid gross. property free from UK tax on Whilst this is a cash flow benefit, such are there any exemptions? capital gains; landlords will continue to be taxed on the rental income. Subject to the below, UK companies are • secondly, the acquisition of a subject to corporation tax (at 19%) on offshore vehicle holding UK real No withholding tax is imposed in the their business profits, which includes estate is generally free from UK UK on any capital gains deriving from chargeable gains. Group relief may SDLT and stamp duty. This brings UK property. be available for transfers of property a 5% reduction in acquisition costs between 75% group companies such for the purchaser by avoiding the that the transaction is made on a no SDLT charge. gain/no loss basis. 11. Are there any tax-efficient real estate investment vehicles It is therefore common in the UK market Generally, non-resident companies or structures to acquire, hold to look to sell UK commercial real disposing of commercial property are and exploit real estate that estate by selling the company owning not subject to capital gains tax, unless the asset, with the buyer and seller could be utilized?

80 dentons.com negotiating who obtains the benefit of the SDLT saving. Obviously, buying the property owning company means that the purchaser will be inheriting any historic liabilities (tax or otherwise) which are in the entity. It has become common in the UK market for full due diligence of the company to be carried out and indemnities and warranties to be given on the sale of the company. More often than not, a warranty and indemnity insurance policy is obtained, so that the seller can have a "clean break" and not have to stand behind the warranties.

13. Are there any material differences in the way individuals and companies are taxed on acquiring, letting and/or disposing of real estate?

Following the changes imposed by the UK government with effect from this year, the number of material differences between individuals and companies transferring UK property have been diminished.

The SDLT treatment differs between corporates and individuals in relation to residential property, and with the imposition of ATED (and ATED-related CGT) on corporates acquiring and holding residential property, it has generally become less tax-efficient for corporates in relation to UK transfer taxes.

The tax on rental income is less for corporates (at 19% for UK residents and 20% for non-residents), compared to UK- resident individuals who are subject to income tax at up to 45% (plus impending restrictions on interest deductibility for rented residential property).

A key difference remains in CGT applicable to commercial property disposals, with individuals subject to CGT at 10% to 20% and UK corporates at 20%, whilst non-residents remain exempt from any capital gains tax on disposals of commercial property unless they are trading.

dentons.com 81 United States

82 dentons.com United States Jeffrey Koppele Rich Williams [email protected] [email protected]

1. Is stamp duty, transfer tax 3. Are there any annual taxes expenses typically would significantly or a similar tax payable on the that may be payable on the reduce the investor’s overall tax burden. The Medicare tax does not apply to sale, purchase or leasing of ownership of real estate (e.g., foreign investors. real estate? annual land tax, municipal taxes, surtaxes, etc.)? A foreign corporation that conducts At least 35 US states, and a number of an active rental business in the United counties and cities, impose a tax on the All 50 states and many municipalities States, or that makes a net election, may transfer of an interest in real estate. The impose annual real estate taxes at rates also be subject to a 30% branch profits definition of an “interest in real estate” that vary widely by jurisdiction. For tax on rents that are deemed repatriated varies by jurisdiction, and can include owner-occupied housing in 2014, New from its US branch. The branch profits options and certain leasehold interests. Jersey had the highest effective annual tax may be reduced, or in certain cases real property tax rate of 2.11%, whereas eliminated, by an applicable double a. If so, what are the rates and who is Hawaii had the lowest at 0.28%. State tax treaty. required to pay the duty or tax (e.g., and local real estate taxes are generally seller or buyer, landlord or tenant, etc.)? deductible against federal taxable 5. Is interest on borrowings income, subject to certain limitations. used to acquire real estate Rates in various states range from 0.1% deductible for tax purposes to 5%, including local and county taxes 4. What is the rate of tax against rental income? (where applicable). Most jurisdictions imposed on rental income? impose the tax on the consideration paid for the real estate interest, while others Interest on borrowings used to acquire US individuals are subject to federal tax base the tax on the value of the interest. US real estate is generally deductible on net rental income at graduated rates Among the jurisdictions with the highest against rental income for US federal up to 39.6%. An additional 3.8% Medicare tax rates are Pennsylvania (rates vary by income tax purposes. Deductibility of tax generally applies to high-income locality from 2% to 5%) and New York interest for state and local income tax earners on rental income not derived City (maximum combined state and purposes varies by jurisdiction. from an active business. local rate of 3.025%). a. If so, are there any restrictions on the US corporations are subject to federal Some jurisdictions dictate which party is interest (e.g., thin capitalization, transfer tax on net rental income at graduated obligated to pay the tax, and in certain pricing, etc.)? rates up to 35%. Individual and corporate cases impose the primary payment taxpayers may also incur state and/ obligation on one party and a secondary Foreign investors can deduct interest or local income tax. State and local obligation on the other party. Where on borrowings used to acquire US real tax rates vary by location, and may be state or local law does not obligate a estate only against rental income that is significant. A domestic corporation that particular party, the parties must agree attributable to an active rental business. earns rental income from real property on which party will pay the tax. located in New York City, for example, If acquisition debt issued by a 2. Is there value added tax, will be subject to an effective income tax corporation is re-characterized as rate of more than 46%. goods and service tax or a equity for tax purposes, the interest payments generally will be treated similar tax payable on the sale Foreign investors are taxed on US- as non-deductible dividends. If debt or purchase of real estate, and source rental income at a 30% rate issued by a partnership is so re- the letting of real estate? If so, without offsetting deductions, unless characterized, the interest payments the rent is attributable to a US trade or what are the rates and who is may in certain circumstances be business, in which case the investor treated as non-deductible. In order for required to pay the tax? would be subject to tax on net income debt to be respected for tax purposes, at graduated rates that are the same as there generally must be a reasonable No. However, state sales tax may be those paid by US investors. A foreign expectation of repayment and imposed on the transfer of personal investor may elect to be taxed on a market terms. property together with the real estate. In net basis as if the rent were US trade transactions involving hotels, among other or business income (“net election”). Under the passive loss rules, individuals asset classes, the amount of personal Although higher marginal rates could may deduct interest expense in a taxable property can be significant. Where such apply in the case of a net election, the year only to the extent of rental income sales tax is imposed on personal property, offsetting deductions for depreciation, and income from other passive activities. it generally ranges from 2.9% to 7%. interest, real estate taxes and other Any disallowed interest expense can be

dentons.com 83 carried forward to offset rental income that (i) certain threshold documentation 6. Are deductions for or other passive income in subsequent requirements are not satisfied or (ii) the depreciation and/or building taxable years. The passive loss rules do debt instrument is issued to a controlling not apply to real estate professionals shareholder in a distribution or in capital allowance available who materially participate in active rental another transaction that achieves an against rental income for tax real estate businesses. economically similar result. purposes? Are there separate allocations between land To the extent not taken into account Under US transfer pricing rules, the under the passive loss rules, interest Internal (IRS) may and building? paid by an individual may be subject reallocate income among related to limitation on deductibility under the taxpayers with respect to intercompany US persons who own real property investment interest limitation rule. This loans that do not bear an arm’s-length can claim depreciation deductions for rule generally limits the deductibility of interest rate. property used in a trade or business investment, rather than business, interest or held for the production of income. expense to the amount of the taxpayer’s b. If so, is there any withholding tax on Foreign investors can claim depreciation net investment income. the interest? deductions for real property if the property is used in the active conduct of Under an “earnings stripping” rule, a US Foreign investors are subject to a 30% a US trade or business or if a net election corporation (or foreign corporation that withholding tax on interest payments has been made. is engaged in a US trade or business) received from US sources, unless the with a debt-to-equity ratio exceeding interest is effectively connected with a Depreciation deductions can be claimed 1.5 to 1 may be subject to restrictions US trade or business. This withholding only for that portion of real property on the deductibility of certain interest tax may be reduced or eliminated under which is depreciable. Because land is not paid to related foreign persons. These an applicable double tax treaty. depreciable, an allocation must be made restrictions apply only to interest not The United States does not impose between the value of improvements subject to US withholding tax at the withholding taxes on “portfolio interest.” and the underlying land. Under the full 30% rate, for example, due to treaty Portfolio interest generally includes non- Modified Accelerated Cost Recovery relief or domestic law exemption. If contingent interest paid on certain US System (MACRS), commercial real estate the earnings stripping rule applies, registered obligations, unless the interest generally is depreciable over 39 years, the corporation’s deduction of net is received by: using a straight-line method. Residential interest expense is generally limited real estate is depreciable ratably over to 50% of earnings before interest, • A controlled foreign corporation from 27.5 years. Certain components of taxes, depreciation and amortization a person related to the issuer improved real estate may be eligible for (EBITDA). Disallowed interest is carried depreciation over shorter periods forward indefinitely. • A bank on an extension of credit of time. pursuant to an ordinary course Effective for taxable years ending after lending agreement, or January 18, 2017, certain related-party debt issued by US corporations may be • A 10% shareholder of the issuer re-characterized as stock to the extent

84 dentons.com 7. Are deductions available State and local income taxes may also equal to 15% of the total consideration. for management fees be imposed on capital gains on Any amount so withheld may be applied real estate. as a credit against the federal income against rental income for tax liability of the foreign seller and may tax purposes? For individuals, if the real estate has be recovered as a refund in the event been held for one year or less, or if the of overpayment if the withholding tax Management fees incurred by seller is a “real estate dealer,” a gain collected exceeds the seller’s US tax individuals in connection with an recognized on the sale of real estate liability on the capital gain. investment or other nonbusiness activity is subject to US federal income tax are deductible for US federal income at graduated rates of up to 39.6%. By 11. Are there any tax-efficient tax purposes only to the extent such contrast, long-term capital gains on the real estate investment deductions, along with other so-called sale of real estate not held as inventory vehicles to acquire, hold and miscellaneous itemized deductions, generally are taxable at a preferential exceed 2% of adjusted gross income. US federal income rate of 20% (though exploit real estate that could recapture of a gain attributable to past be utilized? The amount in excess of the 2% depreciation deductions will be taxed at threshold is further limited to the a 25% rate). Real estate investment trusts (REITs) excess of the total itemized deductions can provide a tax-efficient investment exceeding 3% of adjusted gross income An additional 3.8% Medicare tax structure for investments in US real above a specified base, or 80% of the generally applies to US high-income estate, because a REIT’s income itemized deductions, whichever is earners on gains not derived from the generally is subject to only one level of lower. Deductibility of fees for state ordinary course of a trade or business. US federal income tax. The single level and local income tax purposes varies In addition to federal taxes, state of tax is accomplished by permitting by jurisdiction. and local income taxes may also be REITs to deduct dividends paid, which imposed on capital gains. dividends are then reported as income 8. Are there any restrictions by shareholders. on the use, and/or the carry- For corporations, capital gains forward, of losses? recognized on the sale of real estate The US federal income tax rate for are subject to US federal income tax non-US shareholders is 30%, subject at graduated rates of up to 35%, and to reduction under an applicable US For US federal income tax purposes, may also be subject to state or local tax treaty. The reduced treaty rate net operating losses (NOLs) generally income taxes. A foreign corporation typically is not available for capital gain can be carried back two years and that held the real estate in a US trade dividends, which occur when a REIT carried forward 20 years, subject to or business, or that has made a net distributes the proceeds from its sale certain limitations. Corporate NOLs election, may also be subject to a 30% of real estate. Under FIRPTA, non-US may be subject to further restriction branch profits tax on capital gains that shareholders generally are subject to upon certain shifts in ownership of the are deemed to be repatriated from the FIRPTA tax on capital gains realized corporation’s stock. the US branch (subject to reduction on the sale of REIT shares. Under a or elimination under an applicable US FIRPTA exception, foreign investors For state and local income tax purposes, tax treaty, as noted above in Question can avoid US federal income tax on the calculation of NOLs, and the ability 4). However, a branch termination capital gains tax on sale of stock in a to carry back and carry forward such exception may apply to the taxable domestically controlled REIT. REITs NOLs, varies by jurisdiction. year in which a foreign corporation may also be subject to state and local 9. Are capital gains arising on completely terminates all of its US trade income tax. or business activities. the sale of real estate taxable? While REITs offer a tax-efficient structure If so, what are the rates and 10. Is there a withholding for investments in US real estate, they are there any exemptions? tax on rental income and/ are not suitable for all investments, as or capital gains derived from only certain asset classes qualify as Yes, capital gains on real estate permissible REIT assets. For example, are taxable. real estate? an investor planning to acquire a US condominium development project No withholding tax is imposed on rental Although a foreign person is generally would not do so through a REIT, as gain income or capital gains received by US not subject to US federal income tax realized on the condominium units persons. Generally, there is a 30% US on capital gains (subject to certain would be subject to a 100% tax on withholding tax on US-source rental exceptions), there is a general exception income from so-called dealer activities. income received by foreign persons. for capital gains realized on the disposition of a US real property interest. 12. Are there any structures Under the Foreign Investment in Real US real property interests include parcels commonly used to mitigate Property Tax Act (FIRPTA), purchasers of of US real property and stock in domestic US real property interests from foreign real estate tax liabilities on the corporations that are US real property persons are generally required to acquisition and/or disposal of holding corporations, and certain other withhold from the purchase price a tax interests in US real property. real estate?

dentons.com 85 Foreign investors commonly invest a 40% corporate-level deduction for a an entity that directly or indirectly owns in US real estate through a corporate 10% investor-level tax on the interest an interest in real estate. The definition leveraged blocker structure, in which income. Return of capital distributions of “controlling interest” varies by state, the foreign investor owns a non-US are not taxable if a FIRPTA withholding from 50% to 90% ownership. Certain corporation (the “foreign blocker”), certificate is obtained. However, the controlling-interest transfers may be which in turn owns a US corporation debt instrument held by the foreign exempt from this tax, including, for (the “US blocker”). The US blocker blocker may be re-characterized as stock example, a transfer that effects a mere then purchases the interest in the under recent debt-equity regulations to change in identity or form of ownership. US real estate. The reasons for this the extent that a distribution by the US structure include: blocker exceeds accumulated earnings 13. Are there any material and profits. differences in the way • The US blocker insulates the foreign individuals and companies blocker from branch profits tax and Further, although dividends from the FIRPTA withholding US blocker generally are subject to are taxed on acquiring, withholding tax at a rate of 30%, this rate letting and/or disposing of • The foreign blocker shields the may be reduced by treaty. real estate? foreign investor from US estate Additionally, the FIRPTA tax does not tax exposure apply to a liquidating distribution by the Perhaps the most important difference US blocker, which is made only after the concerns the federal taxation of capital • Neither the foreign blocker nor the corporation first sells all of its real estate gains arising from the sale of real estate. foreign investor would be required to in taxable transactions (i.e., the cleansing Individuals can qualify for preferential file US tax returns exception). To facilitate the cleansing US capital gain tax rates of 20% if the exception, foreign investors typically property is held for more than one year, Although income from the real property hold each real estate investment whereas corporations will be subject to will be subject to US federal corporate- through a separate US blocker. regular federal tax rates of up to 35% on level income tax at graduated rates of the same gains (plus, potentially, branch up to 35%, the overall tax burden can be Foreign investors who reside in high- profits tax as discussed above). Other substantially reduced if the US blocker tax jurisdictions may prefer to invest in material distinctions relate to limitations is capitalized with a combination of US real estate through an unblocked on the deductibility of interest and debt and equity, because the interest structure, either directly or through other expenses incurred in connection payments should reduce the a flow-through entity. This structure with real estate investments. Finally, US tax base. typically works better if the investor can the additional 3.8% Medicare tax on qualify for the preferential US capital net investment income applies only to For example, if the foreign investor gains tax rate (i.e., an individual) and individuals (but does not apply to qualifies for a treaty-reduced 10% does not mind filing US tax returns. foreign persons). withholding rate on interest, each dollar Additionally, 16 states impose a tax on of interest paid to the investor trades the transfer of a controlling interest in

86 dentons.com Tax Contacts

Almaty Bratislava Kansas City Kanat Skakov, Partner Katarína Pecnová, Counsel Bruce C. Davison, Partner 135 Abylai Khan Ave Business Garden Štefánikova 4520 Main Street Almaty, 050000 Štefániková 15 Suite 1100 Kazakhstan Bratislava, 811 05 Kansas City, MO 64111 T +7 727 258 2380 Slovakia United States [email protected] T +421 220 660 220 T +1 816 460 2514 [email protected] [email protected] Baku Ophelia Abdullayeva, Of Counsel Bucharest Kyiv Hyatt International Center Delia Dragomir, Counsel Igor Davydenko, Partner Hyatt Tower 2 General C. Budisteanu 28-C 49-A, Volodymyrska Street Baku, 1065 Bucharest, 010775 Kyiv, 01001 Azerbaijan Romania Ukraine T +994 12 4 90 75 65 T +40 21 312 4950 x230 T +380 44 494 4774 [email protected] [email protected] [email protected]

Barbados Calgary London Charles C. Gagnon, International Tax Jehad Haymour, Partner Alex Thomas, Partner Consultant 850 2nd Street SW One Fleet Place CGI Tower, 2nd Floor 15th Floor, Bankers Court EC4M 7WS London Warrens, St. Michael BB22026 Calgary, Alberta T2P 0R8 United Kingdom Barbados Canada T +44 20 7246 7547 T +1 246 626 0110 T +1 403 268 7162 [email protected] [email protected] [email protected] Luxembourg Beijing Chicago Frédéric Feyten, Partner Xuefeng Leng, Partner Thomas Stephens, Partner Atrium Vitrum Building 7th Floor, Building D, Parkview 233 South Wacker Drive 33, rue du Puits Romain Green FangCaoDi Suite 5900 Bertrange, L-8070 9 Dongdaqiao Road Chicago, IL 60606 Luxembourg Chaoyang District United States T +352 46 83 83 - 306 Beijing 100020 T +1 312 876 7485 [email protected] China [email protected] T +86 10 58137568 Madrid [email protected] Edmonton José Ramón Vizcaíno, Counsel Mark H. Woltersdorf, Partner Paseo de la Castellana, 53 8ª Berlin 2900 Manulife Place Madrid, 28046 Stephan Busch, Partner 10180 - 101 Street Spain Markgrafenstraße 33 Edmonton, Alberta T5J 3V5 T +34 91 43 63 325 Berlin, 10117 Canada [email protected] Germany T +1 780 423 7250 T +49 30 2 64 73 205 [email protected] Mexico City [email protected] Joaquín Contreras, Partner Frankfurt No. 1600, Piso 6-B Col. Santa Fe, Centro de Bogotá Michael Graf, Partner, Ciudad Camilo Cortés, Partner, Latin America NEXTOWER C.P.01210 México, D.F. Carrera 7 No. 71-52 Thurn-und-Taxis-Platz 6 Mexico Torre-B Piso 9 Frankfurt am Main, 60313 T +52 55 3685 3333 Bogotá, Colombia Germany [email protected] T +57 1 313 7800 T +49 69 4500 12 215 [email protected] [email protected]

dentons.com 87 Milan New York Shanghai Andrea Fiorelli, Partner Marc D. Teitelbaum, Partner Jimmy (Junming) Shi, Partner Studio Legale Tributario 1221 Avenue of the Americas 15th/16th Floor, Shanghai Tower Piazza degli Affari, 1 New York, NY 10020-1089 501 Yincheng Road M Milan, 20123 United States Pudong New Area Italy T +1 212 768 6749 Shanghai 200120 T +39 02 726 268 00 [email protected] China [email protected] T +86 21 5878 7738 Panama City [email protected] Montréal Gisela Porras, Partner Emmanuel Sala, Partner Calle 58 Obarrio, PH Plaza 58 Singapore 1 Place Ville-Marie Piso 6, Oficina 611 Edmund Leow, Partner 39th Floor Panamá, 80 Raffles Place Montréal, Quebec H3B 4M7 Panama #33-00 UOB Plaza 1 Canada T +507 275 5451 048624 T +1 514 878 5888 [email protected] Singapore [email protected] T +65 6885 3613 Paris [email protected] Moscow Sandra Hazan, Partner Dzhangar Dzhalchinov, Partner 5 Boulevard Malesherbes St. Louis White Gardens Business Center Paris, 75008 Nicholas H. Kappas, Partner One Metropolitan Square Lesnaya ulitsa, 7 France T +33 1 42 68 47 85 211 N. Broadway Moscow, 125047 Suite 3000 [email protected] Russian Federation St. Louis, MO 63102 T +7 495 644 0500 United States [email protected] Prague T +1 314 259 5856 Petr Kotáb, Partner [email protected] Munich Platnéřská 4 Igsaan Varachia, Partner Prague 1,110 00 Sydney Arthur Koumoukelis, Partner Jungfernturmstraße 2 Czech Republic Level 16 Munich, 80333 T +420 236 082 111 77 Castlereagh Street Germany [email protected] Sydney, NSW 2000 T +49 89 2444 084 24 Australia [email protected] Rome T +61 2 9931 4873 Roberta Moscaroli, Partner [email protected] Muscat Via Antonio Bertoloni, 44 Rome, 00197 Nick Simpson, Partner Italy Toronto Second Floor Al Fannar Building T +39 06 809 120 00 Tony Schweitzer, Partner Shatti Al Qurum [email protected] 77 King Street West, Suite 400 PO Box 3552 Toronto, Ontario M5K 0A1 Muscat, Ruwi PC 112 San José Canada Oman T +1 416 863 4407 Daniel Araya, Partner T +968 2457 3029 [email protected] [email protected] Forum 1 Business Center Building C, Office 1C1 Vancouver New Delhi San José, 12891-1000 Costa Rica Joel A. Nitikman, Partner V. Lakshmikumaran, Partner T +506 2503 9806 250 Howe Street (Lakshmikumaran & Sridharan) [email protected] 20th Floor B-6/10, Safdarjung Enclave Vancouver, British Columbia New Delhi - 110 029 V6C 3R8 India Canada T +91 11 4129 9900 T +1 604 443 7115 [email protected] [email protected]

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