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01.09.2010
Author: Peter CHERNOV
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Buying property in a legal entity – what does that mean? Guarantee the security of the transaction or additional risks? Unexpected expenses or the ability to save? The answer to these questions is associated with the peculiarities of the law in a particular country, and personal goals of the buyer.
The desire to buy property abroad often encounters one legal obstacle: In many countries, land is usually not sold to foreigners. There is a standard way out of this situation: make a purchase not for yourself personally, but for a company that can be created specifically for this purpose. There are other cases when not only the land, but also the housing itself, it makes sense to register not for an individual, but for a legal entity.

A friend among strangers
Land management is directly related to the sovereignty of the State. At the same time, the authorities are always interested in attracting foreign investment, and a foreign investor is unlikely to want to open a serious business without having long-term rights to the land used. Therefore, in many countries, the purchase of land for foreign individuals and legal entities is prohibited, but companies with foreign capital are allowed.
Since it is much easier to open a local company than to obtain citizenship of a particular country (and not everyone needs it), foreigners who want to buy a house with a plot or land for construction register a transaction with a legal entity. There are also countries where not only land, but also housing can be issued by a foreigner only in the name of the company.
It must be said that not all countries welcome the establishment of firms whose sole purpose is to make a deal with land. For example, in Thailand, about three years ago, an addendum to the Land Code was adopted, which strengthened control over companies that buy land and belong to non-residents. You can open a company in Thailand if the share of a foreigner does not exceed 49%. But if the authorities find out that in reality such a company is acting in the interests of a foreigner, the land purchase transaction will be suspended to verify its legality. The only safe way to own land for a citizen of another country is a long–term lease for up to 30 years.
At the same time, the authorities of most other countries are loyal to companies created by foreigners for the purchase of real estate, although the buyer should not relax here either. The main thing for the new owner is to make sure that he has leverage over his own company. It is useful to contact an independent money management consultant. Playing the "international investor" requires qualified help.

Montenegro or Croatia
To understand the impact of land legislation on the real estate market, it is enough to compare two neighboring countries – Croatia and Montenegro. Despite the fact that Montenegro is much more compact than Croatia, Russians purchase Montenegrin real estate much more often.
One of the main reasons is that a foreigner in Croatia, buying any property, must obtain permission from the authorities, and this is a long and completely unpredictable process. Therefore, non-residents create companies and register housing on them.
In Montenegro, a legal entity is required only to purchase land without capital buildings, whereas ownership of housing, including houses with plots, and even land with ruins of a former structure is easily registered to an individual. In addition, according to Olesya Serebryakova, director of marketing and sales at Boka Development, the government is currently considering a bill to allow non-residents to buy land without buildings.
There is another nuance. The costs of setting up and maintaining a company significantly increase the cost of relatively inexpensive Croatian housing. Registration costs 4,500-6,000 euros, and the maintenance of the company will cost another 3,000 euros per year. The only advantage for legal entities is that they are exempt from capital gains tax when reselling an object. However, when buying a small object, spending on a company is hardly justified.

Czech Republic
Land legislation is changing quite rapidly in many countries. So, in the Czech Republic, according to Maxim Barkov, executive director of the company Abrupt s.r.o., until May 1, 2009, only Czech citizens, persons with permanent residence in the country and companies with a Czech legal address could buy real estate for an individual. Now foreigners can also be owners of real estate. However, buying for an individual does not simplify entry into the country – the owners must obtain short-term visas every time, and this, of course, is not very convenient.
Also, in almost all countries, the purchase of real estate for a private person is not a basis for obtaining a residence permit. At the same time, it becomes easier to emigrate by investing in real estate, even in the United States (although in the States we are talking about commercial facilities, and in most countries it is also about creating jobs). In the Czech Republic, as the employees of Abrupt s.r.o. assure, the law is very liberal: after registering the company, the buyer gets the right to apply for an annual visa, which is extended after a year and every two years, and after five years for permanent residence. Now the Czech Republic is the only EU country where it is possible to obtain a residence permit at relatively low cost and in a short time (within 120 days from the date of submission of documents).
Moreover, a non-resident can apply for a mortgage loan from a Czech bank only if he buys real estate for a legal entity. However, according to Maxim Barkov, in this case, the connection of the actual buyer with the property does not become so obvious, which, however, is sometimes useful. It is also necessary to assess whether it is worth conducting real business activities through the company for which the property is registered. Indeed, in case of losses, a court penalty may be imposed on all the company's property.

Reciprocity requires sacrifice
In a number of countries, the purchase of land is regulated by the so-called "reciprocity principle", according to which Russian individuals can purchase apartments and houses with plots of land, but not land plots without an approved construction plan. This principle applies, for example, in Turkey, where it is necessary to register a company for land transactions. It may have one hundred percent foreign capital, not hire local workers and not conduct active economic activity.
For the purchase of real estate, an analogue of a Russian LLC is usually created. "Ideally, you can register such a company in a day if all the necessary documents have already been competently prepared," says the project manager Akdeniz.ru Anton Parygin. – In practice, it takes seven to ten days. Then, within one or two days, the property is registered with the company. To create an LLC, at least two co-founders are required, and both may be foreigners. The minimum authorized capital of the LLC is 5,000 Turkish lira (about 2,300 euros). The amount is frozen in the account until the end of the company registration process, and then it can be withdrawn. The registration overhead costs, in addition to the authorized capital, amount to about 1,500 euros. The delivery of a "zero balance" by an invited accountant is about 100 euros per month."

Bulgaria
In the most popular country among Russian real estate buyers, the creation of a company will be needed to purchase land plots, both with a house and free from development. If we are talking about a villa, then the plot adjacent to the building can be rented by a foreign individual for a long-term lease, but the undeveloped land must be registered with the company. The owner of the land may be a foreign company with Bulgarian participation in the amount of at least 1%, or a company registered in Bulgaria, which may be fully owned by foreigners.
Interestingly, shortly before joining the EU, Bulgaria adopted amendments to the Constitution, which in principle allow foreigners to own land. However, in order for this to become a reality, appropriate laws must be adopted – and the Bulgarian parliament is in no hurry to approve them yet.

And again the Czech Republic
Every country has its own nuances. For example, in the Czech Republic, a Russian certificate of non-conviction is required, which we prepare for a long time, up to a month. In a number of countries, a citizen of the country must manage a company, but not everywhere. "In the Czech Republic, a Russian can also be the director of a company," says Maxim Barkov. – There may be several directors. It should be remembered that only the director of the company can get a residence permit, the rest of the founders can only get a work visa for a period of no more than a year."
In the Czech Republic, the company is registered in the form of s.r.o. (also an analogue of LLC). The authorized capital is 200,000 kronor (about 8000 euros). The presence of Czech citizens and local capital in the company is not required. Maintenance is inexpensive – from 600 to 1000 euros per year. It is not worth constantly renting out "zero balances" in the Czech Republic, but to show the company's activities, it is enough to conclude an agreement that it rents real estate to any individual (including the founder or director).

Heirs – 100%
Buying real estate for a company insures the owner both in case of divorce and in case of not quite official origin of the money. It is still not difficult to register real estate for an offshore company. For example, some British experts claim that up to half of the luxury real estate that Russians have bought in the UK in recent years is registered with offshore companies.
Finally, buying into a legal entity saves you from draconian inheritance taxes. They are not present except in Cyprus or in a number of Swiss cantons – but in some states there is a complete ban on inheritance for foreigners. The highest rate is in France, Spain and the Netherlands. In the UK, the tax is 40% – but only 3% of all inheritances are taxed. At the same time, this tax is not charged on the fixed assets of companies.
In general, registration of real estate in a legal entity is not worth itto be afraid – many thousands of buyers have already passed this way in any of the countries where this is practiced. However, it is necessary to pay special attention to such a purchase – to find out in advance about all the pitfalls, consult with a lawyer. And it is necessary to calculate all the probable costs associated with the company's activities, so that the established company, together with the real estate object, does not subsequently turn out to be an excessive burden.

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