Guide to Taxes on Real Estate in CEE and CIS

Guide to Taxes on Real Estate

in CEE and CISkpmg.com

KPMG in Central and Eastern Europe

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.

© 2011 KPMG Central and Eastern Europe Ltd., a limited liability company and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Contents

Introduction 3

ALBANIA 4

BELARUS 7

BOSNIA AND HERZEGOVINA 11

BULGARIA 15

CROATIA 19

CZECH REPUBLIC 23

ESTONIA 28

HUNGARY 33

LATVIA 38

LITHUANIA 44

MONTENEGRO 50

POLAND 53

ROMANIA 60

RUSSIA 65

SERBIA 73

SLOVAKIA 76

SLOVENIA 82

UKRAINE 87

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Guide to Taxes on Real Estate in CEE and CIS | 3

Introduction

• Albania• Belarus• Bosnia and Herzegovina• Bulgaria• Croatia• Czech Republic• Estonia• Hungary• Latvia

• Lithuania• Montenegro• Poland• Romania• Russia• Serbia• Slovakia• Slovenia• Ukraine

Many more investors have started to show renewed interest in real estate transactions in the CEE / CIS region outside the core markets of the Czech Republic and Poland since the amalgamation of an overheated market and the 2008 credit crunch made it one of the earlier victims of the global fi nancial crisis.

A combination of rising yields, high vacancies and a lack of fi nancing led to an almost complete stop in speculative development. In some CEE countries major new development projects are now being initiated or restarted. In others, however, including Hungary, Bulgaria, Romania and Ukraine, overall investor activity remains very limited. Some of have these countries have now introduced special incentives to try and encourage real estate investment.

This Guide to taxes on real estate in CEE and CIS provides an overview of the tax aspects related to the real estate sector in the following countries:

The short summaries presented highlight the most important tax benefi ts and burdens connected with operations in the real estate sector. The summaries were prepared based on the situation at 1 January 2011 and focus on the following areas:

• Value added tax• Corporate income tax and capital gains• Tax depreciation• Tax implications of fi nancing the investment (thin capitalisation, dividends, WHT,

interest, losses carried forward)• Real estate tax• Real estate transfer tax

Eva Doyle Honorata GreenTax Partner Tax Partner


4 | Guide to Taxes on Real Estate in CEE and CIS

provide a special regime for capital gains if the shares being sold derive more than 50% of their value directly or indirectly from real estate. In addition, capital gains are taxed in Albania in case a foreign entity or a foreign individual transfers the direct ownership over real estate situated in Albania.

Tax DepreciationEntities may set depreciation rates for assets in accordance with their accounting policies, while under the provisions of the Law on Income Tax, maximum annual rates allowed for tax purposes are specifi ed according to a separate tax depreciation schedule.

Land is not depreciated for tax purposes. The solid buildings, including investment properties, facilities, transmitting devices, machinery and production equipment which are fi xed at the building site are depreciated according to the declining balance method at a depreciation rate of 5%.

CORPORATE INCOME TAX AND CAPITAL GAINSFrom 1 January 2008, corporations conducting business in Albania are subject to corporate income tax at a fl at rate at 10%. Corporate income tax is applied to the accounting profi t after adjustments for tax purposes.

Capital gains from the sale of real estate are included in the taxable income of the entity and taxed at the 10% rate. The sale of real estate by individuals is subject to personal income tax at a 10% rate on the capital gain generated (0.5% over the sale price in case of sale of agricultural land).

Since 1992, Albania has entered into agreements with several countries for avoidance of double taxation. As at 1 January 2011, 29 double tax treaties with different countries are in force. A general rule imposed by the tax treaties is that the right to tax the capital gains is conferred to the state of residence of the seller. However, a number of double tax treaties

ALBANIA Tax Summary



banks, insurance and leasing companies. In addition, the interest paid exceeding the average annual interest rate of loans published by the Bank of Albania is not tax deductible.

WITHHOLDING TAXThe standard Albanian withholding tax rate is 10%. The withholding tax rate can be reduced by double tax treaties to which Albania is party.

DividendsWithholding tax on dividends at 10% rate applies on all dividends paid by Albanian companies unless a respective double tax treaty states otherwise. No withholding tax applies if dividends are paid to a tax resident company or partnership subject to corporate income tax in Albania.

Interest and RoyaltiesWithholding tax at 10% rate applies to interest and royalties paid by Albanian

Certain assets incorporated to a building can be treated as separate movable assets for tax purposes and therefore can be depreciated over a shorter period.

Tax LossesTax losses can be carried forward over three tax periods. They can be offset against the positive fi nancial result after tax adjustment for the respective tax period according to the “fi rst loss before the last one” principle. A tax loss cannot be carried forward if the ownership of stock capital or voting rights of a person changes more than 25% in number or value.

Thin Capitalisation The thin capitalisation rules apply in Albania if a company’s liabilities exceed four times the amount of its equity (excluding short-term loans). In such a case, the interest paid on the exceeded amount is not tax deductible. The thin capitalisation restrictions do not apply to


The tax should be paid by the seller of immovable property before the transfer of the real estate is registered with the Real Estate Register.

VALUE ADDED TAX (VAT)A supply of land and a lease of land are considered VAT exempt supply in Albania. The supply of buildings (except the supply of construction works) is an exempt supply. The lease of a building is an exempt supply except for these cases:

• renting for not longer than two months

• staying in hotels or vacation resorts.

In addition, based on the by-laws issued by the Minister of Finance, entities or individuals may opt (upon the fulfi lment of certain conditions) to categorise their lease supply of buildings as a taxable supply.

companies unless a respective double tax treaty states otherwise.

REAL ESTATE TAXIndividuals and legal entities that own real estate property in Albania are subject to tax on real estate. Local taxes on real estate consist of the real estate tax on buildings and real estate tax on agricultural land. For real estate tax on buildings, the tax base is the area of the buildings measured in a square metres for each fl oor of the building owned (for real estate tax on agricultural land, the tax base is the area of agricultural land measured in hectares) and it varies depending on the district where the building is located. Buildings owned by the state and local governmental authorities as well as by religious institutions are exempt from this tax.

REAL ESTATE TRANSFER TAXThe tax is applicable in case of transfer of ownership right on buildings and other real estate properties. The tax is payable by the entity that transfers the ownership of the real estate. The tax on ownership transfer of buildings is levied on each square metre and varies from ALL 100 to ALL 2, 000, depending on the district where the real estate is located. The tax on ownership transfer of real estate other than buildings is 2% of the sale price. The tax is not applicable to individuals subject to personal income tax in Albania.

Donors of real estate property to governmental authorities, religious institutions or not-for-profi t organisations are exempt from this tax.

For more information on real estate services in Albania, please contact:

Arkadiusz MierzejewskiSenior Partner

KPMG in Albania Blvd. “Deshmoret e Kombit”,Twin towers Buildings, Tower 1, Floor 13, Ap A1-A4 Tirana, Albania

T: +355 4 2274 524 +355 4 2274 534E: [email protected]

kpmg.al

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


On the sale of goods (works, services), property rights on the territory of the Republic of Belarus by foreign organisations not operating in the Republic of Belarus through permanent establishment, and not having in this connection a tax registration in the Republic of Belarus, the duty to calculate and remit to the budget value added tax is imposed on organisations and sole traders which acquire these goods (works, services), property rights, and have tax registration in the Republic of Belarus.

The value added tax rate is 20%.

Exempt from VAT are turnovers on the sale of housing facilities in the Republic of Belarus, construction in progress as well as works on construction and repair of housing facilities according to the list of such works, approved by the President of the Republic of Belarus. This provision is also applicable to foreign entities not bearing tax registration in the Republic of Belarus.

VALUE ADDED TAX (VAT)According to the Tax Code of the Republic of Belarus (special section) objects of taxation on added value are turnover from the sale of goods (works, services), and property rights on the territory of the Republic of Belarus.

The Republic of Belarus is recognised as the place of sale of goods, if the goods are on the territory of the Republic of Belarus, and are not shipped, nor transported and (or) the goods are on the territory of the Republic of Belarus at the time of shipment or transportation. The goods shall be deemed the property (except for the property rights) sold or intended to be sold, unless otherwise stipulated by customs legislation.

The Republic of Belarus is recognised as the place of sale of works, services, and property rights, if the works or services are directly related to real property located on the territory of the Republic of Belarus. This provision is also applicable to the rent, lease and tenancy of the real property.

BELARUSTax Summary




CORPORATE PROFIT TAX (CPT)The object of taxation for income tax is gross profi t, as well as dividends and similar gains, charged by Belarusian organisations.

Profi t (loss) from the sale of goods (works, services), and property rights (except for fi xed assets, intangible assets) are defi ned as a positive (negative) difference between the revenue from their sale, less tax and fees paid out from revenue, and the cost of production and sale of goods (works, services), property rights, calculated on taxation.

Profi t (loss) from the sale of fi xed assets is defi ned as a positive (negative) difference between the revenue from the sale of fi xed assets, less taxes and fees paid (VAT), and the residual value of fi xed assets, as well as the costs of the sale of fi xed assets.

Residual value is the initial (replacement) value of the property, less accumulated depreciation at the disposal date.

Tax RateThe basic corporate profi t tax (CPT) rate is 24% of the tax base. Reduced rates are 12% (applied for dividends, sales of shares, sales of self-produced high-tech goods, works and services); 10% (for producers of laser and optical equipment, for residents of science and technology parks); 5% (for registered members of Science and Technology Association established by the State University selling informational technologies and services). For special economical zones the CPT rate may be reduced to 12% (50% of the standard tax rate) if certain special requirements are met.

WITHHOLDING TAXWithholding tax is due on the income of foreign legal entities not engaged in commercial activities in Belarus through a permanent establishment (WHT).

Tax Payers Foreign entities not engaged in commercial activities in Belarus through a permanent establishment but profi ting from sources in the Republic of Belarus are considered to be tax payers. The tax on the income of foreign legal entities generated on the territory of Belarus is withheld by legal entities or individual entrepreneurs (tax agents) who accrue or pay out the income of the foreign legal entity, out of the full amount of such income. In the case of non-cash income, tax is calculated on the basis of its cash equivalent.

Subject to TaxationIncomes specifi ed in the list derived from sources in Belarus (including advance payments) accrued or paid in favour of foreign legal entities, not engaged in commercial activity through a permanent establishment, are the subject to taxation.

Subject to taxation are income from transportation, forwarding and chartering; interest; royalty; dividends; agent’s fees; penalties; R&D fees; disposal of real estate, entities and securities; disposal of shares and stakes in companies; consulting, accounting, auditing, marketing, legal, engineering fees; mediation services; management services; recruitment services, training, storage of property, insurance, advertising; installation, commissioning, testing and maintenance of equipment; cargo protection; providing access to the

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.Guide to Taxes on Real Estate in CEE and CIS | 9

informational complex and some others including specifi ed incomes paid/accrued by a foreign organisation to another one.

Tax RatesThe income of foreign legal entities not engaged in commercial activities in Belarus through a permanent establishment is subject to taxation at the following rates:

• 5% rate is applied to dividends, interest, royalties and licenses from HTP residents;

• 6% rate is applied to cross-border transportation, forwarding and chartering fees (including demurrage and other payments arising in transit);

• 10% rate is applied to interest income retained from debt obligations of any type including: credit facilities, loans and income on interest (discount) securities;

• 12% rate is applied to dividends and disposal of shares and stakes in companies;

• 15% rate is applied to other income under the list stipulated by the Tax Code.

Belarus has ratifi ed international double-tax treaties and international treaties on mutual investment protection with a number of countries. Double-tax treaties can stipulate rules and rates that may confl ict with those of the Tax Code. In the event that the rules and rates stipulated by the double tax treaties differ from those described in the Tax Code, the rules and rates under double tax treaties are applied.

Tax Period Tax returns are submitted on a monthly basis to the tax authorities by the 20th and the tax is paid by the 22nd day of the month following the reporting month.


REAL ESTATE TAXThe objects of taxation for the real estate tax are buildings and constructions, including the above norm construction in progress , owned or in possession, in economic control or operational management by organisations – taxpayers.

The tax base of the real estate tax is determined based on presence as at 1 January of the calendar year of buildings and constructions at the residual value and the value of buildings and facilities of the above norm construction in progress.

The annual rate of the real estate tax is set for organisations in the amount of 1%. Tax calculation on such objects of taxation is performed by applying the coeffi cient established in the administrative-territorial unit in the location of these objects of taxation.

Local Councils of deputies have the right to increase (decrease), but not more than twice, the real estate tax rates for certain categories of taxpayers.

LAND TAXThe objects of taxation for the land tax are land properties located on the territory of the Republic of Belarus and owned, permanently or temporarily, by organisations.

The tax base of the land tax is determined in the amount of the cadastral value of the land.

Land tax rates for land properties within residential areas (cities, urban, resort and workers’ settlements, rural settlements) are set according to the Appendix to the Tax Code of the Republic of Belarus.

Local Councils of deputies have the right to increase (decrease), but not more than twice, the land tax rates for certain categories of taxpayers.

For more information on real estate services in Belarus, please contact:

Steve AustwickPartner, Head of Tax and Legal Services KPMG in the Baltics

KPMG in the Baltics and BelarusVesetas iela 7 Riga, LV1013 Latvia

T: +371 6703 8000 F: +371 6703 8002 E: [email protected]

kpmg.by

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Foreign physical or legal persons (including EU citizens) can buy land (except agricultural land) and real estate in BiH on condition of reciprocity for BiH physical or legal persons.

CORPORATE PROFIT TAXDirect taxes are levied at the level of the entities.

Taxpayers are resident legal persons (legal persons incorporated in the relevant entity, or legal persons whose place of effective management and control is in the FBiH – applies in the FBiH only) on their worldwide income. Non-resident legal persons are subject to CPT on their income generated in the relevant entity.

Taxable profi t is subject to CPT at the rate of 10%. In the FBiH taxable profi t is the accounting profi t adjusted for non-deductible and non-taxable items in accordance with the provisions of the FBiH CPT legislation. In the RS the taxable base is determined as the

GENERALBosnia and Herzegovina (BiH) consists of two main territorial and administrative entities: the Federation of Bosnia and Herzegovina (the FBiH) and the Republic of Srpska (the RS), jointly referred to as “the entities”, as well as the very small District of Brcko. Legislation related to physical and legal persons and taxes (exclusive of indirect taxes) is predominantly enacted at the level of the entities. Our comments relate to both entities, unless it is specifi cally stated otherwise.

The below comments are based on the relevant laws of the entities effective as at 1 February 2011.

All BiH physical and legal persons have a personal identifi cation number (PIN) issued by the Tax Administration of the relevant entity, and all business documentation and correspondence (including tax returns) must include the taxpayer’s PIN.

BOSNIA AND HERZEGOVINATax Summary



difference between taxable revenues and tax-deductible expenditures as determined in accordance with the RS CPT legislation.

The tax period is a calendar year. CPT taxpayers pay monthly advance payments (by the end of the month for the previous month), based on the previous year’s CPT return. Any CPT shortfalls at the year-end must be self-assessed in the CPT return and paid by the taxpayer by 30 March in the FBiH/31 March in the RS of the current year for the previous year, by which date the annual CPT returns must be submitted.

Capital gains are generally included in income and taxed at the same rate.

Domestic and foreign dividend income is not subject to CPT.

Tax losses may be carried forward for a maximum of fi ve years, if certain conditions are met, and no tax loss carry back provisions exist.

Tax grouping is available.

Tax Depreciation Rates Accelerated depreciation is possible in both entities in specifi c circumstances. Depreciation expenses can only be calculated on a straight-line basis.

The FBiH

AssetsAnnual

depreciation rate (%)

Buildings, except:Offi ce buildings

Residence buildings, hotels, restaurants

Roads, utilities premises, upper layer of railways

3 – 14.3, standard rate 10

3

5

14.3

Equipment, vehicles

20

Equipment for utility services

14.3

Computers and equipment for environmental protection

33.3

Perennial plants 14.3

Livestock unit 40

Intangible long-term assets

20

The RSThe RS CPT legislation provides for a detailed overview of tax depreciation rates, which depend on the type of materials used in the construction of real estate, purpose of assets and similar.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t m

embe

r fi r

ms

affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


WITHHOLDING TAX Withholding tax at the rate of 10% applies generally to all payments made to non-resident legal persons for provision of services. In the FBiH withholding tax is levied on all services provided in the FBiH, while the RS levies withholding tax on all services delivered to RS legal persons, irrespective of the place where the services were actually provided.

The withholding tax rate may be decreased/eliminated pursuant to an effective double tax treaty.

A reduced 5% withholding tax rate is applied on dividends paid abroad by FBiH taxpayers. The RS does not levy withholding tax on dividend payments (subject to a 10% participation rule).

REAL ESTATE TRANSFER TAX Real Estate Transfer Tax (RETT) is regulated at the cantonal level in the FBiH (i.e. there are currently 10 different laws applicable in the FBiH) and in the RS at the entity level. A new RETT Law at the

RS level came into effect in December 2008, but will be applicable as of 1 January 2012. Currently in the RS the Law on Property Tax applies.

RETT applies to transfer of land and all transfers of real estate which are VAT exempt, i.e. all transfers of real estate except the fi rst transfer of newly constructed objects. RETT is irrecoverable.

The RETT rate applicable in all 10 Cantons in the FBiH is 5% and in the RS is 3% (until 1 January 2012).

VALUE ADDED TAX (VAT) VAT is levied at the level of BiH. The standard VAT rate is 17% and applies to most products and services.

A VAT rate of 0% (where input VAT recovery is possible) applies to exports.

Services are taxable in BiH if they are deemed to be supplied in BiH. The reverse-charge mechanism applies to certain services supplied from abroad.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


The rules regarding place of supply are similar to the EU 6th VAT Directive prior to the implementation of the “VAT package” applicable in the EU as of 1 January 2011.

The registration threshold is taxable supplies of BAM 50,000 (approximately EUR 25,000). Foreign legal persons providing taxable supplies in BiH are required to register for VAT purposes, provided relevant conditions are met.

The transfer of newly constructed buildings is subject to VAT at the rate of 17%. Physical persons generally cannot recover VAT; however, VAT is generally recoverable for legal persons registered for VAT in BiH, provided general conditions for VAT recovery are met.

Foreign legal persons are not eligible to recover VAT, except in some limited cases.

PERSONAL INCOME TAX (PIT) PIT is levied at the level of the entities with the standard rate of 10% applicable in both the FBiH and the RS.

SOCIAL SECURITY (S/S) CONTRIBUTIONSS/S contributions are levied at the level of the entities.

Total S/S contribution rates applicable in the FBiH amount to 41.50%, applicable to gross salary. Out of that, 31% is withheld from salary and 10.5% is paid in addition to salary.

Total S/S contribution rates applicable in the RS as of 1 February 2011 amount to 33%, all of which is withheld from salary.

For more information on real estate services in BiH, please contact:

Paul SucharPartner

KPMG in CroatiaEurotower, Ivana Lucica 2a, 10000, ZagrebCroatia

T: +385 1 5390 032 M: +385 91 4668 032 E: [email protected]

kpmg.ba

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


The income from real estate derived by Bulgarian entities is included in their annual fi nancial result. The annual accounting fi nancial result is subject to further adjustments for tax purposes.

The annual CIT liability is determined with the annual CIT return. Any outstanding liability (off-set with any advance instalments made) should be remitted to the state budget by 31 March 2011. The same term applies for the submission of the annual CIT return.

There are no tax grouping provisions in Bulgaria.

Tax Depreciation Bulgarian tax liable persons should maintain a Tax Depreciation Schedule (TDS) where they report all tax depreciable assets. Tax depreciation as per the TDS is to be reported as a downward adjustment to the fi nancial

GENERAL Several changes to the Bulgarian tax legislation have come into effect from 1 January 2011. The most signifi cant ones concern withholding tax (WHT) and local taxes and fees.

CORPORATE INCOME TAX AND CAPITAL GAINS The Bulgarian Corporate Income Tax Act (CITA) specifi es that Bulgarian entities are subject to 10% corporate income tax (CIT) on their worldwide income. Foreign entities are subject to tax only on the profi ts derived from Bulgarian permanent establishments (including branches) and/or profi ts related to disposal of property of such a permanent establishment.

The CIT is calculated on the basis of the annual fi nancial result (as per the Income Statement of the entity) adjusted with certain permanent and temporary tax differences.

BULGARIATax Summary




result for tax purposes while the accounting depreciation expenses accrued during the year are disallowed for tax purposes and are reported as an upward adjustment to the fi nancial result.

The Bulgarian CITA provides for maximum tax depreciation rates depending on the type of the depreciable asset. The maximum tax depreciation rate for buildings including those held as investment properties is 4%. Land is not depreciated for tax purposes.

Tax Losses A tax loss can be carried forward for fi ve years. It can be offset against a positive tax result for a subsequent tax year.

Thin Capitalisation Thin capitalisation rules apply in Bulgaria if a company’s liabilities exceed three times the amount of its equity. Interest expenses are deductible up to an amount equal to the entity’s interest income plus 75% of the profi ts before interest and tax. Interest expenses on bank loans are not subject to thin capitalisation, except in some specifi c cases.

TRANSFER PRICING Transfer pricing rules allow the revenue authorities to adjust tax bases where transactions are not carried out on an arm’s length basis.

Under the transfer pricing provisions the tax base for CIT purposes may be adjusted as well as tax bases for calculating other taxes such as WHT.

WITHHOLDING TAX Specifi c types of income with Bulgarian source accrued by local tax resident entities in favour of non-resident taxpayers is subject

to withholding tax (WHT) provided that the income is not derived through a permanent establishment of non-resident entities in Bulgaria. Such income includes capital gains, rental payments, interests, dividends and liquidation quotas, royalties, technical services (including consultancy services), management fees, etc.

The standard WHT rate is 10% WHT, with 5% WHT applied to dividends and liquidation quotas.

Please note that dividends and liquidation quotas distributed by local tax residents to shareholders’ local entities, as well as foreign entities that are tax resident in an EU/EEA member state are exempt from WHT taxation.

WHT rates can be reduced under an effective Double Tax Treaty signed between Bulgaria and the country of residence of the foreign income recipient following a specifi c pre-approval procedure.

The WHT is generally calculated on a gross basis. CITA includes provisions under which foreign recipients of income subject to WHT, tax residents of an EU/EEA member state, are entitled to annual recalculation of the WHT which has been levied and paid on a gross basis following a specifi c procedure. The recalculation is aimed at equalling out the tax treatment between local entities and foreign entities, tax residents of an EU/EEA members states.

As of 1 January 2011 the WHT due on income realised by foreign entities from rent/right of use of immovable properties located in the country, should be deducted and paid by the local payer of the income, provided that the latter is a tax liable person under the CITA. So far the foreign income recipient had the obligation for deduction and remittance of the WHT.



Interest and Royalty PaymentsUnder the EU Interest and Royalties Directive, qualifying interest payments and royalty payments between associated enterprises, tax residents in EU member states may be exempt from any taxes imposed on those payments in that state, provided that the benefi cial owner of the interest or royalties is a company of another EU member state or a permanent establishment of an EU member state situated in another EU member state.

However, a transitional period for the application of the Interest and Royalties Directive was agreed whereby Bulgaria has reserved its right to tax interest and royalty income arising in the country by applying the maximum withholding tax rates as follows: 10% for the period until 31 December 2010, and 5% for the period 1 January 2011 – 31 December 2014.

As of 1 January 2011 the CITA is amended accordingly and the WHT rate on such income may be reduced from 10% to 5% provided that certain conditions specified in the law are simultaneously fulfilled.

LOCAL TAXES AND FEES The main local taxes and fees in relation to the ownership or acquisition of real estate in Bulgaria include real estate tax, garbage collection fee and transfer tax.

Real Estate Tax Owners of buildings and land plots situated in Bulgaria as well as acquirers of limited ownership right over real estate property are subject to annual charges for real estate tax. The tax rate of real estate tax varies in the range of 0.01% - 0.45%. It is determined at a municipal level and may vary from year to year. As of 1 January 2011 the taxable base for real estate tax of non-residential property owned by companies is the higher amount of the tax valuation and the book value of the property. The taxable base for real estate tax of property owned by individuals or residential property owned by companies is the tax valuation of the property.

Garbage Collection Fee Generally, garbage collection fee is levied on the book value/cost of the immovable property at a rate determined annually by the respective municipality where the property is located. The rates for


the garbage fee may vary signifi cantly between the municipalities.

Transfer Tax Transfer tax is levied when transferring real estate property or limited property right over real estate. The tax rate is in the range of 0.1% - 3% levied on the tax base of the property in cases of acquisition against consideration. When immovable property is gratuitously transferred the tax rate is in the range of 3.3% - 6.6%. The applicable transfer tax rate is determined by the respective municipality.

The tax base upon transfer of real estate property or limited property rights over it is the higher of the following values:

(i) the purchase price/a price defi ned by state or municipal authorities and

(ii) the tax valuation of the property.

The transfer tax is generally paid by the transferee of the property, unless the parties have agreed differently. In case the transferee is not in the country, the tax is payable by the transferor.

VALUE ADDED TAX (VAT) The changes of the Bulgarian VAT Act as of 1 January 2011 do not signifi cantly affect real estate.

According to the provisions of the Bulgarian VAT Act the lease of buildings for residential purposes and the sale of unregulated land plots and old buildings (i.e. buildings for which more than 60 months from the issuance of the exploitation permit have expired) are considered a VAT exempt supply. However, the seller/lessor has the option to choose the sale of the land plot or the old building/the lease of building for residential purposes to be treated as a VAT-taxable transaction and charge VAT at the rate of 20%.

Sale of new buildings , plant, machinery, equipment and structures immovably fi xed to the land is a VAT-taxable supply, subject to 20% VAT.

There is no VAT grouping in Bulgaria.

For more information on real estate services in Bulgaria, please contact:

Kalin HadjidimovPartner

KPMG in Bulgaria 45/A Bulgaria Boulevard 1404 Sofi a Bulgaria

T: +359 2 9697 700 E: [email protected]

kpmg.bg

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


CORPORATE PROFIT TAXAccounting profi t, adjusted in accordance with the provisions of the Corporate Profi t Tax (CPT) Law, is subject to CPT at the rate of 20%.

Amongst others, the CPT base needs to be increased for:

• Interest on loans provided or guaranteed by foreign direct shareholders (holding 25% or more) where the loan exceeds four times the share capital invested by the shareholder (“thin capitalisation” rule);

• Interest over 9% per annum on loans provided by a foreign related party (“excessive interest rate” rule), subject to the application of international agreements; and

• Interest over 9% per annum on loans provided by a domestic related party, if one of the parties is in a tax favourable position or has tax losses carried forward from previous periods which can be utilised in the current tax period.

GENERALThe below comments are based on Croatian laws effective as at 1 January 2011.

All Croatian citizens and legal entities have a personal identifi cation number (PIN) and all business documentation and correspondence (including tax returns) must include the taxpayer’s PIN.

EU citizens can freely buy real estate in Croatia. Other citizens need to apply for a permit from the Croatian Ministry of Justice before they are registered as owners in the land registry.

As of 1 January 2011 Croatian foreign exchange laws were further relaxed (allowing cross border cash pooling).

Croatia has opened all negotiating chapters for EU Accession. Further taxation and legal changes are expected leading up to EU accession.

CROATIATax Summary




Capital gains are generally included in income and taxed at the same rate, including income from the transfer of shares in Croatian and foreign companies.

However, domestic and foreign dividend income is not subject to CPT.

Tax losses may be carried forward for a maximum of fi ve years, if certain conditions are met, and no tax loss carry back provisions exist.

There are no tax grouping provisions.

Anti-avoidance provisions, including detailed transfer pricing provisions (which require a transfer pricing study including a benchmarking analysis, for all cross border transactions with related parties and for certain domestic transactions with related parties) exist.

Depreciation expenses can only be calculated on a straight-line basis and the tax depreciation rate is limited to the accounting depreciation rate.

A depreciation expense relating to vessels, aircrafts, apartments and holiday homes is recognised as an expense for CPT purposes only if specifi c conditions are fulfi lled.

Tax Depreciation Rates

Assets

Maximum accelerated

annual depreciation

rate (%) 1

Annual depreciation

rate (%)

Buildings 5 10

Equipment, motor vehicles (other than personal cars), intangible assets

25 50

Personal cars2 20 40

IT equipment and mobile phones

50 100

Other long-term assets 10 20

1 If the same rates are also used for accounting purposes, these rates may be claimed for CPT purposes.

2 If the value of a personal car exceeds the amount of HRK 400,000, depreciation on the amount in excess of HRK 400,000 is non-deductible for CPT purposes.


WITHHOLDING TAX Withholding tax at the rate of 15% applies to certain payments made to non-resident legal entities (specifi ed interest payments, payments for intellectual property rights, market research, tax advisory, business advisory and audit services).

Withholding tax at the rate of 20% applies to payments for services made to companies outside the EU if the company has its registered seat or place of effective management and supervision in a country with a CPT rate lower than 12.5% and if the country is included in the list published by the Ministry of Finance.

The withholding tax rate may be decreased/eliminated pursuant to an effective double tax treaty.

No withholding tax is levied on dividend payments, except for dividend payments made to individuals out of profi ts earned during the period from 1 January 2001 until 31 December 2004.

REAL ESTATE TRANSFER TAX Irrecoverable transfer tax at the rate of 5% applies to the transfer of land.

For buildings constructed before the VAT law became effective (i.e. before 1 January 1998) transfers are subject to an irrecoverable transfer tax at the rate of 5%.

For newly constructed buildings (i.e. on or after 1 January 1998) transfers are subject to VAT at the rate of 23%.

The subsequent transfer of newly constructed buildings is subject to transfer tax at the rate of 5% if the seller was not able to deduct VAT as a tax prepayment when the building was initially purchased by the seller.

Croatian citizens acquiring their fi rst property as their main residence are exempt from paying property transfer tax (but not VAT, if VAT applies), if certain conditions are met.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Further transfer tax exemptions are available for the transfer of land or qualifying buildings located in special state care areas to both companies and physical persons, if certain conditions are met.

VALUE ADDED TAX (VAT) The standard VAT rate is 23% and applies to most products and services.

A reduced VAT rate of 10% applies to:

• Tourist accommodation services and related agency fees; and

• Newspapers and magazines issued on a daily and periodical basis, with the exception of newspapers and magazines that consist mainly or entirely of advertisements or whose main purpose is advertising.

A VAT rate of 0% (input VAT recovery possible) applies to bread, milk, educational literature (specifi ed), certain (specifi ed) medical supplies, scientifi c magazines and fi lm projection services, as well as to exports.

Services are taxable in Croatia if they are deemed to be supplied in Croatia. The reverse-charge mechanism applies to certain services supplied from abroad.

The rules regarding place of supply are similar to the EU 6th VAT Directive prior to the implementation of the “VAT package” applicable in the EU as of 1 January 2011.

The registration threshold is taxable supplies of HRK 85,000 (approximately EUR 11,600). Entities in Croatia using fi nancial support from certain pre-accession EU funds are entitled to obtain goods/services without being subject to VAT, if certain conditions are met.

For more information on real estate services in Croatia, please contact:

Paul SucharPartner

KPMG in CroatiaEurotower, Ivana Lucica 2a 10000, ZagrebCroatia

T: +385 1 5390 032 M: +385 91 4668 032 E: [email protected]

kpmg.hr

The transfer of newly constructed buildings is subject to VAT at the rate of 23%. Individuals generally cannot recover VAT; however, VAT is generally recoverable for corporate entities registered for VAT in Croatia.

Foreign legal entities may be able to recover VAT, provided relevant conditions are met.

Foreign legal entities are required to register for VAT purposes, provided relevant conditions are met.

PERSONAL INCOME TAX (PIT) PIT rates were lowered with effect from 1 July 2010 and are as follows:

HRK 0 – HRK 3,600, 12%;

HRK 3,600 – HRK 10,800, 25%;

above HRK 10,800, 40%.

SOCIAL SECURITY (S/S)Employees’ pay pension s/s contributions in the amount of 20% of their salaries whilst employers’ pay health insurance, unemployment fund and injury at work contributions of 17.2% based on employees’ salaries.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


company for 12 months, income from sale of the shares is tax exempt if the parent company is a Czech tax resident, an EU resident company or a resident of Norway or Iceland and the subsidiary is tax resident in an EU Member State or a non EU Member State with which the Czech Republic has concluded a Double Tax Treaty (subject to certain conditions).

As of 1 January 2011, the Czech Republic has 77 bilateral double tax treaties. As a rule, the right to tax capital gains is conferred on the state of residence of the seller. However, a number of double tax treaties provide a special regime for the capital gains if the shares being sold derive more than 50% of their value directly or indirectly from real estate (e.g. those with Australia, China, Cyprus, Egypt, Finland, France, Ireland, Canada, Sweden, USA). In such cases, the taxing right belongs to the state where the real estate is located. In other cases the taxing right belongs to the state of residence of the company whose shares

GENERAL As of 1 January 2011, a number of signifi cant changes to the tax administration system following the introduction of the new Tax Code were made. Further changes are anticipated in respect of VAT as of 1 April 2011.

CORPORATE INCOME TAX AND CAPITAL GAINSCorporate income tax is levied on profi t from all activities (including rental incomes) and from the management of all types of property, although there are some exceptions to this rule defi ned in the tax law. The corporate income tax rate is 19% in 2011 (with the exception of pension and investment funds where it is 5%).

Capital gains are generally included in income and taxed at the same rate, including income from the transfer of shares in Czech companies or co-operatives. However, if at least 10% of the shares of a company is held by a parent

CZECH REPUBLICTax Summary




are being sold (e.g. those with Germany and Israel).

There are no corporate tax grouping provisions in the Czech Republic.

Tax Depreciation For tax purposes, either straight-line or reducing balance depreciation can be used. The tax depreciation period for buildings is generally 30 years except for administrative buildings, shopping centres and hotels where the depreciation period is 50 years. Special rates apply in the year of acquisition. Land is not depreciated for tax purposes. Certain assets attached to a building can be treated as separate movable assets for tax purposes and therefore can be depreciated over a shorter period.

Special provisions apply for the assets of solar power plants. These fi xed assets must be depreciated over 240 months and the depreciation must be claimed (unlike depreciation on most other assets). Special adjustments are made for similar assets acquired under fi nance leases.

Tax Losses Tax losses can be carried forward for fi ve years.

Losses may not be carried forward on a substantial change in the ownership of a company unless it can be shown that at least 80% of the company’s revenues are derived from the same activities as those carried on in the period when the loss arose. A change of at least 25% in the ownership of the registered capital or the voting rights, or a change resulting in a person obtaining a controlling infl uence

in the company, is always a substantial change.

Tax losses are available after a merger or de-merger, although they only can be offset against profi t on the same activity as was carried on in the year when the tax loss arose.

Thin Capitalisation The thin capitalisation provisions act to restrict the deductibility of interest where the borrower has insuffi cient equity.

The following fi nancial costs are non-deductible:

• Financial expenses on loans and credits received from related parties which are more than four times the equity (or more than six times the equity in the case of banks and insurance companies);

• Financial expenses incurred on credits and loans with interest rates or other returns dependent on the debtor’s profi t.



Interest on loans and credits received from unrelated parties, or those secured by a related party, are fully deductible on general principles, except for interest on “back-to-back” loans (i.e. where a related party provides a loan, credit or deposit to an unrelated party, which then provides the funds to the borrower); this is treated as interest on related party debt.

Any interest or other expenses relating to a non EU or EEA resident lender disallowed under the capitalisation rules may be treated as a dividend, i.e. is subject to dividend withholding tax, as reduced by the provisions of any applicable double taxation agreement.

WITHHOLDING TAX The standard Czech withholding tax rate is 15%. However, the rate can be reduced by double tax treaties.

Dividends Withholding tax applies on all dividends paid by Czech companies.

Under the EU Parent/Subsidiary Directive, a dividend paid by a Czech subsidiary to a parent company that is tax resident in an EU member state may be exempt from withholding tax. These provisions also apply to dividends paid between Czech companies and paid to Switzerland, Norway and Iceland. A parent and subsidiary qualify for this exemption if a minimum shareholding of 10% is maintained for an uninterrupted period of 12 months.

Interest and Royalties Withholding tax applies on interest, royalties and lease payments paid abroad, although the rate is reduced to 5% for fi nance lease payments.

Under the EU Interest and Royalties Directive, qualifying interest and royalty payments between associated enterprises which are tax resident in the EU member states may be exempt from withholding tax. This also applies to recipients in Switzerland, Norway and Iceland.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Residents of other EU and EEA countries have the option to fi le a tax return in respect of income subject to withholding tax (e.g. interest payments, royalties, income from freelance work), and to claim a deduction of the related expenses. This may result in a reduction in the tax burden as withholding tax is calculated on a gross basis.

REAL ESTATE TAX Real estate tax comprises land tax and building tax. The property must be located in the Czech Republic and recorded in the Land Register. The real estate tax is calculated on the area multiplied by the tax rate.

The rate varies according to the type and location of the property. The basic rates may be increased depending on the number of fl oors and the location.

Starting from 2009, the basic rates of real estate tax doubled for buildings and land, except for arable land, hop

fi elds, vineyards, gardens, grassland and fi shponds for intensive fi sh farming. Municipalities can also issue a decree increasing the basic tax rate or coeffi cient.

REAL ESTATE TRANSFER TAX A 3% real estate transfer tax is payable on the transfer of ownership to real estate for consideration. Generally the tax is paid by the transferor (seller), with the buyer guaranteeing the tax.

The tax base is the higher of the market value (according to the Valuation Act) or the sales price.

The contribution of real estate to share capital is exempt from the tax unless the contributor sells all shares received within fi ve years.

VALUE ADDED TAX (VAT) The reduced VAT rate is 10% and the standard rate is 20%.


The sale of residential property that qualifi es as social housing is subject to the reduced VAT rate. To qualify as social housing, an apartment should have a fl oor area of 120 square metres or less and houses should not exceed 350 square metres.

The VAT rate on the sale of buildings is generally 20%. The transfer of buildings is exempt from VAT three years after the fi rst approval for use of the premises or after the fi rst use of the building.

If the acquisition of a building is subject to VAT, this can be recovered if the building will be used to generate VAT-able sales. The recovery will be limited if it is used to wholly or partly make VAT exempt sales. A change in the level of exempt sales within fi ve years of acquisition may lead to a claw back of previously recovered input VAT. It is expected that the claw back period will be extended to 10 years.

The transfer of land is VAT exempt except for the transfer of building land,

which is subject to 20%, VAT. The lease of buildings and land is generally VAT exempt but the lessor can opt to charge 20% VAT on a lease with a tenant which is registered for VAT.

Groups of related companies can form a VAT group.

ADMINISTRATION OF TAXES Tax administration is governed mainly by the Tax Code with specifi c procedures provided by other acts. The Tax Code replaced the Administration of Taxes Act from 2011 and introduces a wide range of changes, such as:

• different rules for deadlines for tax assessments;

• penalties for late fi ling of a tax return;

• fi ling additional tax returns with a lower tax liability or a higher tax loss is only allowed under limited circumstances;

• new rules for tax audits.

For more information on real estate services in the Czech Republic, please contact:

Eva DoylePartner

KPMG in the Czech RepublicPobrezni 1a, 186 00 Praha 8Czech Republic

T: +420 222 123 564M: +420 602 738 591 E: [email protected]

kpmg.cz

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



CORPORATE INCOME TAX AND CAPITAL GAINS The corporate tax system in Estonia differs from those used by many countries, so that corporate income is taxable only upon distribution. The profi ts earned and retained in a company are not subject to taxation. The income tax rate on gross dividends is 21% (in 2010), although the tax is calculated on the net amount of dividends by applying a tax rate of 21/79. Thus a company not distributing profi t is not obliged to pay income tax. Taxable expenses and payments are taxed at the rate of 21/79 as well.

There is no separate capital gains tax, but gains on the disposal of fi xed assets and intangibles are added to the taxpayer’s regular business income, so that corporate income is taxable only upon distribution in the form of a dividend.

A non-resident is obliged to pay income tax on income derived from the alienation of property, if immovable property is

GENERAL Sale of immovable property and the leasing or letting of immovable property or parts are generally tax exempt supply without credit according to the Estonian VAT Act. Tax exemption does not apply for the supply before the fi rst occupation of buildings or their parts as well as renovated building or their parts and plots within the meaning of the Planning Act if there are no construction works on such plots.

However, the taxpayer is entitled to use the optional taxation, except residential housing, if it has notifi ed the tax authorities in writing beforehand. The notice regarding the optional taxation of the leasing or letting of immovable or parts thereof is binding for two years.

The corporate tax system in Estonia differs from those used by many countries, so that corporate income is taxable only upon distribution in the form of a dividend.

ESTONIATax Summary



WITHHOLDING TAX

DividendsThere is no withholding tax on dividends.

Interest, Royalties and Intangible Services

InterestIncome tax has to be withheld on the interest payments made to a non-resident if the interest is considerably higher than the market value of such interest under similar arrangements. In that case income tax of 21% is withheld on the difference. Interest that corresponds to the market interest paid to a non-resident or a resident company is generally exempt from taxation. Interest paid to a resident individual is subject to withholding tax of 21%.

RoyaltiesPatent royalties, including payments for the use of commercial, scientifi c or industrial equipment, paid by resident companies to non-resident are subject to

located in Estonia. In addition income from the alienation of a shareholding in a real-estate company or of right of claim or real right related to real estate located in Estonia is subject to taxation. Generally, the Tax Treaties concluded between Estonia and other countries grant the right of taxation of real estate or rights related to real estate to the country where the real estate is located.

Tax Depreciation As Estonian companies pay income tax upon distribution of profi t, tax depreciation is not relevant in the case of the Estonian corporate income tax system.

Tax Losses Tax losses are not recognised nor have any effect on corporate taxation.

Thin Capitalisation There are currently no thin capitalisation regulations in Estonia.



income tax by way of withholding. The rate is 10%, unless a treaty provides for a lower rate. However, in order to apply the treaty rates, the payer should hold a certifi cate of tax residence of the recipient.

Under the domestic law implementing the provisions of the EU Interest and Royalties Directive and the EU-Switzerland Savings Agreement, outbound royalty payments are exempt from withholding tax, provided that the recipient is an associated company of the paying company and is resident in another EU Member State or Switzerland, or such a company’s permanent establishment situated in another Member State or Switzerland. Two companies are “associated companies” if one of the following conditions is met:

• One of them holds directly at least 25% of the capital of the other, or

• A third EU or Swiss company holds directly at least 25% of the capital of the two companies.

In both cases, a minimum holding period of two years is required. The exemption is not granted to the extent that the payment exceeds a similar payment between non-associated persons.

Intangible servicesA 10% withholding tax rate applies to fees paid to a non resident for services rendered in Estonia. The tax rate is reduced to 0% under the double tax treaties to which Estonia is a party. However, in order to apply the treaty rates, the payer should hold a certifi cate of tax residence of the recipient.

Fees paid to companies resident in low-tax territories for services rendered to an

Estonian resident are subject to a 21% withholding tax irrespective of where the services were provided or used.

A 21% withholding tax rate applies to rental payments made to non residents and resident individuals.

REAL ESTATE TAX The only property tax imposed in Estonia is land tax. Taxable persons are the owners or, in specifi c circumstances, the users of land. Tax is levied on the market value of all land unless specifi cally exempt. The tax rate is established by the municipal council and may vary between 0.1% and 2.5% of the taxable value of the land.

TAX ON CIVIL LAW TRANSACTIONS (TRANSFER TAX) Transactions involving immovable property are subject to a state fee the amount of which depends on the value of the transaction. For transactions of more than EEK 10 million, the fee is fi xed at 0.16% of the value, but not more than EEK 40,000.

VALUE ADDED TAX (VAT)

General Provisions Regarding Real EstateSale of immovable property and the leasing or letting of immovable property or parts are generally tax exempt supply without credit according to the Estonian VAT Act. Tax exemption does not apply for the supply before the fi rst occupation of buildings or their parts as well as renovated building or their parts and plots within the meaning of the Planning Act if there are no construction works on such plots.

However, the taxpayer is entitled to use the optional taxation, except residential housing, if it has notifi ed the tax


authorities in writing beforehand. The notice regarding the optional taxation of the leasing or letting of immovable or parts thereof is binding for two years.

The standard VAT rate in Estonia is 20% (for land and buildings) and 9% (for accommodation services).

Place of Supply of Services Since 1 January 2010, new regulations on the place of supply of services have been implemented. Generally, the place of supply of services to a tax payer registered for VAT purposes in another EU country is the place where the purchaser has been registered. Services provided to a third country taxable person are subject to taxation in the country the purchaser has established his business. However, in case the services are provided to a non-business entity the place of supply of services is usually

where the service provider has been registered.

However, in case of services that are regarded as services related to the real estate, the place of supply of such services is always where the real estate is situated.

VAT Refund under Domestic Law The standard refund period is 30 days. The tax authority may, in connection with checking a claim for refund, extend the term for fulfi lment of the claim by a reasoned decision for up to 90 calendar days if there is reason to believe that it may be impossible to reclaim the sum paid upon satisfaction of the claim for refund. The term for fulfi lling a claim for refund may be extended for up to 30 calendar days at a time.

There is no right of deduction if the taxable person paid the input VAT when

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


relating to the local real estate where the VAT is charged locally are not to be reported.

The EC services lists must be fi led by the 20th day of the month following each quarter. A report on intra-Community supply shall be submitted by electronic means if the person has been liable to value added tax for at least 12 months. On the basis of a reasoned request, the tax authority may accept that the report is submitted on paper also after that period. As from the beginning of 2011, the EC services list shall be submitted on a monthly basis.

paying for goods or services relating to the reception of guests, or the provision of meals or accommodation for employees of the taxable person. This provision does not apply to the deduction of input VAT paid for accommodation services received during a business trip.

Foreign VAT Refund under Directive 2008/9/EC Since 1 January 2010 reclaims must be fi led with the local VAT authority (where a company is registered) and not where VAT has been paid. VAT reclaim has to be fi led electronically.

EC Services ListIn accordance with new VAT regulations, since 1 January 2010, the quarterly EC services lists must be fi lled by tax payers, if they supply services to tax payers from other EU countries where the reverse-charge mechanism was applied. Services

For more information on real estate services in Estonia, please contact:


KPMG in the Baltics and Belarus Vesetas iela 7 Riga, LV1013 Latvia


kpmg.ee

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.

capitalising the asset should be taken into account and capitalised as the part of the investment value. The amounts of possible future reconstruction/enlargement costs might also be capitalised as part of the real estate.

In case of buildings, generally 2% p.a. depreciation is accepted by the corporate income tax regulations. In case of a real estate subject to rental, the accepted depreciation rate is 5% p.a. The value of the land cannot be depreciated.

Interest payments are tax deductible in Hungary, however thin capitalisation rules should be taken into account. The Hungarian thin capitalisation regulations provide for a debt to equity ratio of 3:1, which means that the proportional interest amount on the daily average loan liability, which exceeds the daily average amount of the equity of the company multiplied by three, should not be treated as tax deductible. Loans from fi nancial institutions, even if related, are excluded from the calculation.

CORPORATE INCOME TAX

Rental IncomeFrom 2011, rental income is subject to 10% corporate income tax up to a tax base of HUF 500 million and 19% above this threshold.

(In 2010 the corporate tax rate was 19% for the fi rst half of the year and for the second half of the year 10% corporate tax was applicable up to a tax base of HUF 250 million and 19% above this threshold. Solidarity tax (4%) has been abolished as of 1 January 2010).

With respect to tax deductible items, only costs, expenditure, which are not relating to the core business activity of a company are not deductible in Hungary for corporate income tax purposes. With respect to “normal” business costs, there is no specifi c limitation. Availability of robust and complete documentation is important to support the tax deductibility of business costs.

Certain consulting and fi nancing expenses (e.g. interest) which relate directly to the property prior to

HUNGARYTax Summary

Guide to Taxes on Real Estate in CEE and CIS | 33©

201

1 K

PM

G C

entr

al a

nd E

aste

rn E

urop

e Lt

d., a

lim

ited

liabi

lity

com

pany

and

a m

embe

r fi r

m o

f the

KP

MG

net

wor

k of

inde

pend

ent m

embe

r fi r

ms

affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Minimum Income (or Minimum Tax Base)With effect from 1 July 2007, resident taxpayers and foreign entrepreneurs (PE’s) may be subject to corporate income tax even if their taxable base for corporate income tax purposes is negative. The minimum tax base is 2% of the total of revenues, decreased by the costs of goods sold and the costs of intermediated services, and modifi ed by some other items. If the higher of the tax base or the accounting pre-tax profi t does not reach the minimum tax base, the minimum tax base should be considered as the tax base.

However, taxpayers may choose not to pay the tax on the minimum tax base even if they were obligated to, based on the above calculation, but to fi le a specifi c declaration to the tax authorities stating that their tax base did not reach the required minimum income level. The tax authorities specifi cally focus on those companies that fi le such a declaration in the selection for tax audits.

The minimum tax base rule does not apply in the year of foundation, and in case certain natural disasters caused a loss.

Loss Carry ForwardsUnder the effective legislation, 2004 and subsequent losses can be carried forward without time limitation. According to the new rule effective from 1 January 2010, no permission needs to be obtained from the tax authority in order carry forward losses.1 From 1 January 2010 fi nancial institutions may also carry forward losses.

These rules can already be applied to losses realized in 2009.

WITHHOLDING TAXWithholding tax rules have been abolished as of 1 January 2011.2

VALUE ADDED TAX (VAT) As of 1 January 2008, the VAT treatment of sales of buildings depends on the election of the taxpayer. However, if the sale is made within two years after the issuance of the fi nal occupancy permit, the sale is subject to VAT. However, the sale is subject to VAT if the transaction is

1) before the fi rst occupation or

2) after the fi rst occupation, but between the date of the occupancy permit and the date of sale is less than two years.

In case of sales after two years of the issuance of the occupancy permit, the VAT treatment is dependent on the election of the taxpayer. After choosing either VAT-charging or VAT exempt status, the taxpayer has to retain that choice for fi ve years. If choosing VAT charging status, the taxpayer has to notify the tax authority by the end of the preceding tax year. From 1 January 2010 the taxpayer may choose to apply VAT charging status only for the sales of non-residential real estate.

Rental activity is exempt from Hungarian VAT, but with a taxpayer option to charge standard 25% VAT on rental fees. From March 2008, the VAT status of residential

1 Before that, if the taxpayer had a negative profi t before tax position and had tax losses for two consecutive years (after the initial start-up period), or the total revenue of the company in the tax year did not exceed 50% of the total costs and expenses, the carrying forward of losses was subject to permission from the tax authority.

2 (Between 1 January 2010 and 31 December 2010 withholding tax at a rate of 30% was payable on royalty, interest and certain service fees payments granted to foreign entities. Exemption from WHT was only possible for foreign companies that were tax residents in countries having a double taxation treaty with Hungary. Having only their seats in such countries was not enough for exemption.)

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


and non-residential real estate rental can be treated separately.

The VAT exempt method allows entities not to charge VAT on property rental, however, in that case input VAT cannot be deducted or reclaimed. Companies have to submit a request to the Tax Authority within a statutory deadline if they will apply standard rated VAT. If such an election is made, the VAT treatment of the rental activity cannot be changed for fi ve years.

Reverse charge system is applicable in case of construction and other real estate related services, reducing VAT fi nancing costs. Since 1 May 2008 services that are provided in relation to real estate liable for offi cial permit fall under this rule.

LOCAL BUSINESS TAXIf real estate is recognised as stock in the books of a company at the time of the asset deal, local business tax should be paid; the maximum tax rate is 2%. Rental

income is also subject to local business tax. For calculating the amount of the local business tax base the amount of material costs, mediated services, cost of goods sold and direct R&D costs can be deducted.

Please note that the amount of the local business tax is deductible from the corporate tax base only once as of 1 January 2010. As part of pre-tax profi t, it is accounted as cost under Hungarian GAAP.3

ACQUISITIONUntil 2010, by purchasing the shares of a Hungarian entity, no VAT or RETT liability would arise in connection with the transaction. Only minor procedural costs would be payable to the Company Court to register new shareholders.

However, from 1 January 2010, stamp duty liability arises in case of the acquisition of shares of real estate owning companies. The liability arises

3 (Until 2009 it could be deducted from the corporate tax base as well, if a company did not have unpaid tax liability at the end of the tax year. This additional deduction was capped by the amount of the positive pre tax profi t under Hungarian GAAP.).

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



double tax treaty allows such gains to be taxed in Hungary.

According to the Act, tax liability for the shareholders of a real estate company will arise when the shareholder sells, gifts or contributes the shares of such a company. The tax base is to be the difference between the income from the sale of the shares and the acquisition costs including expenses related to the shares during the shareholding period.

The tax rate will be 19% (i.e. reduced rate up to a certain tax base could not be applied). Deciding whether or not a taxpayer qualifi es as a real estate company could give rise to considerable administrative work. A further complicating factor is that the real estate of affi liated undertakings has to be considered too.

ASSET DEALSIf real estate is sold as an asset, the gain is subject to corporate income tax as part of the normal tax base at a rate of 10% up to a tax base of HUF 500 million and 19% above this threshold.

PROPERTY TAXHungarian companies may be subject to local land tax or local building tax. The maximum rate of local building tax may be 3.6% of the fair market value of the building owned or HUF 1100 per square metre (approximately EUR 4 per square metre). The maximum rate of local land tax may be 3% of the market value of the parcel or HUF 200 per square metre (approximately EUR 1 per square metre). The applied method of tax base depends on the local municipality.

The tax liability arising is paid in two instalments (whose deadlines are

at the time when the direct or indirect (through the owner’s related parties) ownership of the real estate owning company reaches 75%. The base of the stamp duty is the gross market value of the real estate, proportional to the ownership. Please fi nd the rate of the stamp duty in the RETT section below.

CAPITAL GAINS ONSHARE DEALSIf the shares of a Hungarian entity are sold by a non-Hungarian entity the gain is not taxable in Hungary. However, such capital gains are taxable in Hungary from 1 January 2010 if shares of a so-called “real estate owning company” are transferred. A company will be considered a ”real estate company” if the following requirements are met: more than 75% of its total assets on a consolidated and/or standalone basis are real estate located in Hungary and at least one of its shareholders is resident in a state with which Hungary has not concluded a double tax treaty, or in a state where the


• If the property is residential, the rate of the stamp duty is 2% up to HUF 4 million (approximately EUR 16,000), and 4% for the excess part of the price.

• With regard to plots, if the buyer of the plot makes a declaration that it will build residential properties on the purchased plot within four years, stamp duty exemption might be obtained (as long as the four-year deadline is met).

Further Notes: • If the purchase price of the real estate

is unreasonably low (less than 50% of the market price) the buyer pays gift duty on the difference of the purchase price and 50% of the market price, and stamp duty on the remaining amount.

• Loan debt assumptions are considered as exempt of gift duty as of 9 July 2009. (Before that time they were subject to gift duty of 40%).

15 March, 15 September). This tax may be levied by the local municipalities at their own discretion.

RETTIn case of acquisition of real estate in Hungary, the buyer is liable to pay stamp duty on the property, based on the market price of the property. It is important to note that the basis of the stamp duty liability is the gross market value of the property, inclusive of VAT. The rate of the stamp duty has decreased: from 1 January 2010, the standard rate of stamp duty is 4% up to HUF 1 billion of the value of the real estate, and 2% for the exceeding value, but with the maximum stamp duty liability of HUF 200 million per real estate (plot number).

As of 16 August 2010, sale and purchase of shares of a company holding real estate in Hungary between related parties is exempted from RETT, however, in-kind contribution of such shares is not exempted in this respect.

In special cases, lower stamp duty might be applicable:

• The stamp duty rate is 2% if the purpose of the acquisition of the property is resale/fi nance leasing and in the year prior to the purchase, more than 50% of the buyer’s sales revenue arose from resale of properties/fi nance leasing, or the buyer is licensed by the Hungarian Financial Supervisory Authority to perform fi nancial leasing. Moreover the buyer has to state that the property will be either sold within two years, or leased, with the condition that the lessee would eventually buy the property.

For more information on real estate services in Hungary, please contact:

Gabor BeerPartner

KPMG in Hungary Vaci ut 99 H-1139 BudapestHungary

T: +36 1 887 7329 E: [email protected]

kpmg.hu

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



CORPORATE INCOME TAX AND CAPITAL GAINS TAXGenerally, CIT in Latvia is levied on all taxable income, with some exceptions. CIT of 15% is payable on income which is computed as taxable revenues reduced by eligible costs incurred to generate these revenues or retain or secure a source of a taxable revenue.

There is no separate capital gains tax, but gains on the disposal of fi xed assets and intangibles are added to the taxpayer’s mainstream income (gains from the sale of real estate property are taxed at the regular 15% CIT rate). For the seller, profi t on the sale of assets is added to the mainstream income subject to corporate income tax at normal rates. On disposal, the taxpayer can deduct the net tax value of the assets and associated disposal expenditures. Taxable income can be reduced by tax losses available for utilisation.

GENERALFrom 1 January 2010, new VAT regulations on the place of supply of services have been introduced in Latvia. Based on these, in general the place of supply of services to a taxpayer is the place where the purchaser has its seat, permanent place of residence or permanent place of carrying business. However, in case the supply of services is done to entities other than taxpayers, the place of supply of services is where the service provider has its seat, permanent place of residence or permanent place of carrying business. Still, there are several exceptions from these rules, for example the place of supply of services related to real estate is the place where this real estate is located.

The VAT Law provides that the sale of real estate is non-taxable, excluding the fi rst sale of unused buildings and building land. The standard VAT rate is 22%.

LATVIATax Summary



Tax LossesTax losses can be carried forward for up to eight years. Taxpayers registered in Special Economic Zones have a 10-year period.

Thin CapitalisationInterest payments may be deducted from a company’s taxable income; however, the deductible amount is restricted. There are no deduction restrictions if the interest is paid to a Latvian or an EU registered credit institution. To prevent discrimination, this provision can also be applied to interest payments for the funds borrowed from a credit institution in a country with which Latvia has concluded a double tax treaty.

According to the thin capitalisation rules, two calculations for determining the deductible amount of interest must be made. The calculation of deductible interest must be done on an annual basis.

According to the Latvian CIT Law, 2% is payable from the proceeds received by a non-resident from the sale of real estate located in Latvia. Proceeds also include income from selling shares of a Latvian company if in the period when the property is sold, or in the previous taxation period, more than 50% from such company’s assets directly or indirectly consisted of real estate located in Latvia. The real estate proportion is determined based on the company’s balance sheet at the beginning of the taxation period.

Groups of companies are permitted to transfer losses from one group member to another to shelter current year profi ts.

Tax DepreciationDepreciation rates are laid down in the CIT Law and are 10% for buildings and constructions and 40% for incorporated plant and machinery, all on a reducing balance basis.



Under the fi rst calculation, the amount of principal upon which interest was paid during the year is multiplied by 1.2 times the average short-term interest rate for the last month of the taxation period as determined by the Central Statistical Bureau of Latvia.

If the interest payment for the tax year exceeds this amount the excess is not deductible for taxation purposes.

Under the second calculation, the amount of interest paid is disallowed proportionally to the amount by which the average amount of the principal outstanding during the year exceeds a multiple of four times a company’s equity as stated in its annual accounts at the beginning of the year, reduced by any amounts that are long term investment revaluation reserves or other reserves that have not been refl ected in the profi t and loss statement. Interest on “profi t participating loans” is deductible with the same limits.

The higher disallowance is applied.

Non-deducted interest payments cannot be carried forward for deduction in future taxation years.

WITHHOLDING TAXThere are varied domestic rates of withholding tax on payments to non-resident legal entities.

Corporate income tax of 15% must be withheld at source on any payments made to entities registered in or located in one of the low or zero tax countries and territories designated by the Latvian government. The tax authorities may exempt payments from this requirement if certain conditions are met.

Excluded from the above are dividend payments, normal deposit interest paid by Latvian credit institutions and payments for goods that have their origin in a low or zero tax country or territory.

DividendsLatvia imposes withholding tax of 10% to dividends paid to non-resident entities. One exception is when the recipient is a qualifying resident of another EU or EEA country – in such a case a 0% rate of tax applies.

Regardless of the level of ownership, dividends received from Latvian companies are tax exempt except for dividends paid by a Latvian company which utilizes some form of corporate income tax relief. In this case, the dividends are subject to tax according to the percentage of tax relief received by the paying company.


Interest, Royalties and Intangible ServicesLatvia imposes withholding taxes on the following payments made to non-resident entities:

• Interest payments made to related parties – 5%/10%

• Interest payments made by Latvian registered commercial banks to related parties – 5%

• Right to use intellectual property rights in respect of literature and artistic works – 5%/15%

• Right to use other intellectual property rights – 5%

• Management and consulting services – 10%

• Payments for the use of fi xed or movable property in Latvia: 5%

Withholding tax rates may be reduced by double tax treaties to which Latvia is a party.

Latvia was granted a transition period until 1 July 2013 to fully implement the EU Interest and Royalties Directive. Thus until 30 June 2013 interest and royalties paid to qualifying EU resident companies or EU permanent establishments are subject to 5% withholding tax. In order to apply the 5% rate, the payer must have a certifi cate of tax residence of the recipient of the payments. From 1 July 2013 qualifying interest and royalties will be tax exempt.

REAL ESTATE TAXTax on immovable property (land and buildings) is paid by individuals and legal entities that own or have legal control over real estate. Real estate tax rates are the following:

• For land – 1.5% from the cadastral value of the property

• For buildings and parts of buildings, and also for engineering constructions – 1.5% from the cadastral value of the property

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


• For houses and apartments for inhabitants not used in business activity:

• 0.2% from the cadastral value if it does not exceed LVL 40 000

• 0.4% from the cadastral value from LVL 40 000 to LVL 75 000

• 0.6% from the cadastral value if it exceeds LVL 75 000.

The minimal tax payment for each property is LVL 5.

TAX ON CIVIL LAW TRANSACTIONS (Transfer Tax)There is a state duty for transactions with real estate.

When sale or exchange agreements are concluded, the duty is 2% of the real estate’s value, but not more than LVL 30 000 (EUR 42 686). If the agreement is concluded with children, spouses,

parents, siblings, grandchildren, grand-grandchildren or grandparents, the duty is 0.5% of the real estate’s value, but not more than LVL 1 000 (EUR 1 423).

When a gift agreement is concluded, the duty is 3% from the real estate’s value, but not more than LVL 50 000 (EUR 71 144). If the agreement is concluded with children, spouses, parents, siblings, grandchildren, grand-grandchildren or grandparents, the duty is 0.5% of the real estate’s value, but not more than LVL 1 000 (EUR 1 423).


General Provisions Regarding Real EstateAccording to the VAT Law the sale of real estate is tax exempt, except the fi rst sale of unused real estate and the sale of building land. The term “real estate” includes parts of real estate


(fl ats, workshops, etc.), land and buildings on the land, constructions, immovable parts of real estate (bridges, roads, etc.).

When selling new real estate, the full selling price is taxable at 22% VAT rate.

If it is planned the real estate will be used only for taxable transactions, then input tax is fully deductible. If the real estate will be used both for taxable and non-taxable activities, then input tax is deducted proportionally. In both cases the new real estate has to be registered at the Tax Authority. Input tax correction has to be done each year, if the proportion between taxable and non-taxable use of the real estate changes. The proportion has to be calculated for a 10-year period.

Lease of residential property for housing purposes is VAT exempt.

Place of Supply of ServicesFrom 1 January 2010 the principle of the place of supply of services has been changed. According to the new rules, if services related to real estate are provided to a person that performs business activities, then the place of provision of services is the place of the establishment of the recipient of these services. If services are provided to a person that does not perform business activities, then the place of provision

For more information on real estate services in Latvia, please contact:




kpmg.lv

of services is the place where the real estate is located.

VAT Refund under Domestic LawVAT is refunded after the year-end based on annual results or based on VAT refund application, if the input tax is LVL 15 000 (EUR 21 343).

Foreign VAT Refund under VIII DirectiveSince 1 January 2010 VIII Directive reclaims must be fi led with the local Tax authority (where a company is registered) and not where VAT has been paid. VAT reclaim has to be fi led electronically.

EC Services ListFrom 1 January 2010, monthly EC services lists must be fi lled out by taxpayers, if they supply services to taxpayers from other EU countries where the reverse-charge mechanism is applied.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



than 25% of shares held continuously for at least two years). Exempt income also includes revaluation of fi xed assets and liabilities (except derivative fi nancial instruments), insurance compensations, received penalties and fi nes, certain types of income for insurance and investment companies, etc.

Deductions allowed are all the expenses actually incurred in the ordinary course of business that are necessary for the earning of income or receiving economic benefi t. Such deductible expenses include: depreciation of fi xed assets, business trips (up to established limits), advertising and entertainment, ordinary loss of inventories, taxes, bad debts, payments to the benefi t of employees if such benefi t is subject to personal income tax, granted support, membership fees, up to 75% of representation expenses, etc.

The main types of non-deductible expenses are: penalties and default interest, compensation for damages,

CORPORATE INCOME TAX AND CAPITAL GAINS The taxable profi t of Lithuanian and foreign corporate taxpayers is subject to a standard (fl at) rate of 15%. Small companies are subject to a reduced 5% corporate income tax rate if their average number of employees does not exceed 10 and their taxable income during the taxable year is less than LTL 500,000 (EUR 144,800).

Lithuanian entities are taxed on worldwide income; the tax liability of foreign entities is limited to income sourced in Lithuania, including income earned through permanent establishments. Taxable profi ts are arrived at deducting exempt income, allowable and partly allowable expenses from taxable income.

Tax-exempt income includes gain from the sale of shares of an entity that is registered in Lithuania or another EEA country, or a country with which Lithuania has a double tax treaty (participation requirement: more

LITHUANIATax Summary



years using straight line or double declining balance methods of depreciation. Land is not depreciated for tax purposes.

Tax Losses Tax losses can be carried forward indefi nitely if a taxpayer continues to perform business activities from which such losses occurred. Losses from the disposal of securities or fi nancial derivatives can be carried forward for fi ve years and exclusively to offset gains from the disposal of securities or fi nancial derivatives.

Tax losses of one company incurred for the year 2010 and further taxable periods may be set off against profi ts of another company forming the group provided the following criteria are met: the parent company directly or indirectly owns at least two-thirds of shares in subsidiaries; and the transfer of losses is performed between the companies that have continuously been the members of the group for at least two years; or the participants of the transfer constitute a

payments to tax haven entities (if not verifi ed this relates to the ordinary activities of tax haven entities), other payments not related to the ordinary business of a tax payer, etc.

There is no separate capital gains tax, but gains on the disposal of fi xed assets and intangibles are added to the taxpayer’s mainstream income. Thus, capital gains from the disposition of real estate are taxed at a general 15% tax rate, unless a 5% rate applies due to the limited number of employees and income of the company.

Tax Depreciation Depreciation of fi xed assets is usually calculated on a straight-line basis or using double declining balance method over fi xed asset tax lives outlined in the Lithuanian CIT Act. Depreciation expense is claimed on the initial value of the individual fi xed or intangible assets over the tax life of the asset. Tax depreciation life for new buildings used in the company’s economic activity for tax purposes shall not be less than eight



part of the group for at least two years as of their incorporation. Grouping with foreign losses is possible where the foreign entity transferring losses is a tax resident in the EU and there is no possibility to carry forward respective losses in that foreign country.

Thin Capitalisation A certain part of interest paid to a controlling lender may not be deductible for CIT purposes. The aforementioned controlling borrower includes both a resident and a non-resident shareholder and is deemed to be as such if the following criteria are met:

• the shareholder controls a Lithuanian entity on the last day of a taxable period, and

• the shareholder (in)directly owns more than 50% of the shares in a Lithuanian entity, or

• the shareholder together with related parties owns more than 50% of the shares in a Lithuanian entity and the part owned by this shareholder is not less than 10%.

The non-deductible part shall be calculated based on a debt/equity ratio of 4:1, i.e. interest related to the debt exceeding this ratio shall be non deductible for CIT purposes. In addition to interest expenses, these rules are also applicable to other expenses related to the debt exceeding the ratio of 4:1, e.g. currency exchange losses.

Thin capitalisation rules may be mitigated when a Lithuanian taxpayer proves that the same loan under the same terms would be available between independent persons.

WITHHOLDING TAX

DividendsIn general, dividends are subject to a 15% withholding tax rate. However, dividends paid to a company holding not less than 10% of the shares granting the same percentage of votes not less than 12 months are tax free, except for dividends paid to tax haven countries. In addition, withholding tax rates may be reduced by double taxation treaties.

Interest and RoyaltiesIn general, interest is subject to 10% withholding tax rate. However, interest paid to an EU company, or to a company registered in the country with which Lithuania has a double tax treaty, is tax free. Royalties are subject to a 10% withholding tax rate unless a lower rate is provided by the Treaty. The withholding tax rate should be reduced to 0% as of 30 June 2011 under the EC Interest and Royalty Directive.



Real Estate Sale, transfer or rent of real estate to a non-resident is subject to a 15% withholding tax rate unless a lower tax rate is provided by double taxation treaties.

Withholding tax shall be declared and remitted to the tax authorities by the 15th day of the following month the payment was made.

REAL ESTATE TAX Real estate located in Lithuania is subject to real estate tax. Land is not subject to real estate tax, but subject to specifi c land tax.

The real estate tax should be paid by Lithuanian and foreign legal entities and organisations, as well as by Lithuanian and foreign individuals owning real estate in Lithuania. Lithuanian and foreign individuals owning real estate should pay the real estate tax if the real estate is used for their commercial activities (including the rent of real estate to legal entities).

The annual tax rate ranges from 0.3% to 1% of the taxable value of real estate. Municipalities are entitled to establish a precise rate by 1 June of each year for the following year. The taxable value of the real estate is the average market value of the real estate established by applying the mass valuation method or the rebuilding value depending on the purpose of the real estate. However, the owners of real estate may request for individual valuation performed by independent property appraisers on an annual basis.

The annual tax declaration has to be fi led with the tax authorities and real estate tax must be paid before 1 February of the following year. In addition, legal entities should pay advance real estate tax amounts equal to one-fourth of the annual tax.

Land tax is paid by the owners of private land and amounts to 1.5% of the value of the land. Land tax does not apply to forest land, roads of common usage and land owned by embassies. Land tax is paid



annually for the whole calendar year if the land was acquired during the fi rst half of the year. In the event that the land was acquired during the second half of the year, the fi rst obligation to pay land tax arises the following year.

Legal and private persons leasing state or municipality owned land must pay a land lease tax, which is not less than 1.5% and not higher than 4% of the land value. A precise tariff for a land lease tax is established by the local municipality in each individual case. Land lease tax is paid according to the order established by the local municipality where the land is located. The land value on which the land lease tax is assessed is estimated according to special rules and is set forth in the land lease agreement.


General Provisions Regarding Real EstateIn general, Lithuanian Law on VAT provides that sale of buildings, land and other real estate is not subject to VAT except for new buildings and building land which are subject to the standard 21% VAT rate. If the real estate is sold without VAT, but a taxpayer has deducted input VAT, a taxpayer shall be obliged to adjust the VAT deduction (for real estate 10 year depreciation term is applicable).

Similarly to sale of real estate, rent of real estate is not subject to VAT unless real estate is categorised among exceptions. Exceptions cover hotels, motels, camping sites, and similar accommodation services as well as short-term rent of residential area. In addition to the aforementioned residential real estate, rent of garages, parking lots and similar real estate objects as well as equipment treated as real estate are subject to a standard VAT rate of 21%.

A taxpayer can choose to conclude transactions with regards to the sale or rent of real estate applying VAT within upcoming years and sell or rent real estate to another VAT payer applying a standard VAT rate of 21%. Such election has to be declared with the tax authorities and lasts at least 24 months.

Since 1 January 2010, the new VAT regulations on the place of supply of services have been introduced. Based on these, in general the place of supply of services to a taxable person is the place where the purchaser has its seat, permanent place of residence or permanent place of carrying out business, while the place of supply of services to a non-taxable person is the place where



the supplier has its seat. However, there are several exceptions from these rules, for example place of supply of services related to real estate is the place where the real estate is located.

The services related to the real estate which is or will be located in Lithuania are considered to be provided in Lithuania. Therefore, such services have to be charged with the standard Lithuanian VAT rate of 21%. In such case foreign taxable persons rendering services related to real estate in Lithuania have an obligation to register for VAT in Lithuania. Services related to real estate cover construction, projecting, researching, engineering, architecture works, real estate valuation, supervision and maintenance of real estate, and other real estate related services.

VAT Refund under Domestic Law Application for VAT refund may be fi led with the Lithuanian tax authorities as soon as VAT has been declared. However, the refundable VAT amount cannot exceed the specifi c limits set within the Law on VAT.

The VAT should be refunded within 30 days after the submission of the application. In case of a tax investigation, VAT shall be refunded within 20 days following a decision being taken.

Foreign VAT Refund under VIII DirectiveSince 1 January 2010 VIII Directive reclaims must be fi led with the local VAT authority (where a company is registered) and not where VAT has been paid. VAT reclaim has to be fi led electronically.

For more information on real estate services in Lithuania, please contact:




kpmg.lt



with International Financial Reporting Standards, and is subject to further adjustments in the tax balance.

Capital gains are included in the tax base and subject to a 9% tax. The capital gain is the difference between the sale and purchase price of assets (real estate, securities and intellectual property rights). If such difference is negative, a capital loss is reported.

Losses Losses generated from business, fi nancial and non-business transactions, excluding capital losses, may be carried forward for up to fi ve subsequent tax periods and can be offset against future taxable income. Losses carried forward into the future are not cancelled by mergers, acquisitions, spin-offs or other organisational changes.

Capital losses may be carried forward for fi ve years and offset only against capital gains.

CORPORATE INCOME TAX AND CAPITAL GAINS Corporate income tax is levied at a 9% fl at rate on resident and non-resident entities. A resident is a legal entity which is incorporated or has a place of effective management and control on the territory of Montenegro. Resident legal entities are liable for payment of tax on their worldwide income in the country. Non-resident entities pay tax on the income generated through a permanent establishment on the territory of Montenegro.

The tax period is the calendar year. A corporate tax return has to be submitted by 31 March of the following year for the then previous year.

Corporate income tax liability is paid in one instalment within three months following the end of the tax year.

Taxable income is established on the basis of accounting profi t disclosed in the annual income statement, in accordance

MONTENEGROTax Summary



Thin Capitalisation There is no thin capitalisation rule.

WITHHOLDING TAXES Withholding tax at the rate of 9% is deducted from dividends, share in profi ts, royalties, interest, capital gains, lease payments for real estate and other assets, consulting services, market research services and audit services earned by non-residents on the territory of Montenegro. Withholding tax may be reduced by double taxation treaties.

Payment of intercompany dividends between Montenegrin companies is subject to withholding tax.

DOUBLE TAXATION CONVENTIONS Montenegro has declared that it will honour all tax conventions that have been concluded by the state union of Serbia and Montenegro (and previously by the Federal Republic of Yugoslavia and the Socialist Federative Republic of Yugoslavia). However, application of

Tax Depreciation For corporate income tax purposes, fi xed assets are divided into fi ve groups, with depreciation rates prescribed for each group:

Fixed assets classifi ed into the fi rst group are depreciated using the straight-line method, while a declining method is prescribed for fi xed assets in the other groups. A depreciation rate of 5% is applied to the purchasing value of a fi rst group fi xed asset where the real estate is classifi ed.

Group Depreciation rate

I 5%

II 15%

III 20%

IV 25%

V 30%


conventions with Montenegro has to be confi rmed on a case-by-case basis by the convention partners.

As at 1 January 2011 Montenegro had 35 effective double taxation conventions on income and capital. Agreements with Egypt, France, Great Britain and Malaysia cover the avoidance of double taxation of income only.

VALUE ADDED TAX (VAT) VAT is levied on the following:

• supply of goods and services by a taxpayer on the territory of Montenegro in the course of doing business, and

• import of goods into Montenegro.

A taxpayer is any entity that independently supplies goods and services in the course of doing business.

The threshold for VAT registration is prescribed at EUR 18,000. Namely, if turnover in the previous 12 months exceeds or is likely to exceed EUR 18,000 then registration for VAT is obligatory.

Only the fi rst transfer of newly built buildings (i.e. buildings built as of 1 April 2003) is subject to VAT at the rate of 17% (there is no reduced rate for residential buildings). Supply of land, lease of land, as well as services of leasing residential buildings for longer than 60 days are exempt from VAT without credit.

PROPERTY TAX Tax on property is paid by the titleholder of property rights (ownership, right of use, etc.). Companies pay property tax at rates from 0.10% to 1.00%. For some objects, the rate of tax can be even higher (up to 5.5%). Tax is determined in a tax assessment, issued by the tax authorities up to 31 May of the current year.

REAL ESTATE TRANSFER TAX Second and all future transfers of real-estate property, as well as the fi rst transfer of real-estate property built before 1 April 2003, are subject to transfer tax at the rate of 3%. The taxpayer is the buyer.

For more information on real estate services in Montenegro, please contact:

Vesna IvkovicPartner

KPMG in Serbia Kraljice Natalije 1111000 BelgradeSerbia

T: +381 11 20 50 500 E: [email protected]

kpmg.me

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Based on the amendments to the CIT Act, in force since 1 January 2011, the possibility to implement a step-up on the value of properties not recognised as fi xed assets (i.e. properties reported as works in progress, e.g. apartments for sale) was eliminated. However, there are still some tax optimisation possibilities available in 2011.

CORPORATE INCOME TAX AND CAPITAL GAINS Generally, CIT in Poland is levied on all taxable income, with some exceptions, e.g. income derived from forestry and agricultural activities. A 19% rate of CIT is payable on income which is computed as taxable revenues reduced by eligible costs incurred to generate these revenues or retain or secure a source of a taxable revenue.

The costs incurred in respect of abandoned investments may be treated as tax-deductible costs.

GENERAL Since 1 January 2011, new VAT rates have been introduced – a standard rate of 23%, as well as reduced rates of 8% and 5%.

Generally, based on the currently binding VAT provisions, the sale of buildings and constructions occupied for longer than two years is VAT exempt (as a result, 2% transfer tax is payable by the buyer). However, in most cases, taxpayers may give up the exemption on such sale and make it a VAT-able transaction if special conditions are fulfi lled. Also, exempt from VAT are supplies of buildings and constructions if the supplier had no right to deduct input VAT upon acquisition of this building or construction (and additional conditions are met).

The reduced 8% VAT for sales of residential property before fi rst occupation applies only if the property meets the criteria of a social housing programme. If the area of a house or apartment exceeds a certain area, both reduced and standard VAT rates apply.

POLANDTax Summary




There is no separate capital gains tax, but gains on the disposal of fi xed assets and intangibles are added to the taxpayer’s mainstream income (gains from the sale of real estate property are taxed at the regular 19% CIT rate). For the seller, profi t on the sale of assets is added to the mainstream income subject to corporate income tax at normal rates. On disposal, the taxpayer can deduct the net tax value of the assets and associated disposal expenditures. Taxable income can be reduced by tax losses available for utilisation.

In case of a sale of shares in a Polish company held by a non-Polish shareholder typically the double tax treaties Poland has concluded with other countries provide for a taxation right of respective capital gains in the jurisdiction of the shareholder. However, some double tax treaties provide for the sale of shares of a Polish company whose assets principally (directly or indirectly) consist of real estate to be taxed in Poland at 19% CIT

(for example double tax treaties with UK, Spain, France, Ireland, Germany, Austria, Belgium, Denmark, Malta, Sweden).

A fi scal group may be created for corporate tax purposes. There are a number of conditions that need to be met (in practice, the most diffi cult is the requirement for the profi t of the group for tax purposes to be equal to at least 3% of gross taxable revenue). In principle, partnerships are used to achieve consolidation of CIT results.

Tax Depreciation Depreciation of fi xed assets is usually calculated on a straight-line basis using the rates laid down in the Polish CIT Act. Depreciation write offs are then claimed on the initial value of the individual fi xed or intangible assets, in equal amounts each month, starting from the month following the month in which a particular asset was brought into use, until the end of the month in which the total depreciation write offs equal the asset’s initial value or that in which it is liquidated, disposed of or found missing. The key annual depreciation rates are: 2.5% for buildings, 4.5% for constructions and 10% for technical devices. Land is not depreciated for tax purposes.

Tax Losses Tax losses may be carried forward for fi ve years and up to 50% of a specifi c tax loss can be utilised in any one year (after fi ve years they expire). The ability to utilise tax losses is unaffected by a change of ownership in a company.

Thin Capitalisation The Polish thin capitalisation rules limit the tax deductibility of interest paid or


capitalised on loans granted by qualifi ed lenders, i.e.:

• from the shareholder holding solely at least 25% of voting rights or shareholders holding jointly at least 25% of voting rights of the borrowing company;

• from a sister company which has the same shareholder as the borrower, if the shareholder owns at least 25% of voting rights of both the lending and the borrowing company (i.e. sister company).

Generally, the thin capitalisation restrictions apply to interest paid from the above loans by a Polish company if as per the date of its payment the total debt to the above qualifying lenders and shareholders of a parent entity with at least 25% of voting rights in the parent entity exceeds three times the equity of the Polish company. In principle, the interest paid from the part of the loan

exceeding this debt to equity ratio will not be tax deductible. There are some uncertainties how thin capitalisation rules should be applied in practice.

WITHHOLDING TAX

DividendsDividends are subject to 19% withholding tax. This is generally reduced under double tax treaties to which Poland is a party. To apply the reduced rate, the payer should be in possession of a tax residence certifi cate of its shareholder. Dividends paid to qualifying Polish resident company, EU/EEA resident companies (or their foreign permanent establishments), or qualifying Swiss companies are exempt from Polish withholding tax if the shareholder owns at least 10% (for Swiss shareholders at least 25%) of payer’s shares and the shares are uninterruptedly held for at least two years. The withholding tax exemption is also applicable if the dividend payments

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



are made before the end of this period, but if the shares are disposed of earlier, any withholding tax due is payable together with penalty interest.

Interest, Royalties and Intangible ServicesUnder Polish domestic legislation, withholding tax of 20% applies on payments of interest, royalties and fees for intangible services made abroad. This is generally reduced or eliminated under the double tax treaties to which Poland is a party. However, in order to apply the treaty rates, the payer should have a certifi cate of tax residence of the recipient.

Poland was granted a derogation period until 1 July 2013 to fully implement the EU Interest and Royalties Directive. Based on the above derogation provisions, until 30 June 2013 interest and royalties paid to qualifying EU resident companies or EU permanent establishments are subject to 5% withholding tax. From 1 July 2013 qualifying interest and royalties will be tax exempt. To apply the EU Interest and Royalties Directive provisions in the above manner a 2-year holding period is required. These provisions can be also applied before the 2-year holding period has been fulfi lled, but if the shares are disposed of earlier, any withholding tax due is payable together with penalty interest.

Similar provisions apply to qualifying Swiss resident companies.

REAL ESTATE TAX Real estate tax is a local tax which applies to land (and perpetual usufructuary of land), buildings and constructions (installations).

The taxable base for all buildings is the fl oor area of the building. For land (and perpetual usufruct of land), it is the area. For constructions (installations), the depreciation value is taken into account. The current (for 2011) maximum rates for real estate tax cannot exceed:

• PLN 0.80 per square metre for land used in business activity

• PLN 0.41 per square metre for other land

• PLN 0.67 per square metre for dwellings

• PLN 21.05 per square metre for buildings used in business activity

• PLN 7.06 per square metre for other buildings

• 2% of the value of constructions/installations (in principle the value being the base for tax depreciation purposes at 1 January each year not been reduced by depreciation deductions).

Year after year it has been the Government’s intent to implement a new real estate tax where the basis for the taxation would be the value of the real estate (cadastral tax). However, the implementation of this tax has been postponed each year and there is no information when (if at all) it will be implemented.

TAX ON CIVIL LAW TRANSACTIONS (PCC, TRANSFER TAX) A 0.5% PCC is imposed on capital injections to a newly registered company, as well as on any increases of the share capital or additional payments made to the reserve capital of the company (or on



the value of contributed assets in respect of partnerships). Shareholder loans are PCC exempt while non-shareholder loans are generally subject to 2% PCC (the borrower is obliged to pay the transfer tax; if certain conditions are met there is no obligation to pay PCC on loans).

Moreover, the sale and exchange of goods and property rights are subject to PCC if outside the scope of VAT. If the sale is VAT exempt, it is usually exempt from PCC, except for land and buildings (purchase of real estate is subject to 2% transfer tax on its market value even if VAT exempt).

Acquisition of shares in Polish companies in principle is subject to 1% transfer tax in Poland payable by the buyer, but some tax optimisation techniques may be used.


General Provisions RegardingReal EstateGenerally, since 1 January 2009, the sale of buildings, constructions and their parts is VAT exempt (except if the sale performed confi nes the fi rst occupation or is made before it or if

the sale is performed within two years of fi rst occupation). However, in most cases taxpayers are able to give up the exemption if special conditions are fulfi lled. Also, exempt from VAT are supplies of buildings, constructions or their parts if the supplier had no right to deduct input VAT upon acquisition of this building or construction and additional conditions are met.

In case of a VAT exempt sale of the buildings, constructions and their parts, the transaction is subject to 2% transfer tax. In case of a sale of land with a building which qualifi es for a VAT exemption, then both assets are VAT exempt and are subject to 2% transfer tax.

The standard VAT rate in Poland on the sale of land and buildings is 23%. The reduced 8% VAT for sales of residential property before fi rst occupation applies only if the property meets the criteria of social housing programme (houses not larger than 300 square metres and apartments not larger than 150 square metres). If the area of a house or apartment exceeds such values, both VAT rates apply (8% for areas up to

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


300 square metres/150 square metres, 23% for the portion of the area exceeding those statutory limits).

Where a property is acquired as a going concern (as a whole business or organised part of business) such transaction falls outside of VAT. In these circumstances, transfer tax applies at 2% on the value of property and is payable by the buyer (if an enterprise consisted of various components, transfer tax of 2% applies to sales of real estate, movables, perpetual usufruct rights; 1% applies to sale of other property rights).

Lease of offi ce and rental space is subject to 23% VAT regardless of the status of the tenant. Lease of residential property for housing purposes is VAT exempt.

Place of Supply of Services Generally, the place of supply of services to a taxpayer registered for VAT purposes in Poland or in another EU country is

the place where the purchaser has its seat, permanent place of residence or permanent place of carrying on business. However, in case the supply of services is done for entities other than taxpayers (registered for VAT purposes in Poland on in other EU country), the place of supply of services is where the service provider has its seat, permanent place of residence or permanent place of carrying on business.

However, in case of services related to real estate, the place of supply of services is where the real estate is situated.

Advisory services provided to a non-taxpayer (i.e. entity not registered for VAT purposes in Poland or in another EU country) having its seat or permanent place of residence outside of the EU are subject to taxation where the purchaser has its seat or permanent place of residence.


VAT Refund under Domestic Law Since December 2008 the standard refund period has been shortened from 180 to 60 days. In order to apply for direct refund of input VAT excess within the standard 60 days, the taxpayer has to perform a taxable sale. The standard periods of refund (60 days) can be shortened to 25 days if all purchase invoices from which VAT is declared in the specifi c VAT return are paid by the time the VAT return is submitted to the tax offi ce. If there is no VAT-able activity, then the VAT refund can be obtained as well, however, within 180 days. It can be shortened to 60 days if the taxpayer fi les a security deposit.

Foreign VAT Refund underVIII DirectiveSince 1 January 2010 VIII Directive reclaims must be fi led with the local VAT authority (where a company is registered) and not where VAT has been paid. A VAT reclaim has to be fi led electronically.

EC Services ListSince 1 January 2010, the monthly EC services lists must be fi led by taxpayers, if they supply services to taxpayers from other EU countries where the reverse-charge mechanism is applied. Advisory services where the VAT is charged in the recipient’s country have to be included. Services relating to local real estate where the VAT is charged locally are not to be reported.

The EC services lists must be fi led by the 15th of the following month or by the 25th of the following month if fi led electronically.

For more information on real estate services in Poland, please contact:

Honorata GreenPartner

KPMG in Poland ul. Chlodna 51 00-867 WarszawaPoland

T: +48 22 528 11 53 M: +48 604 496 370 E: [email protected]

kpmg.pl

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



companies, are subject to 16% personal income tax rate, irrespective of the period for which the securities are held.

Income from immovable property located in Romania is subject to 16% capital gains tax. Income from immovable property located in Romania includes mainly income from the rental or the grant of use of immovable property located in Romania, gains from the sale-assignment of rights of ownership or other rights related to immovable property located in Romania and gains from the sale-assignment of participation titles in a legal entity, if at least 50% of its fi xed assets derive directly or indirectly from real estate located in Romania.

Capital gains derived by non-residents on the disposal of shares in Romanian entities can be exempt under certain double tax treaties. Certain treaties do not provide exemption in cases where the majority of assets in a company being disposed of derive from real estate located in Romania.

There are no corporate tax consolidation rules in Romania.

GENERAL Several changes to Romanian tax legislation were enacted in 2011.

CORPORATE TAX, INCOME TAX AND CAPITAL GAINS TAX Taxable profi ts are determined by reference to accounting profi ts, recognised in accordance with Romanian accounting standards, subject to specifi c fi scal adjustments as provided by corporate tax law. The standard corporate tax rate is 16%.

Capital gains realised by Romanian corporate entities from sale of assets and sale of shares are deemed to be corporate profi ts and are taxed at 16%. Capital gains realized by foreign corporate entities from sale of shares in Romanian entities are taxed at 16% tax on capital gains. Income realised by individuals from transfers of real estate are subject to lower tax rates. Capital gains derived by individuals from the sale of securities, other than shares in limited liability companies and securities in non-listed

ROMANIATax Summary



Tax Losses Tax losses can be carried forward and deducted from taxable profi ts recorded during the following seven years on a “fi rst in, fi rst out” (FIFO) basis (tax losses incurred before 2009 can be carried forward for a period of fi ve years).

Tax losses recorded by companies that cease to exist as a consequence of a merger or de-merger cannot be taken over by the surviving company after the merger or de-merger.

There is no withdrawal of the tax losses carry-forward right on change of ownership or activity. Tax losses can only be carried forward, not carried back.

Thin Capitalisation There are two basic Romanian thin capitalisation rules applicable to intercompany loans which need to be considered, as follows:

Deductibility of interest is restricted to 6% for non-RON denominated loans

Tax DepreciationThe following depreciation methods are available for tax purposes:

• Straight-line method

• Reducing balance method (may be applied only to certain assets)

• Accelerated depreciation method (may be used for technological equipment such as machinery and installations, computers and related equipment). The accelerated method allows for a deduction of 50% of the cost of the asset during the fi rst year of operation.

Land and goodwill cannot be depreciated for tax purposes. Buildings can be depreciated only using the straight-line method. The tax depreciation period for buildings is between 40 and 60 years. Certain assets attached to a building can be treated as separate movable assets for tax purposes and therefore can be depreciated over a shorter period.



and to the level of the interest rate of the NBR corresponding to the last month of the quarter for loans denominated in RON. This limitation is applicable for each loan. The restriction of deductibility is determined before the calculation of the debt-to-equity ratio. Interest which is non-deductible after the application of this rule is permanently non-deductible.

Interest expenses and net foreign exchange losses for intercompany loans in excess of one year are wholly deductible if the debt-to-equity ratio of the borrowing company is less than three to one. If the debt-to-equity ratio is three to one or more (or negative), interest expenses and net foreign exchange losses are non-deductible (but not permanently non-deductible – see below).

However, interest and foreign exchange losses relating to loans received from Romanian or foreign banks, non-banking

fi nancial institutions (including leasing companies), mortgage credit companies, and other regulated lending institutions are exempt from the scope of thin capitalisation rules.

Any interest or net foreign exchange losses due by the borrower having negative equity or debt-to-equity ratio higher than 3 to 1, can be carried forward to be deducted against income earned in future periods, if and when the company’s debt-to-equity ratio falls below the relevant thresholds.

Starting with 2010, under Romanian law unrealised foreign exchange differences on monetary items are recognised on a monthly basis and are taxable or deductible upon corporate tax calculation (subject to potential thin capitalisation deductibility restrictions).

WITHHOLDING TAX The standard Romanian withholding tax rate is 16%. However, the rate can be reduced by double tax treaties. As at 1 January 2011, Romania had double taxation treaties with more than 87 countries.

Dividends A 16% dividend tax rate applies on dividends paid to non-residents (whether individuals or companies).

Under the EU’s Parent Subsidiary Directive, dividend payments made by a resident legal entity to an EU or EFTA legal entity which holds at least 10% of the Romanian entity’s shareholding for a period of at least two years are exempt.

Interest and Royalties Income derived from interest and royalties is exempt, if the effective



benefi ciary of this income is a legal entity which is located in an EU Member State or EFTA State or a permanent establishment of a company from an EU Member State, located in another EU Member State or EFTA State. This rate applies, provided that the effective benefi ciary of the interest or royalties owns at least 25% of the securities of the Romanian legal entity for an uninterrupted period of at least two years, which terminates at the date of the interest or royalties payment.

REQUIREMENTS TO APPLY THE EU’s DIRECTIVES In order to apply the provisions of the EU’s Directives, a non-resident should provide Romanian companies with an affi davit stipulating that the fi rst fulfi ls the mandatory condition of being benefi ciary.

REAL ESTATE TAX Real estate tax comprises land tax and building tax. The tax on land is determined by taking into account the surface of the land in square metres, the status of the locality where the land is located, and the area and/or category of use of the land, in accordance with relevant decisions issued by the local council where the land is located. For companies the tax on buildings is usually determined based on the gross book value of the building at a rate between 0.25% and 1.5%, while for individuals the tax on buildings is pre determined depending on the type of building. For building tax purposes, if a company has not performed a revaluation of its building for three consecutive years then starting with the 4th year it is generally liable to an increased building tax rate of up to 10% of the gross book value of the building.

REAL ESTATE TRANSFER TAX Transfers of real estate may result in land/building registry taxes and notary fees of up to 1% of the value of the transaction.

VALUE ADDED TAX (VAT) Starting 1 July 2010, the standard VAT rate in Romania is 24%. A reduced rate of 9% is applicable for certain supplies of goods and services. A special VAT rate of 5% is applicable for sales of dwellings to certain categories of the population as part of the Government’s social programme.

Supplies of buildings, parts of buildings and land are VAT exempt without the right of deduction (meaning that any input VAT incurred on the relevant expenditures is not allowed to be offset against output VAT, but should be borne by the company as an extra cost). Companies can opt to tax such transactions through the submission of a notifi cation to the tax authorities.

However, for supplies of so-called “new” buildings are taxable transactions. In order to qualify for supplies of “new” buildings subject to VAT, certain conditions must be met on a cumulative basis. Romanian tax law specifi es that the “sale of a new building” is deemed to occur if the building is sold no later than 31 December of the year following the year of its fi rst occupation or use. “New buildings” also include (i) altered buildings whose structure, nature or function has been modifi ed, or (ii) buildings for which the value of improvements exceeds 50% of their market value, assuming there has been no change in their structure, nature or function. Building land is defi ned as any unimproved or improved land on which



buildings may be erected according to Romanian legislation.

Rental of real estate is also VAT exempt without the right of deduction. Companies can opt to charge on such services using the same procedure of notifi cation.

VAT grouping is allowed only for certain categories of VAT payers.

For more information on real estate services in Romania, please contact:

Mark GibbinsPartner

KPMG in Romania Victoria Business ParkDN1 Bucuresti Ploiesti nr. 69-71, Sector 1, Bucuresti 013685Romania

T: +40 741 800 700 M: +40 747 333 133E: [email protected]

kpmg.ro


by companies; there are increased challenges to tax planning schemes applying the substance over form approach to the transactions.

CORPORATE PROFITS TAX AND CAPITAL GAINS The Russian corporate profi ts tax (CPT) rate remains one of the lowest in Europe - 20%. CPT is calculated on a net basis (income net of deductible expenses, if they are economically justifi ed and properly supported via documentation).

There is no special capital gains tax in Russia. Capital gains received by Russian resident corporations from the sale of property or shares in property holding companies is subject to Russian corporate profi ts tax at a general rate of 20% except for the following.

As of 1 January 2011 capital gains received by a Russian or foreign shareholder from the sale of shares in a Russian company owned for a period of

GENERAL PROVISIONS In a view of economic recovery the Russian government is focused on the economy’s stabilisation and modernisation. For this purpose the new approaches of tax stimulation are being developed, in particular: the Russian tax system is supposed to be harmonised with worldwide practice by development of new provisions to the Russian Tax Code (particularly via introduction of extended transfer pricing regulation, consolidated tax reporting and “controlled foreign company” rules).

Another focus of the Russian government is to re-attract foreign capital by a creating positive environment for foreign investors. In particular, a strong focus was placed on anti-corruption actions.

At the same time the tax authorities are still applying a stronger approach to taxpayers for the purposes of sustaining tax yields for the Russian budget: increased attention is being paid to the nature of tax losses incurred

RUSSIATax Summary




fi ve years or longer is subject to Russian corporate profi ts tax at a rate of 0%.

Where shares in a Russian company are sold by a foreign shareholder, any capital gain arising on such transaction will be subject to tax at 20% if over 50% of the Russian company’s balance sheet is comprised of Russian real estate (RE) property. This tax can be reduced to zero under a number of double tax treaties (DTT) concluded by Russia with other countries. However, under some DTTs (e.g. with the UK) Russia has taxing rights for such capital gains.

Furthermore, changes were introduced to the existing DTT with Cyprus so that zero rates on capital gains from the sale of shares in RE companies will no longer be applicable. The above changes have not yet been ratifi ed by Russia. They will enter into force after four years from the year of ratifi cation (i.e. not earlier than 2015). Similar changes may be introduced in future to other DTTs and incorporated in new DTTs based on the model DTT developed by the Russian government in 2010.

In the recent years structures involving real estate ownership via real estate investment funds (REIFs) have become widespread in Russia. An REIF’s profi ts are not subject to CPT until they are remitted to investors. Moreover, income of a foreign investor from participation in an REIF (intermediate income, income from unit redemption or sale) may be exempt from withholding tax in Russia under a number of DTTs.

Tax Depreciation Fixed assets and intellectual property with an initial value of over RUB 40,000

and a useful life of over one year can be depreciated for tax purposes.

A company may depreciate fi xed assets over their useful economic life using the straight-line or reducing balance method. The useful economic life (determined by law) of RE assets is usually more than 30 years.

When a company starts depreciating an RE asset, it can elect to deduct a “depreciation premium” (a one-off capital allowance) in the amount of 10% of the depreciable asset’s value (30% for assets with useful lives of between three and 20 years). Therefore, it is important that the value of an asset is properly allocated between the building and other assets (internal systems, lifts, etc.)

The standard tax depreciation allowance is then calculated on the basis of historical cost of the asset decreased by tax depreciation premium.

Russian statutory and IFRS accounting could be different from tax depreciation due to deviations between IFRS, statutory and tax accounting principles



(e.g. interest costs are capitalised for accounting purposes but can be expensed for tax purposes).

Accounting depreciation is deducted from the Russian company’s accounting profi ts which directly impacts the profi t distributable by the company through dividends. This may create a “cash trap” issue in Russia.

Interest Expenses Interest expenses are not capitalised into the initial value of fi xed assets and should instead be deducted for Russian profi ts tax purposes on the last day of each reporting period or included in tax losses carried forward.

Interest expenses are deductible for Russian profi ts tax purposes provided that they are:

• economically justifi ed and incurred in relation to revenue-generating activities;

• compliant with thin capitalisation rules;

• compliant with established arm’s length principles; and

• the transactions involved in fi nancing structures have business purpose and are properly documented.

Under current arm’s length principles, interest should be deductible as long as the rate does not deviate by 20% from the average level of interest charged on loans issued under similar (comparable) terms in the same period.

From 1 January 2011 until 31 December 2012 either if comparable loans can not be found or at taxpayer’s choice the maximum deductible interest on loans denominated in foreign currency is calculated as the refi nancing rate of the Central Bank of Russia multiplied by 0.8. Hence, starting in 2011 the maximum deductible interest on loans denominated in foreign currency is reduced by over half (i.e. from 15% to 6.2% based on a refi nancing rate effective in January 2011), thus aggravating taxpayers with high volumes of foreign debt fi nancing.

On the contrary, starting in 2011 the maximum deductible interest on loans denominated in Russian rubles increased to the refi nancing rate of the Central Bank



of Russia multiplied by 1.8 (i.e. to 13.95% based on a refi nancing rate effective in January 2011).

Thin capitalisation rules apply when:

• a Russian company has an outstanding debt to a foreign company (FLE) which owns (either directly or indirectly) more than 20% of the Russian company’s share capital; or

• the above debt is instead owed to a Russian affi liate of the FLE: or

• a debt is guaranteed by an above FLE (or its Russian affi liate);

and an unpaid loan amounts to more than three times the net assets of the Russian receiver of the debt (12.5 times for banks and leasing companies).

Interest found to be excessive under these rules is treated as a dividend, meaning that it will be non-deductible for profi ts tax purposes and subject to withholding tax at 15% (or a lower rate if a double tax treaty (DTT) is applicable).

Tax Losses Losses may be carried forward for 10 years. Since 1 January 2007, all tax losses (including carry forwards) can be deducted for tax purposes.

Losses from the sale of a RE asset are tax deductible in equal instalments over the remaining useful life of the asset.

WITHHOLDING TAX Russian source income, which is not attributable to a permanent establishment, such as rent, royalties, interest and dividends paid to a foreign legal entity, is subject to withholding tax.

There is no withholding tax on the repatriation of profi ts from a local Russian offi ce (Branch or RO) to its head offi ce.

Withholding taxes may be reduced or eliminated if the recipient is tax resident in a country operating a double tax treaty arrangement with Russia. In order to be eligible for DTT relief, the foreign recipient company must submit a tax certifi cate to the Russian income payer confi rming it is resident in the treaty country.

If the appropriate documents have not been submitted by the recipient, the income payer must withhold tax. If tax is withheld even though treaty relief is available, a refund claim may be filed by the foreign recipient. This is, however, a time-consuming process and there is no certainty that a refund will be obtained.

Dividend Distributions Under the Russian Tax Code, dividends paid by a Russian company to a Russian or a foreign company are subject to Russian withholding tax at source. This tax is to be withheld and transferred to the Russian budget by the Russian income payer.

The tax rate on any dividends distributed from a Russian company to its Russian parent is 9%.

However, since 1 January 2008 the dividend income received by a Russian company from its Russian or foreign subsidiary may be taxed at 0% if certain criteria are met:

• the recipient of the dividends owns at least 50% of the charter capital of the distributor;

• the investment has been owned by the recipient for at least 365 days.


The requirement of providing investment into the distributor’s charter capital in the amount of at least RUB 500 million (currently, approximately USD 17 million or EUR 11 million) was abolished from 1 January 2011.

It should be noted, that the 0% rate is not applicable if the foreign subsidiaries of the Russian companies are situated in the offshore jurisdictions, the list of which is stipulated by the Russian Ministry of Finance. Currently, such countries as Cyprus, British Virgin Islands, Lichtenstein, and others are included into the list.

Dividends distributed by Russian companies to foreign companies are taxed at a general rate of 15%, which can be reduced based on the provisions of an applicable DTT.

Other Income Interest, royalties and leasing income paid by a Russian company to a foreign company are subject to Russian

withholding tax at a general rate of 20%. In some cases this rate can be reduced if applied to certain types of income (e.g. interest income from state bonds).

Withholding tax on the above payments can also be reduced based on the provisions of an applicable DTT.


Output VAT The standard VAT rate in Russia is 18%, payable to the budget on an accruals basis. The sale of residential RE property and land plots is not subject to Russian VAT.

The sale and lease of commercial RE property is generally subject to VAT. However, the lease of property to foreign citizens or legal entities accredited in Russia is exempt from VAT if the foreign citizens are residents of/foreign legal entities are incorporated in countries included in a list provided by the Government of the Russian Federation.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


This is mandatory and the taxpayer must apply this exemption.

The sale of shares (as well as other securities, including units in REIFs) and equity interests in limited liability companies and the contribution of property in the form of an investment (i.e. into the charter capital of the company, into a simple partnership – joint activity arrangement – etc.) are exempt from VAT in Russia.

Input VAT (VAT-able Sales) Input VAT (VAT on purchases and expenses) is recoverable if a number of requirements are met. The recoverability of input VAT does not depend on it having been paid to the supplier or on import.

Input VAT is not recoverable in respect of expenses or assets used in the manufacture or sale of products exempt from VAT, including expenses or assets incurred in non-production activities.

This VAT may be deducted for profi ts tax purposes (if incurred in an acquisition of current assets) or should be included in the initial value of fi xed assets.

In certain circumstances input VAT recovery may be denied if the supplier has not paid over their output VAT.

Generally under current legislation, the taxpayer can offset VAT on capital construction assets (RE), before the taxpayer has completed building the RE asset.

OTHER RELEVANT TAXES

Property Tax Property tax is levied on property of Russian companies and PEs of foreign companies qualifying as fi xed assets, which includes buildings, but does not include land and RE under construction. The maximum rate is currently 2.2% of the average net book value of the fi xed assets, but actual rates vary depending on the region in question.

Foreign legal entities with no PE in Russia are liable to pay Russian property tax only on RE assets located in Russia (on the basis of inventory value of such assets determined by Russian authorities).

As of 1 January 2011 RE assets of REIFs are subject to property tax. The management company of REIF is obliged to pay property tax expensed by the assets of an REIF.

Land Tax Land tax is a local tax payable on land which is owned by a company. The tax basis is the cadastral value of the land which is set by corresponding local land authorities on 1 January each year.



The tax rate depends on the specifi c purpose of the land. The maximum rates are 0.3% for land used for housing purposes and 1.5% for other types of land. However, specifi c rates are set up by the local authorities. This is a self-assessed liability and is payable in quarterly instalments.

Land tax is deductible for profi ts tax purposes.

As of 1 January 2011 RE assets of REIFs are subject to land tax. The management company of an REIF is obliged to pay land tax expensed by the assets of the REIF.

SPECIFIC REAL ESTATE ISSUES

Legal StructureDue to the high tax burden on dividends and capital gains in Russia, RE project structures often involve foreign legal entities in jurisdictions with favourable tax regimes or Russian REIFs. At the same time, if the business grounds for having foreign legal entities in such structures are unclear, the tax authorities may charge additional taxes as if all entities in the structure were Russian.

ConstructionIn several cases Russian tax authorities are unwilling to allow tax deduction of certain construction-related expenses or offset of corresponding input VAT. This in particular relates to construction costs incurred before the offi cial construction permit has been obtained or after the object has been commissioned.

It is also a common situation when a developer building residential or commercial RE in Russia is obliged to construct and transfer several RE objects

to local authorities (e.g. engineering, transport or social infrastructure). The tax authorities tend to challenge tax deduction of construction costs and offset of input VAT relating to such objects. However, a draft law is currently under consideration in Russia, which may enable a developer to deduct such infrastructure costs for CPT purposes, if they have been incurred under agreements with municipal authorities.

Another common issue closely investigated by the tax authorities is commonly late recognition of income under long-term construction agreements by construction companies, whereas under Russian tax rules such income should be recognised evenly through the entire period of construction.

In order to ensure tax effi ciency of construction projects in Russia, proper documentation and justifi cation of the above and other arguable expenses, and of the method of recognition of income, should be elaborated.

FinancingA Russian company can only distribute dividends if it generates suffi cient profi ts in its statutory accounts. At the same time a company owning RE is likely to have a signifi cant non-monetary depreciation expense, leading to low accounting profi ts. As a result, the company will be unable to distribute all of its available cash via dividends (“cash trap”).

This issue can be mitigated if equity fi nance is in part or in full substituted by debt fi nancing.

At the same time tax deduction of interest expenses may be limited by


ManagementThe management structure of a group involving Russian project companies may be connected with tax risks.

If foreign group companies are managed from the territory of Russia, this may lead to the loss of tax residence of these companies in jurisdictions of their incorporation and creation of a taxable permanent establishment status in Russia. As a result additional tax costs may arise for the group.

In order to minimise the above risks it is necessary to elaborate an effective management structure. This involves setting up appropriate contractual arrangements between the management company and project companies and elaborating a reasonable methodology for management fee determination.

general interest deductibility rules, as well as thin capitalisation rules (see “Interest expenses”). Therefore, accurate structuring of the intra-group fi nancing structure is required in order to maximise the interest expense deduction for Russian project companies and minimise the tax burden arising upon profi ts distribution via interest (in particular Russian withholding tax on interest paid to non-residents).

OperationLocal legislation in most Russian regions provides substantial tax incentives (reduced profi ts tax, property tax and land tax rates) for companies investing in RE in the territory of the corresponding region. The tax effect from utilisation of such incentives may be signifi cant.

In order to apply the regional tax incentives a project company should meet specifi c requirements stipulated by regional law and prepare proper documentation confi rming its eligibility for the incentives.

For more information on real estate services in Russia, please contact:

Natalia MalioutinaPartner

KPMG in Russia and CIS 10 Presnenskaya Naberezhnaya,Block C, Moscow, 123317Russia

T: +7 495 937 4477 M: +7 916 104 1655E: [email protected]

kpmg.ru

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


with International Financial Reporting Standards, and is subject to further adjustments in the tax balance.

Capital gains are disclosed separately in the tax balance and are subject to a 10% tax. The capital gain is the difference between the sale and purchase price of assets (real estate, securities, intellectual property rights, investment units). If such difference is negative, a capital loss is reported.

Losses Losses generated from business, fi nancial and non-business transactions, excluding capital losses, may be carried forward for up to fi ve subsequent tax periods and can be offset against future taxable income. Losses carried forward into the future are not cancelled by mergers, acquisitions, spin-offs nor other organisational changes.

Capital losses may be carried forward for fi ve years and offset only against capital gains.

CORPORATE INCOME TAX AND CAPITAL GAINS Corporate income tax is levied at a 10% fl at rate on resident and non-resident entities. A resident entity is a legal entity which is incorporated or has a place of effective management and control on the territory of Serbia. Resident legal entities are liable for payment of tax on their worldwide income in the country. Non-resident entities pay tax on the income generated through a permanent establishment on the territory of Serbia (branches).

The tax period is the calendar year. A corporate tax return has to be submitted by 10 March of the following year for the then previous year, whereas corporate income tax is to be paid during the year through monthly advanced payments (by 15th of the month for the previous month).

Taxable income is established on the basis of accounting profi t disclosed in the annual income statement, in accordance

SERBIATax Summary


© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


Tax Depreciation For corporate income tax purposes, fi xed assets are divided into fi ve groups, with depreciation rates prescribed for each group:

Fixed assets classifi ed under the fi rst group are depreciated using the straight-line method, while a declining method is prescribed for fi xed assets in the other groups. A depreciation rate of 2.5% is applied to the purchase value of a fi rst group fi xed asset where the real estate is classifi ed.

Thin Capitalisation Interest and related expenses towards related entities are deductible up to four times the value of the taxpayer’s equity (limit for banks is 10 times the bank’s equity). The non-deductible amount of interest expense may not be carried forward any longer and represents a permanent difference.

WITHHOLDING TAXES Withholding tax at the rate of 20% is deducted from dividends, share in profi ts, royalties, interest, capital gains and lease payments for real estate and other assets derived by non-residents on the territory of Serbia. Withholding tax may be reduced by double taxation treaties.

If a non-resident taxpayer receives capital gains from a Serbian resident, other non-resident, resident or non-resident individual or open investment fund on the territory of Serbia, 20% withholding tax

Group Depreciation rate

I 2.5%

II 10%

III 15%

IV 20%

V 30%


has to be paid if not provided otherwise by a respective double taxation treaty. The non-resident taxpayer has to submit a special tax return within 15 days of generating the capital gains via proxy, based on which the Tax Authorities assess the tax liability.

DOUBLE TAXATION CONVENTIONS As at 1 January 2011, Serbia has 47 effective double taxation conventions on income and capital. Agreements with Egypt, France, Great Britain and Malaysia cover the avoidance of double taxation of income only.

VALUE ADDED TAX (VAT) VAT is levied on the following:

• supply of goods and services by a taxpayer on the territory of Serbia in the course of doing business, and

• import of goods into Serbia.

A taxpayer is any entity that independently supplies goods and services in the course of doing business.

Each entity whose turnover in the previous 12 months (sales of goods and services excluding sales of real estate and equipment used in performing business activity) exceeds RSD 4 million is obliged to register for VAT. An entity whose turnover in the previous 12 months or forecasted turnover in the following 12 months is between RSD 2 and 4 million may opt to be registered for VAT (small undertakings).

Only the fi rst transfer of newly built buildings (i.e. buildings built as of 1 January 2005) is subject to VAT at the rate of 8% (residential building) or 18%.

Supply of land, as well as renting of land is exempt from VAT without credit.

PROPERTY TAX In Serbia tax on property is paid by the titleholder of property rights (ownership, right of use, etc.). Companies pay property tax at the maximum rate of 0.4% per year on the net book value of land and completed development property as at 31 December.

REAL ESTATE TRANSFER TAX Second and all future transfers of real-estate property, as well as the fi rst transfer of real-estate property built before 1 January 2005, are subject to transfer tax at the rate of 2.5%. The taxpayer is the seller. However, the buyer may assume liability of paying this tax, but this has to be stipulated in the sales and purchase agreement.

For more information on real estate services in Serbia, please contact:

Vesna Ivkovic Partner

KPMG in Serbia Kraljice Natalije 1111000 BelgradeSerbia

T: +381 11 20 50 500E: [email protected]

kpmg.rs

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



The amendment to the VAT Act effective from 1 January 2011 extended the period for the application of capital goods scheme to real estate from 10 to 20 years and temporarily increased the basic VAT rate from 19% to 20%.

CORPORATE INCOME TAX AND CAPITAL GAINS CIT in Slovakia is levied on all taxable income at the standard corporate tax rate of 19%. Income is computed as taxable revenues reduced by eligible costs incurred to generate, assure or maintain taxable income.

There is no separate capital gains tax in Slovakia and gains on the disposal of fi xed assets and intangibles are included in a taxpayer’s total income. On disposal, the taxpayer can deduct the net tax value of the assets (after accumulated depreciation) and associated disposal expenditures. Taxable income can be reduced by tax losses available for utilisation. Losses on the sale of buildings are generally tax deductible but

GENERAL The Slovak tax system has been relatively stable since the implementation of major tax reforms effective from 2004. The amendment to the income tax law passed at the end of 2007 introduced some potentially signifi cant changes in a number of areas including transfer pricing documentation requirements. In 2009 an amendment to the Slovak tax legislation introduced a new tax treatment for business combinations effective from 1 January 2010. In December 2010 the Parliament approved an amendment to the Slovak tax legislation introducing tax on emissions quota and, among other changes, defi ning withholding tax as the fi nal tax with certain exceptions, with effect from 1 January 2011. The amendment to the VAT legislation passed in 2009 introduced the possibility of VAT grouping and accelerated VAT refunds for qualifying taxpayers. In addition the EU VAT Package was passed by the Parliament and implemented with effect from 1 January 2010.

SLOVAKIATax Summary



There is no concept of fi scal grouping for corporate income tax purposes in Slovakia.

Tax Depreciation Depreciation of fi xed assets is calculated on a straight-line or accelerated basis, using rates laid down in legislation. Depreciation is based on categorisation of assets into groups with depreciation periods between four and 20 years. Buildings are normally depreciated over 20 years. It is possible to decide to interrupt (not claim) depreciation in any particular year. This prolongs the depreciation period. Land is not depreciated for tax purposes.

It is also possible to divide a fi xed asset into separate detachable components if the acquisition value of each respective component is higher than EUR 1,700 and, in the case of certain components of real estate, to depreciate them separately in a different tax depreciation group.

losses on the sale of land are not deductible. With effect from 1 January 2011 capital gains on sale of real estate, rental income or other income from real estate situated in Slovakia is also under the local rules subject to income tax if both parties involved in the transaction are Slovak tax non-residents not having a permanent establishment in Slovakia.

In the case of a sale of shares in a Slovak company held by a non – Slovak shareholder, the double tax treaties Slovakia has concluded with other countries normally provide for the right to tax the capital gain in the jurisdiction of the shareholder. However, some double tax treaties allow the gain to be taxed in Slovakia, either generally in the case of the double tax treaty with Germany, or specifi cally in the case that a Slovak company which is being disposed of comprises substantial real estate as in the case of the double tax treaty with Ireland.



Tax Losses Tax losses may be carried forward and utilized for seven years if the loss was incurred after 31 December 2009. Tax losses incurred in tax periods ending before or on 31 December 2009 may be carried forward over fi ve years. Under current rules there are no restrictions on the amount of loss which can be utilised each year. Prior to 2004 highly complicated tax loss rules applied which signifi cantly restricted loss carry forwards and imposed reinvestment requirements. These rules still apply to “old“ losses being carried forward. The ability to utilise tax losses is unaffected by a change of ownership of a company but can be affected by a merger or other reorganisation if a main purpose is to obtain a tax advantage.

Thin Capitalisation Thin capitalisation rules originally included in the income tax legislation which were supposed to apply from 1 January 2010 were deleted from the Slovak tax legislation by an amendment to the Slovak Income Tax Act and thus did not come into effect.

WITHHOLDING TAX

Dividends Dividends are currently not subject to any withholding tax if paid out of profi ts generated from 1 January 2004 onwards. Dividend withholding tax is applicable at the rate of 19% for profi ts generated prior to this date. This is generally reduced under double tax treaties to which Slovakia is a party. To apply the reduced rate, it is advisable for the payer to be in possessions of a tax residence certifi cate of its shareholder. Dividends paid to EU/EEA resident companies are exempt from

Slovak withholding tax if the terms of the Parents-Subsidiary Directive as applied in Slovak law are met.

Interest, Royalties and Intangible Services Under Slovak domestic legislation, withholding tax of 19% applies on payments of interest, royalties and fees for intangible services made abroad. This is generally reduced or eliminated under the double tax treaties to which Slovakia is a party. However, in order to apply the treaty rates, the payer should have a certifi cate of tax residence of the recipient. Furthermore, the Interest and Royalties Directive fully applies in Slovakia.

With effect from 1 January 2011, withholding tax is regarded as the fi nal tax with certain exceptions, e.g. certain income of tax non-residents listed by the tax legislation.

SECURITY TAX Payments to an entity which has or may have a permanent establishment in Slovakia are subject to a 19% security tax. This is not applied if the receiving entity holds a certifi cate proving it makes


advance payments of tax, or from 2007 onwards if the receiving entity has its registered seat or address in the EU.

BUSINESS COMBINATIONS With effect from 1 January 2010, taxpayers in Slovakia may decide that in the case of certain business combinations the fair value will be used not only for accounting, but also for tax purposes.

In such a case the revaluation difference arising from the restructuring must be included in the taxable base in line with the tax law, but on the other hand the company may depreciate assets from their fair value and must not continue in the tax depreciation of assets from their tax residual value. In addition, the amortisation of goodwill may under certain conditions be tax deductible.

TAX ON EMISSION QUOTATax on emission quota applies to emission quota issued for 2011 and 2012.

REAL ESTATE TAX Real estate tax is in general applied to companies and individuals owning land

and buildings. The tax is based on the area of the land and building, number of fl oors of a building, usage and location. There is considerable fl exibility for local authorities in setting the rates of tax.

REAL ESTATE TRANSFER TAX AND OTHER TRANSFER TAXES AND DUTIES Real Estate Transfer Tax was abolished from 1 January 2005. There are no signifi cant stamp or other duties on the transfer of land or buildings.

Acquisition of shares in Slovak companies is not subject to any transfer tax or signifi cant stamp duties.


General Provisions Regarding Real Estate The basic VAT rate was temporarily increased from 19% to 20%. Generally the sale of the property is subject to VAT in Slovakia if sold within fi ve years of fi rst occupancy permit or fi rst use. The sale of building land is also subject to VAT. The standard VAT rate in Slovakia is with effect from 1 January 2011 set at the rate of 20% for building land and buildings.

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



To the extent real estate sales do not meet these conditions they are VAT exempt but the supplier has the option to choose to charge VAT.

Rental of real estate is exempt from VAT but the supplier may elect to charge VAT if the supply is made to a VAT registered entity.

VAT Grouping According to an amendment to the tax law passed in February 2009, VAT grouping is possible in Slovakia with effect from 1 January 2010.

Applications for VAT group registration should be fi led by the member of a group who is appointed as the representative of that group. The tax authorities should register the VAT group with effect from 1 January of the calendar year following the year in which the application for registration was submitted if the respective application has been fi led by 31 October of the current calendar year.

Should the application for the VAT group registration be fi led after 31 October of the current year, the tax authorities will register the group with effect from 1 January of the second year following the calendar year in which the application for the registration of the VAT group was fi led. This means that the fi rst VAT groups may exist in Slovakia from 1 January 2010 subject to fi ling the respective application by 31 October 2009.

VAT grouping can positively affect the cash fl ow of companies in a VAT group since VAT will not be charged on transactions between the group members.

VAT RefundSlovak entities may apply for a refund of VAT incurred. Generally the refund takes

approximately 90 days if the supplier is a monthly VAT payer.

According to an amendment to the VAT legislation passed in February 2009, VAT will be refunded to qualifying taxpayers within 30 days of the deadline for fi ling the tax return for the respective taxable period. The new rule should effectively accelerate VAT refunds for eligible VAT payers by 30 days as compared with previous rules. The accelerated refund mechanism should be applied to VAT payers whose taxable period is a calendar month, who have been registered for VAT purposes for at least a period of 12 months before claiming the excess tax deduction, and who did not have any outstanding liabilities towards the state budget and towards social/health insurance institutions during 12 calendar months before the end of the calendar month in which the excess VAT deduction arose. Taxpayers who comply with these conditions will have to note this in the respective VAT return. For other VAT payers the refund procedure remains unchanged.

Slovakia applies the capital goods scheme to modify VAT recovery on assets if the use of a building changes within a 20-year period.

Slovak Act on Value Added Tax (VATA) – General Rule for Determining the Place of Supply of Services The amendment to the VAT legislation passed in October 2009 introduces a change in the general rule for determining the place of supply of services (i.e. the “place of taxation”). The new rules stipulate that the place of supply of service to a taxable person (so – called B2B – business to business service) is the place where the customer is established; and the place of supply of service to a person other than a


taxable person (so – called B2C – business to consumer services) remains in the Member State of the service supplier. Exceptions to the general rule will apply for specifi c kinds of services.

There are also changes to the determination of: the date of supply for services received from foreign suppliers (where the person obliged to pay tax is the recipient of the service); date of supply of services procured in one’s name but on behalf of another person; and also the date of supply of partially and recurrently supplied services.

TRANSFER PRICING Prices use in transactions between related parties must comply with arm’s length principles. Under the Slovak tax law, if the agreed price for a transaction is different from a fair market price and the difference would lead to the decrease of the taxable base of the Slovak related party, a fair market price will be substituted for tax purposes. Related parties are generally defi ned as economically or personally connected individuals or legal entities. Economic connection is understood as a participation of more than 25% in share capital or voting rights. Personal connection is understood as a participation in the management or control of the other person.

From 1 January 2004 to 19 July 2005, and again from 15 December 2005, strictly transfer-pricing rules do not apply between Slovak entities although these continue to apply to transactions between Slovak and foreign related parties. The Slovak tax authorities are however of the opinion that they have other mechanisms under general Slovak

principles to challenge non-arm’s length prices between Slovak entities.

Based on transfer pricing principles the remuneration of the supplier should refl ect the risks borne and functions performed. In principle any method recognised by OECD could be used for the price determination (e.g. cost plus, resale minus, comparable uncontrolled price). It should be stressed however, that regardless of the method used if the price charged for the service or goods supplied is signifi cantly different compared to the prices charged for similar transactions by independent companies, the tax authorities would probably challenge the structure in place.

Formal transfer pricing documentation requirements are effective from 1 January 2009. The Ministry of Finance issued guidelines to transfer pricing documentation rules which should be followed by related parties in Slovakia.

For more information on real estate services in Slovakia, please contact:

Zuzana BlazejovaSenior Manager

KPMG in Slovakia Dvorakovo nabrezie 10811 02 BratislavaSlovakia

T: +421 2 599 84 111M: +421 905 740 000E: [email protected]

kpmg.sk

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.



50% of capital gains derived by a taxpayer from the disposal of shares in a company can be exempt from taxpayer’s taxable base, provided that:

• the shares represent a participation of at least 8% of the capital or the voting rights in the company;

• the shares have been held for at least six months;

• during the holding period at least one person was employed by the taxpayer; and

• the participation is not in a company resident in a low-tax jurisdiction.

On the other hand a lump-sum amount of 5% of the capital gains that were excluded from taxation is taxed, representing deemed expenses incurred with respect to the exempt capital gains (i.e. regardless of actual expenses relating to the management and founding of the participation).

If foreign group companies are managed from the territory of Russia, this may lead to the loss of tax residence of these companies in jurisdictions of their incorporation and creation of a taxable permanent establishment status in Russia. As a result additional tax costs may arise for the group.

CORPORATE INCOME TAX Resident companies are taxed on their worldwide income. According to the Corporate Income Tax Act (henceforth the Slovene CIT Act) revenues and expenditures disclosed in the profi t and loss account are adjusted for tax purposes.

From 2010 and onwards the corporate income tax rate is 20%.

Capital Gains Capital gains are generally recorded as ordinary income of the taxpayer (i.e. the CIT rate is 20% from 2010). However,

SLOVENIATax Summary



not be carried forward if the direct or indirect ownership of capital or voting rights of the taxpayer changes for at least 50% and where:

• the taxpayer, before the changes of ownership, has not carried out the business activity for two years, or

• the taxpayer has essentially changed its business activities in the last two years before or after the change of ownership,

unless the change of business activities is necessary for the continuation of employment or due to business restructuring.

Thin Capitalisation An instrument of thin capitalisation has been introduced into Slovenian legislation on 1 January 2007.

Except in the case of loan recipients that are banks or insurance undertakings, the interest paid on loans received from

Tax Depreciation Based on the Slovene CIT Act depreciation and amortisation may not exceed the level arrived at using the straight-line depreciation method and the maximum annual depreciation rates prescribed by the CIT Act. Any excessive amount should be treated as tax non-deductible expense until the asset is completely depreciated or disposed of.

Examples of maximum depreciation rates are:

• 3% for buildings and investment property

• 6% for parts of building projects, including parts of investment property

• 20% for equipment, vehicles and machinery

• 10% for other investments.

Tax Losses Tax losses may be carried forward for indefi nite period to be set off. Tax losses from the current and previous years may



Dividends No withholding tax is levied on any payments made by a Slovenian company to another Slovenian company that communicates its tax identifi cation number to the payer (procedure normally followed).

Under the Slovene CIT Act implementing the provisions of the EC Parent-Subsidiary Directive, dividends are exempt from withholding tax if the recipient is an EU company subject to a corporate income tax listed in the Directive and holds directly at least 10% of the capital or voting rights of the paying company. A continuous minimum holding period of two years is required. If the 2-year holding period has not yet elapsed, the exemption can be directly applied if the recipient lodges a bank guarantee.

Notwithstanding the above conditions, dividends are exempt from withholding tax if the recipient is an EU or EEA company that is unable to set off the Slovenian withholding tax because it benefi ts from a participation exemption regime in its country of residence. In such cases, any withholding tax already paid may also be refunded.

Interest and RoyaltiesAccording to the Slovene CIT Act implementing the provisions of the EC Interest and Royalties Directive, interest and royalty payments by resident companies are generally exempt from withholding tax, provided that at the time of the payment:

• the payments are made to the benefi cial owner which is a company of an EU Member State;

a shareholder who at any time during the tax period directly or indirectly owns at least 25% of the shares in the equity capital or voting rights of the taxpayer are not recognised as an expense, if at any time during the tax period the loans exceed the prescribed debt/equity ratio as follows:

• 2011 5:1

• 2012 and onwards 4:1

However, if the taxpayer can prove that the excess loan could be granted also by a non-related entity under same or similar circumstances, the thin capitalisation rules do not apply.

WITHHOLDING TAXGeneral the WHT rate is 15% and is taxed on payments of dividends, interest, royalties, lease payments for immovable property located in Slovenia, on payments for the performances of artists and sportsmen, provided that the payment is made to another person, and on payments for any services to an entity resident in more favourable tax countries (listed on the “black list”, which is published by the Slovene Ministry of fi nance).

Slovenia applies the EC Parent-Subsidiary Directive and Interest-Royalty Directive which reduce WHT to 0% when this income is paid to EU resident companies. If none of the aforementioned Directives can apply, there is also a possibility to apply the relevant Double Tax Treaty between Slovenia and the respective country.




General Provisions Regarding Real EstateGenerally, according to Article 44 of the Slovene VAT Act the sale of buildings, constructions and their parts is VAT exempt (except if the sale performed confi nes the fi rst occupation or is made before it, or if the sale is performed within two years from the fi rst occupation). However, in most cases taxpayers are able to give up the exemption if special conditions according to Article 45 of the Slovene VAT Act are fulfi lled, i.e.:

• the seller and the buyer of immovable property have made a joint declaration (regarding the VAT-able transaction) to the competent tax authority prior to the supply thereof, and

• the buyer of the immovable property has the right to full deduction of input VAT.

If the supply of immovable property is subject to VAT (according to Article 45 of the Slovene VAT Act), the VAT is payable by the buyer, registered for VAT in Slovenia (using the reverse charge mechanism according to Article 76a of VAT Act). In this case, the seller is obliged to report monthly to the Tax Authorities every taxable transaction with regard to the immovable property where using Article 76a of VAT Act (reverse charge mechanism).

In case of a VAT exempt sale of buildings, constructions and their parts, the transaction is subject to 2% real estate transfer tax.

The standard VAT rate in Slovenia is 20% (for land and buildings) and 8.5% (for residential properties before their fi rst

• the payer and the benefi cial owner are related so that a) the payer directly participates in the benefi cial owner’s capital with no less than 25%, or b) the benefi cial owner directly participates in the payer’s capital with no less than 25%, or c) the same company directly participates in the payer’s and the benefi cial owner’s capital with no less than 25%, where participation between the companies of the EU Member States is concerned;

• the duration of the minimum participation is no less than 24 months.

However, the exemption from withholding tax shall only apply to the amount of the payments that are not at arm’s length.

For the above-mentioned withholding tax exemption a special application shall be submitted to the Slovene Tax Authorities. If the conditions are fulfi lled; the Slovene Tax Authorities approve the application (i.e. exemption from WHT).

REAL ESTATE TRANSFER TAX Real Estate Transfer Tax is levied on the transfer of immovable property if VAT has not been charged on such property. It is applied to the market value of immovable property transferred.

The taxpayer is the seller of the immovable property unless otherwise agreed by the contract. The tax rate is 2% of the market value of the transaction.

TAX ON CIVIL LAW TRANSACTIONS (TRANSFER TAX) Slovenia does not impose special tax on civil law transactions.


VAT Refund under Domestic Law Since 1 January 2010 the standard refund period via VAT return has been shortened from 60 to 21 days.

Foreign VAT Refund under VIII DirectiveSince 1 January 2010 VAT reclaims under VIII Directive must be fi led with the local VAT authority (in the country where the requestor is registered) and not where VAT has been paid. VAT reclaim has to be fi led electronically.

EC Sales ListIn accordance with new VAT regulations, since 1 January 2010, monthly EC sales lists must be fi led by taxpayers, if they supply services to taxpayers from other EU countries where the reverse-charge mechanism was applied. Advisory services where VAT is charged in the recipient’s country have to be included. Services relating to local real estate where the VAT is charged locally are not to be reported.

The EC sales lists must be fi led by the 20th day of the following month and must be fi led electronically.

occupation). As from 1 January 2011, an 8.5% VAT rate applies only to residential properties (intended for permanent living), which are part of a social policy.

Lease of offi ce and rental space is in general also VAT exempt (except accommodation in hotels, lease of garages and parking areas, lease of permanently installed machinery and equipment and lease of safes). However, lease of offi ce and rental space might be subject to VAT if special conditions according to Article 45 of the Slovene VAT Act (mentioned previously) are met.

Place of Supply of Services Since 1 January 2010, new regulations on the place of supply of services have been introduced. Generally, the place of supply of services to a taxpayer registered for VAT purposes in another EU country or third country is the place where the purchaser has its seat, permanent place of residence or permanent place of carrying out business. However, in case the supply of services is made to a person other than taxpayers, the place of supply of services is where the service provider has its seat, permanent place of residence or permanent place of carrying out business.

However, in case of services related to real estate, the place of supply of services is where the real estate is situated.

The advisory services provided to a non-taxpayer (i.e. entity not registered for VAT purposes in Slovenia or in another EU country) having its seat or permanent place of residence outside of the EU are subject to taxation where the purchaser has its seat or permanent place of residence.

For more information on real estate services in Slovenia, please contact:

Nada DrobnicPartner

KPMG in Slovenia Zelezna cesta 8a, LjubljanaSlovenia

T: + 386 1 2364 300 M: + 386 1 2364 349E: [email protected]

kpmg.si

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


CORPORATE PROFITS TAX AND CAPITAL GAINS The current CPT rate is 25%. The indicated CPT rate is to decrease gradually as follows:

• 23% since 1 April 2011

• 21% since 1 January 2012



CPT is calculated on a self-assessed and currently adjusted basis for each reporting period. The reporting period consists of three full calendar months (a quarter).

CPT is levied on the worldwide income of all legal entities that are resident in Ukraine for CPT purposes. The taxable CPT base is calculated as adjusted gross worldwide income less deductible expenses and tax depreciation allowance. Gross worldwide income

GENERAL PROVISIONS Effective from 1 January 2011, Ukrainian tax legislation has been codifi ed into the Tax Code of Ukraine (the “Tax Code”). As a result, the Ukrainian tax system has undergone certain changes and developments, including in terms of tax rates, rules of depreciation, introduction of new taxes (like property tax), etc. Similar to previous tax legislation, provisions of the Tax Code remain, to a great extent, ambiguous and may be further subject to numerous interpretations.

The major taxes and statutory charges in Ukraine include corporate profits tax (CPT), value added tax (VAT), personal income tax (PIT), withholding tax (WHT) and payroll (social security and pension) charges. In addition, land tax, real estate tax and state duties and statutory charges are associated with real estate and land owning and disposition in Ukraine.

UKRAINE Tax Summary




includes any income from the sale of goods (works, services), gains from dispositions of fi xed assets, foreign exchange gains, gratuitous transfers and other taxable receipts that are received or accrued by the taxpayer in the reporting period either in cash, in kind or in intangible form. Such gross worldwide income is then adjusted to factor certain items that are exempt from taxation in Ukraine (e.g., dividends received from Ukrainian companies, etc.). The taxable CPT base of certain taxpayers (e.g., banks, insurance companies, etc.) is determined using special tax rules.

From a CPT perspective, most business-related costs are deductible for tax purposes, with some exceptions for costs whose tax deductibility is restricted (e.g., costs of receptions, celebrations and similar events for advertising and promotion purposes; expenses incurred by legal entities on the purchase of goods and services from private entrepreneurs-payers of unifi ed tax) or disallowed (e.g.,

contractual penalties and expenses not connected with business activity).

The Tax Code introduces the following novelties with regard to the deductibility of expenses for CPT purposes (the full list of non-deductible expenses is much more comprehensive):

• expenses incurred on consulting, marketing and advertising fees paid by Ukrainian companies to non-resident service providers (except for payments made to Ukrainian permanent establishments of non-residents) in excess of 4% of sales proceeds (net of VAT and excise duty) of the previous year. If the above service fees are paid to non-resident service providers located in the so-called black-listed offshore jurisdictions (the list of such jurisdictions is to be established by the Cabinet of Ministers of Ukraine) they will not be deductible for CPT purposes regardless of the amount paid;

• fees for engineering services paid to non-resident service providers (except for payments made to Ukrainian permanent establishments of non-residents) in excess of 5% of the customs value of the imported equipment, as well as engineering service fees paid to non-resident service providers located in black-listed offshore jurisdictions or to non-residents who are not benefi cial owners of the engineering service fees;

• advance payments for goods and services made both to residents and non-residents.

Subject to certain limited exceptions, dividends paid by a Ukrainian company are usually subject to advance CPT at a standard CPT rate that is paid on or before



the dividend distribution. The advance CPT can be credited against current or future CPT liabilities of the Ukrainian company. Until recently, Ukrainian companies, in most cases, enjoyed full participation exemption in relation to all dividends received from other Ukrainian companies. At the same time, dividends received from foreign companies were taxable in the hands of the recipients. This rule has been amended so that to extend the participation exemption to dividends from foreign affi liates of Ukrainian companies. As a result of amendment, CPT exemption of dividends received by Ukrainian corporate shareholders from Ukrainian-controlled businesses and foreign controlled affi liates located in non-tax haven jurisdictions has been introduced. However, according to the new rules, a shareholding of not less than 20% of the capital of the dividend paying company is required for the dividend recipient to benefi t from the abovementioned participation exemption.

Capital GainsThere is no separate capital gains tax, but gains on the disposal of fi xed assets and intangibles are added to the taxpayer’s mainstream income (gains from the sale of real estate property are taxed at regular CPT rate). For the seller, profi t on the sale of assets is added to the mainstream income subject to corporate income tax at normal rates. On disposal, the taxpayer can deduct the net tax value of the assets and associated disposal expenditures.

In case of a sale of shares in a Ukrainian company held by a non-Ukrainian shareholder typically the double tax treaties Ukraine has concluded with other countries provide for a taxation right of respective

capital gains in the jurisdiction of the shareholder. However, in some double tax treaties sales of shares in a Ukrainian company, the value of which relates primarily to immovable assets, may be subject to a 15% withholding tax in Ukraine.

Tax Depreciation Depreciation rules currently in effect until 1 April 2011

All depreciable assets (except for intangibles) are pooled in four groups as follows:

Group 1 – buildings, premises and their integral parts;

Group 2 – vehicles and vehicle spare parts; electronic, optic, electro-mechanic devices and instruments; furniture and offi ce equipment, etc.;

Group 3 – other fi xed assets which are not included into Groups 1, 2 and 4;

Group 4 – computers, servers and other electronic devices, information systems, computer software, telephones, microphones, etc.

Capitalised costs can be depreciated (amortised) starting from the taxation period (quarter) following the quarter in which the depreciable assets are put into operation. The undepreciated (declining) balance method is prescribed for all four classes of depreciable assets, except for intangibles which are accounted for separately and are amortised using the straight-line method over their useful life up to 10 years. The undepreciated tax balance can be indexed on an annual basis to factor annual infl ation.

Technically, depreciation charges are usually calculated by multiplying the

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


undepreciated tax balance of a group at the beginning of the relevant quarter by the prescribed depreciation rate, except for real estate that is depreciated on an item-per-item basis. The quarterly tax depreciation rates for depreciable assets which were put in use after 1 January 2004 are as follows:

Group 1 – 2%,

Group 2 – 10%,

Group 3 – 6%,

Group 4 – 15%.

The cost of each real estate object is depreciated separately until the undepreciated balance reaches UAH 1,700 (which currently is approximately USD 215).

Depreciation RulesThe Tax Code provides for new depreciation rules starting from 1 April 2011. It, thus, provides for 16 groups of fi xed assets and six groups of intangible

assets which can be depreciated under one of fi ve depreciation methods chosen upon the tax payer’s discretion.

The Tax Code specifi cally provides for the following amortisation methods for depreciable assets:

1) the straight-line method, whereby the annual depreciation amount is determined by division of the depreciable value by the term of the asset’s usage;

2) the residual value reduction method, whereby the annual depreciation amount is determined as the product of the residual value of the object as of the beginning of the reporting period or the initial value as of the date of commencement of the depreciation, and the annual depreciation rate. The annual depreciation rate shall be calculated as the difference between one and the result of the root of the degree of the number of years of the term of the asset’s usage taken on



the result of the division of the disposal value of the object by its initial value;

3) method of accelerated reduction of a residual value, whereby the annual amount of depreciation shall be determined as a product of the residual value of an object as at the beginning of a fi scal year or the initial value as at the date of the beginning of depreciation accrual and annual depreciation allowances to be calculated on the basis of the term of the asset’s usage, and doubled;

4) the cumulative method, whereby the depreciation amount is determined as the product of the depreciable value and the cumulative factor. The cumulative factor shall be calculated by dividing the number of years remaining till the end of the term of the asset’s usage by the sum of the years of the term of the asset’s usage;

5) the production-based method, whereby the monthly depreciation amount is determined as the product of the actual monthly volume of products (work, services) and the production depreciation rate. The production depreciation rate shall be calculated by dividing the depreciable value by the total volume of products (work, services) the enterprise expects to produce (perform) using the depreciable object.

Costs incurred in connection with construction/acquisition of fi xed (production) assets are generally tax depreciated. Annual costs related to repair, reconstruction, modernisation and other improvements of fi xed assets may be deducted for CPT purposes within the

limit of 10% of the historic tax value of the plant. Costs above this limit should be included into the tax value of a plant and depreciated.

Tax Losses In Ukraine, operating and capital losses (i.e. losses realised on the sale of securities and corporate rights) may be carried forward to the fi rst quarter of the following tax year. No loss-carry back is allowed. It appears that this approach can be used without time limitations.

In practice, the Ukrainian Parliament often enacts legislation that effectively “cuts-off” operating losses available for carry-forward. Specifi cally, pursuant to the 2007 Budget Law, pre-2006 operating losses which were not utilised in 2006 could not be utilised in 2007, or in subsequent tax periods. The 2008 Budget Law as well as the 2009 Budget Law did not introduce any provisions limiting the carry-forward of 2007 or 2008 losses to 2009. The 2011 Budget Law did not introduce any loss carry-forward restrictions. However, it remains possible that further tax losses carry forward limitations may be enacted by special tax laws later.

In addition please note that if the taxpayer reports losses during four subsequent tax periods (quarters), the tax authorities may perform an ad hoc tax audit.

Capital losses (i.e., losses realised on the sale of securities and corporate rights) are accounted for separately and can be used to shelter capital gains realised in subsequent taxation periods without any limitation. However, cumulative net capital losses realised on the sale of one type of securities (e.g., shares) may not be set off against capital gains realised

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.92 | Guide to Taxes on Real Estate in CEE and CIS

on the sale of another type of securities (e.g., investment certifi cates).

VALUE ADDED TAX (VAT) In general terms, VAT is levied on the supply of goods and services in Ukraine, and on the importation of goods and services to Ukraine, at a rate of 20%. Starting from 1 January 2014 the VAT rate will be reduced to 17%.

Export supplies of goods and related services are zero rated. VAT charged on goods and services imported by Ukrainian VAT taxpayers from non residents (with no permanent establishment in Ukraine) is collected through the reverse-charge mechanism. This mechanism implies self-assessment and payment of VAT by the Ukrainian importer in (or for) the tax period (month) by the Ukrainian importer as and when the goods or services are imported to Ukraine, and this paid VAT can usually be claimed as an input VAT credit in the subsequent tax period (month).

Under the VAT law, VAT payable to the state budget is determined as the difference between VAT collected from customers (output VAT) and VAT paid to suppliers (input VAT). Input VAT can be credited against VAT liabilities in computing the fi nal VAT payable to (or refundable from) the budget. If a taxpayer makes both supplies subject to VAT (VAT-able) and VAT-exempt supplies, the input VAT credit is determined on a pro-rata basis.

A Ukrainian company must be registered for VAT purposes if its VAT-able supplies exceed the threshold of UAH 300,000 (approximately USD 38,000) for any 12-month period preceding the particular date.

VAT is applicable to acquisitions of real estate, e.g., purchase of a building, purchase of a building together with a land plot; purchase of a building to be demolished, etc., but not to acquisition of undeveloped land or land transferred separately from a building.

Supplies of certain goods and services are exempt from VAT. For example, transactions related to disposal of shares and/or participatory interests in Ukrainian entities are classifi ed as VAT exempt transactions.

Restrictions Regarding Obtaining a VAT Refund Generally, input VAT can be recovered by the VAT payer provided it was paid in connection with the purchase of (i) goods or services which are used in the VAT-able business transactions of the VAT-payer, or (ii) fi xed assets that are used by the VAT-payer in its VAT-able business activity. To be eligible for VAT credit (i.e., a deduction from output VAT), VAT paid should be supported by VAT invoices or customs declarations. VAT invoices can only be issued by VAT payers.

VAT can potentially be recovered by means of (1) a credit against output VAT, or (2) a refund from the budget.

There are certain restrictions in respect of VAT refunds in cash. Specifi cally:

• a person must be registered as a VAT payer at least 12 months prior to fi ling for a VAT refund in cash except for in-put VAT incurred on the purchase/construction of fi xed assets, as determined by the Cabinet of Ministers of Ukraine;

• VAT-able transactions for the 12-month period preceding the date of fi ling


a VAT refund request must exceed the amount of VAT claimed as a refund in cash except for in-put VAT incurred on the purchase/construction of fi xed assets;

• a VAT payer cannot claim a cash refund of VAT that would exceed VAT actually paid to its suppliers in the preceding tax periods (including the fi rst 12 months of operation).

In practice, the government has been very inconsistent in providing VAT cash refunds, and it can be very diffi cult to receive a cash VAT refund. Only VAT receivables that are audited and confi rmed by the tax authorities are eligible for conversion.

PAYROLL CHARGESPayroll charges due from a company (including various pension and social security charges) amount to approximately 38% of the salaries paid. However, the tax base for the calculation of such charges is currently capped at UAH 14,115 (approximately USD 1,775) per person per month. Companies are also liable for withholding a 15% personal

income tax (17% in case the individual’s income exceeds 10 minimal wages) along with various payroll charges of up to 3.6% due by employees (but, again, the payroll withholdings – other than for personal income tax – apply only up to the capped amount).

WITHHOLDING TAX Certain income (mostly passive-type income such as interest, dividends, royalties, rents and similar payments) paid to non-resident persons from Ukrainian sources is generally subject to a 15% withholding tax, unless mitigated or reduced by a relevant double tax treaty.

LAND TAX In general terms, land tax is levied on land owners or land users (where land is owned by the state or municipal authorities and is rented to such users). The specifi c rate of land tax is calculated individually depending on the nature and location of the land, and is paid on an annual basis. The tax rates also vary from one administrative district to another. The land tax rates tend to be relatively small for the rural areas, but can be signifi cant for large cities. Land tax

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.


rates are usually smaller for agricultural lands, and bigger for lands of industrial designation.

REAL ESTATE TAX At present there is no real estate tax in Ukraine.

Starting from 1 January 2012, real estate tax will be levied on the owners of residential real estate if the area of the property exceeds minimum thresholds (120 square metres for apartments, 250 square metres for stand-alone houses). The tax rates should be determined by the local authorities per 1 square metre The tax rate for real estate with an area below 240 square metres for apartments and 500 square metres for stand-alone houses may not exceed 1% of the minimum monthly wage established as of 1 January of the reporting (tax) year (currently – UAH 941 (approximately USD 117)). The tax rates for apartments and stand-alone houses larger than 240 and 500 square metres respectively shall not exceed 2.7% of the minimum monthly wage established as of 1 January of the reporting (tax) year.

OTHER ISSUESAs a related matter, it should be noted that upon acquisition of the real estate the following charges will apply:

State DutyLand: 1% of sale price

Real estate: 1% of sale price

Pension Fund Duty 1% of sale price of real estate

Statutory FeesStatutory fees are payable by all legal entities and individuals in respect of the issuance of certain real estate documents by state authorities and notaries (including formalisation of title documents, certifi cations of sale and purchase agreements, etc.). The rates vary depending on the nature of the executed deed.

Statute of Limitations The Ukrainian tax law provides for a three-year statute of limitations. Generally, tax underpayments identifi ed after the elapse of a three-year period can no longer be enforced. However, this statute does not apply if an intentional underpayment of tax is proved or if returns for a particular period were not fi led with the tax authorities.

For more information on real estate services in Ukraine, please contact:

Craig Richardson Head of Tax and Legal

KPMG in Ukraine 11 Mykhaylivska Str.,Kyiv, 01001, Ukraine

T: +380 44 490 5507 F: +380 44 490 5508E: [email protected]

kpmg.ua

© 2

011

KP

MG

Cen

tral

and

Eas

tern

Eur

ope

Ltd.

, a li

mite

d lia

bilit

y co

mpa

ny a

nd a

mem

ber fi

rm

of t

he K

PM

G n

etw

ork

of in

depe

nden

t mem

ber

fi rm

s affi l

iate

d w

ith K

PM

G In

tern

atio

nal C

oope

rativ

e (“

KP

MG

Inte

rnat

iona

l”),

a Sw

iss

entit

y. A

ll rig

hts

rese

rved

.

Complexity is accelerating. How you react will defi ne

performance, success and reputation. KPMG professionals

help you cut through the new complexity, to a more profi table

and sustainable future.

kpmg.com/cee

© 2011 KPM

G C

entral and Eastern Europe Ltd., a limited liability com

pany and a mem

ber fi rm of the KPM

G netw

ork of independent mem

ber fi rms affi liated w

ith KPMG

International Cooperative (“KPM

G International”),

a Swiss entity. A

ll rights reserved. The KPMG

name, logo and “cutting through com

plexity” are registered trademarks or tradem

arks of KPMG

International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.


Contact us

Eva DoylePartner

KPMG in the Czech RepublicPobrezni 1a, 186 00 Praha 8Czech RepublicT: +420 222 123 564M: +420 602 738 591 E: [email protected]

Honorata GreenPartner

KPMG in Poland ul. Chlodna 51 00-867 WarszawaPolandT: +48 22 528 11 53 M: +48 604 496 370 E: [email protected]

www.kpmg.com/cee

Guide to Taxes on Real Estate in CEE and CIS

Documents

Transcript of Guide to Taxes on Real Estate in CEE and CIS