It is possible for sole-shareholder s.r.o.s to transfer the assets and liabilities of his/her s.r.o. to themselves by striking the company via a transformation of its equity (merging the company into themselves). This process transfers the mortgage (and other assets and liabilities) to the sole shareholder directly without requiring repayment of the loan first, is exempt from the 3% transfer tax and does not result in a sale or change in tax basis in the s.r.o. This is an amazing opportunity to reduce overhead costs of a residential real estate investment, especially those that purchased real property through an s.r.o. prior to the changes in 2005 and 2009 enabling direct personal ownership.
This process, called přeměna in Czech, takes about 2 months to conclude. The shareholder to receive the assets and liabilities of the s.r.o. must be a self-employed business person (with the same trades as the s.r.o.) and temporarily (přechodně) or permanently (trvalé) resident in the Czech Republic. Transformation of equity in a Czech LLC on to its sole shareholder is primarily regulated under the Commercial Law, 513/1991 Sb, § 68. The process takes about 2 months to complete, from beginning to end. The major steps are as follows:
- The transforming company publishes a project proposal to convey its equity onto an eligible shareholder, generally a sole-proprietor, and files this proposal with the commercial court.
- After a month-long waiting period to collect objections from creditors, the company holds a notarially-certified decision of the sole shareholder to wind up the company via transformation of equity and files this with the commercial court.
- Following the approval of the court, the receiving person must transfer the name of assets listed in the name of the company (ie, land, buildings) to his/her name, perhaps negotiate new mortgage or loan agreements with a bank.
- Usually, property that will not be used commercially by the sole-proprietor is then withdrawn from the commercial property of the sole proprietor. So long as there are no cumulative profits to deal with, there should be no profit to tax.
It is important to note that a transformation materials changes the terms of the company’s relationship with creditors, such as a bank. We always try to work with your bank from the beginning to avoid surprises and manage a smooth transition. As part of the process we routinely negotiate the sale/gifting of shareholdings in multi-shareholder s.r.o.s to a single shareholder (as often the case of married couples), negotiate the terms of transformation with the bank, form a sole proprietorship to receive the assets and liabilities of the transforming company, coordinate the preparation of a new mortgage agreement, and transfer titles on real property at the Land Registry.
This is a relatively quick and painless way to achieve immediate simplification and cost savings in owning property in the Czech Republic. Please feel free to contact us to discuss your situation.
