How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Private Client (2nd edition)
The purchase of Israeli real estate (directly or indirectly through a company) is generally subject to purchase tax (at the rate of 6% for commercial Israeli real estate, and at the rate of 8% or 10% for residential assets). The sale is subject to capital gains tax (generally at a rate of 25%) or a corporate tax rate in case of a sale of real estate by a company (at a rate of 23%). For this purpose, the term real estate may include interests in entities holding real estate.
Betterment tax ("hetel hashbach") of 50% of the increase in value of the property created by re-zoning (for example, additional building rights were granted or other benefits affecting the value of the apartment by the planning authorities) may apply by the local zoning municipal authority at the sale of real property.
Irish source income, for example rental income from an Irish situate property, will be subject to income tax in Ireland on an arising basis, regardless of the tax profile of the tax payer. Non-resident individuals will be subject to withholding tax where they do not appoint an Irish resident agent to collect the rent and pay the tax due.
Capital gains arising on the disposal of ‘specified assets’, which are defined in Section 29 TCA 1997 as including land and buildings in Ireland, will be subject to CGT on an arising basis.
CAT will be imposed on a gift / inheritance of Irish situate property held by the donor personally. However, where Irish situate property is held by a non-Irish resident company, and the shares in such company are the subject of a gift / inheritance, the charge to CAT should not arise where the disponer of the shares is not domiciled in Ireland.
Stamp duty is charged on instruments, specified in the First Schedule to the Stamp Duty Consolidation Act 1999, which (a) are executed in Ireland or, (b) relate to any property situate in Ireland or to any matter or thing done or to be done in Ireland (irrespective of where they are executed). The rate of stamp duty applicable to the sale or transfer of residential property is 1% for the first €1,000,000 and 2% for any value over €1,000,000. The rate of stamp duty applicable to the sale or transfer of non-residential property is 6%.
Local property tax (“LPT”) is an annual self-assessed tax on residential properties, payable to the Revenue Commissioners. LPT is calculated based on the market value of the property at the valuation date. Taxpayers are required to self-assess for LPT.
Real property is subject to an annual tax which is calculated on its deemed income (‘cadastral income’). If the real property is not rented out or if the annual rental income does not exceed EUR 2.500, then no other taxes are due and no tax return has to be filed by the non-resident owner. If the annual rental income exceeds EUR 2.500, a non-resident income tax return must be filed and the income will be taxed at progressive rates of 25% up to 50%.
In case of a taxable capital gain realised by a non-resident on the sale of his real property, the tax will be withheld from the purchase price by the notary.
Real property taxes are not imposed at the federal level. In the US, taxes on real property are imposed at the state or local level and the tax rates of the states and local jurisdictions vary significantly. State and local governments levy taxes on real property situated within their jurisdictions, regardless of the citizenship of the owner. Property tax is generally determined by the property tax rate and the tax base. The tax base is determined by the assessed value of the property and assessment ratio. The methods for assessing property tax rates vary from jurisdiction to jurisdiction.
A property owner who has no connection with the jurisdiction other than ownership of property there should be mindful of the Foreign Investment in Real Property Tax Act (FIRPTA), which authorizes the US to tax nonresidents on dispositions of US real property interests. A disposition includes, but is not limited to, a sale or exchange, liquidation, redemption, gift or transfer. Persons purchasing US property interests from nonresidents are required to withhold 15% of the amount realized on the disposition. If the purchaser fails to withhold, the purchaser may be liable for the tax.
There is no immovable property tax in Cyprus, and no special taxation of property owned by an individual who has no connection with the jurisdiction other than ownership of property there.
Rental income from Austrian located property earned by an individual having neither its domicile nor its habitual abode in Austria will generally be subject to Austrian limited income tax liability. The same applies with respect to capital gains realised upon the sale of Austrian real estate. In addition, buying and selling Austrian real estate triggers a 3.5% Austrian real estate transfer tax.
Real estate properties (rights in rem inclusive) in Bulgaria are subject to two main taxes:
Tax on onerous acquisition of property. The person liable to pay the tax is the transferee, unless otherwise agreed by the parties to the contract. The transferor is liable to pay the tax where the transferee is abroad. The tax base is the higher of either the transfer price or the taxable value of the property determined by the municipality.
The tax rate is from 0.1% to 3%.
The tax is payable upon the transfer of the property.
Property tax is payable yearly for real estate properties in Bulgaria irrespective of the owner’s nationality and the use of the property. Tax is paid by:
- owners of taxable real estate properties;
- owners of buildings constructed on state or municipal land;
- persons holding an in rem right to use;
- persons who have been allocated the management of state or municipal real estate properties.
Where ownership is held jointly by several persons, each person is liable to tax in proportion to their respective share.
The tax base is a tax assessment determined by the municipal authorities on the basis of the information provided by the owner of the property in a tax return which must be submitted within 2 months of acquisition (6 months if the property has been acquired through inheritance).
The rate of the tax is from 0.1 to 4.5 per mille.
Tax credits are available as follows:
- properties used as a main residence qualify for a 50% tax credit;
- properties used as a main residence by a person with a 50 to 100 % working incapacity qualify for a 75% tax credit.
The tax is payable from 1 March of the year for which it is due in two equal instalments – until 30 June and until 30 October. Individuals that pay the full amount by 30 April benefit from a 5% tax credit.
Real estate properties in Bulgaria are also subject to a waste management fee, which is a municipal fee for the maintenance and cleaning of the public areas and for the collecting, removal and processing of waste.
Individuals owning a real property in Argentina shall pay the following taxes:
- Real Property Tax (Impuesto Inmobiliario) at Provincial Level, must be paid annually, in one or several instalments that expire in the months of February, April, June, August and October. The tax is composed of a fixed amount (from ARS 150 to ARS 85,975, for the fiscal year 2018) and a tax rate to be applied on the surplus of the established minimum of the scale which goes from 0,02% to 1,25% and varies according to the type of property and the fiscal valuation carried out by the Land Registry and Territorial Information Service (being the minimum and maximum, ARS 179,851 and ARS 10,000,000, respectively). In the year 2018 Buenos Aires Province Revenue Agency (ARBA for its acronym in Spanish) has made a sharp increase in the revaluation of real property situated in the Province.
- Sweeping and Cleaning, Maintenance Fee (Tasa por Alumbrado, Barrido y Limpieza) at Municipal Level, must be paid annually, in one or several instalments, with rates which are usually between 0.30% and 0.40% applicable on the fiscal valuation carried out by the Land Registry and Territorial Information Service.
- Personal Asset Tax (Impuesto sobre los Bienes Personales) at a Federal Level. As mentioned in Question 4 above, through the Substitute Taxpayer.
- Real Property Transfer Tax (Impuesto a la Transferencia de Inmuebles) at a Federal Level), in the event the individual sales its real property provided this was acquired before January 2018. Tax rate 1,5% that the notary will withhold and pay to AFIP.
- Income Tax (Impuesto a las ganancias persona física): (i) if the individual rents its real property, the tenant should withhold 21% (which is the effective tax rate in this case, tax rate of 35% applicable to the net income which the ITL presumes is 60%) and pay to AFIP. (ii) If the individual sales its real property and this was acquired on or after January 2018, the notary will withhold income tax at the rate of 15% (incorporated by Law 27.430).
Monaco does not levy any wealth tax or local taxes on properties. There is no property occupancy tax.
Stamp duties are levied upon transfer of ownership of real property.
There is an annual reporting obligation for foreign companies, trusts and other entities holding real estate in Monaco to appoint a local fiscal agent whose duty is to file an annual declaration regarding the change or the absence of change of beneficial ownership. Subject to certain exemptions, if there has been a change of beneficial ownership, a transfer duty of 4.5 or 7.5 per cent of the market value of the property is due. The applicable tax rates vary depending on whether the transaction is carried out for the benefit of persons that meet the transparency criteria set out by the legislation enacted in 2011.
Such real property is subject to wealth tax on Italian real estate, which is levied at the general rate of 0.76% on the deemed value of the property resulting from the Land Registry. If the property is rented out, then the rental income is subject income tax. Upon certain conditions, the rental income from an Italian real property can be subject to an optional flat tax at the 21% rate on the gross rent, rather than progressive tax rates on the rental income. The real property is also exposed to inheritance and gift tax (if the reported value is at least equal to the aforementioned deemed value, then the reported value cannot be challenged by the tax authorities). Capital gains from the sale of the real property are not taxable provided that either the property was inherited or it has been owned for at least 5 years.
If an individual owns property in Bermuda an annual land tax applies, regardless of whether the individual is resident in Bermuda or not.
This is assessed semi-annually and is linked to the notional rental value of the property (which is set by the Accountant General). The rates are stepped and range from 0.8% for a notional annual rental value of under BM$11,000 to 47% for the portion of notional rental value above BM$120,000.
8.1 The value of real property situated in the UK (and of non UK property representing the value of UK residential property) is included in the estate (§5.3) of the owner for the purposes of inheritance tax (§5) even where the owner is neither domiciled (§1.9) nor deemed domiciled for inheritance tax purposes (§5.9) in the UK, although debt (such as a mortgage loan from a bank used to purchase the property) may generally be deducted from that value.
8.2 Rent derived by an individual (whether or not UK-resident (§1.5-1.7)) from real property situated in the UK is subject to income tax (§2.1; §3.2).
8.3 An individual (whether or not UK resident (§1.5-1.7)) who realises a chargeable gain (§2.7) on the disposal (§2.8) of UK residential property is charged to capital gains tax (§2.6), subject to an exemption which is fully available (on conditions) where the property has been his main or only residence throughout his period of ownership, and may be partially available where that has been the case for only part of that period.
8.4 An annual tax known as the annual tax on enveloped dwellings ("ATED") is charged, subject to reliefs, on companies which own UK residential property with a value of £500,000 or more.
8.5 Purchasers (whether or not UK-resident (§1.5-1.7)) of UK real property must normally pay stamp duty land tax on the purchase price. This tax is charged at progressive rates, with the highest rate for an individual purchaser of UK residential property applying to the excess of the price over £1,500,000, and generally being 12% (or 15% if the individual already has at least one residential property anywhere in the world and the new property is not to replace his main home).
8.6 Local authorities impose council tax on UK residential property, with the rate of tax depending principally on an assumed capital value of the property (based on 1991 prices for England and Scotland and 2003 prices for Wales).
8.7 Business rates are charged on most UK non-domestic properties, such as shops, offices, public houses, warehouses, factories, holiday rental homes and guest houses. Business rates are based on the open market rental value of the property on 1 April 2015, which is estimated by the Valuation Office Agency.
The following taxes apply to a non-resident individual’s real property:
- Property tax:
Real estate held by an individual is subject to taxation at a municipal level at an applicable rate of 0.5 per cent to 1.6 per cent based on the valuation of the real state assets made by the municipalities where the asset is located.
- Transfer tax:
Transfers of immovable property trigger transfer tax liability at a 1% rate, which is satisfied through withholding, and also notary fees and land registry taxes at 0.27% and 1.5% of the purchase price, respectively.
- Presumptive income tax:
Presumptive income tax is equivalent to a percentage of the taxpayers net equity of the prior taxable year. Taxpayers shall only pay income tax under this system when the presumptive income basis is higher than the ordinary income. The net equity is determined by subtracting the liabilities from the gross equity (assets) owned by the taxpayer on the last day of the year or taxable period.
Presumptive income corresponds to 1.5% for fiscal years 2019 and 2020 and as from 2021 it will be 0%.
In relation to individuals, the base of presumptive income of the taxpayer is compared only with the general basket income.
- Net Worth Tax:
As of January 1st, 2019, a net worth tax for FYs 2019 to 2021 is triggered on the possession of a net worth as of January 1st, 2019 equal to or in excess of COP $5.000.000.000 (Approx. USD 1.539.000).
This tax applies to individuals and foreign entities. In the case of resident individuals, this tax is based on worldwide assets and in the case of non-residents individuals and non-resident entities it is based on Colombian situs assets other than shares, accounts receivables and/or portfolio investments, for example real estate, aircrafts, yachts, boats, speedboats, art or oil and mining titles.
The Net Worth Tax rate is 1%.
N/A. There is no property tax in the Cayman Islands.
Generally, a sale of German real property held by a non-resident as a private asset will only be taxable if the holding period does not exceed 10 years. Rental income from the property will be taxable in Germany as well. Also German inheritance or gift tax may apply with respect to the property (see No. 5 above). Furthermore, an annual property tax may be due (on the basis of an assessed uniform value of the property) at the discretion of the relevant local authority. A transfer of German real estate or a transfer of shares (at least 95%) in a company holding German real estate may trigger real estate transfer tax at 3,5 – 6,5%.
Generally, stamp duties are charged on conveyance or transfer of any interest in real property in Singapore. In a typical residential property transaction, these three types of stamp duties are payable –
- Seller's Stamp Duty ("SSD") – SSD is payable if the property was acquired after 20 February 2010 and sold within the specified holding period (e.g. for properties purchased on or after 11 March 2017, the holding period is 3 years). SSD ranges from 0-16% on the value of the property, depending on the dates of purchase and sale.
- Buyer's Stamp Duty ("BSD") – BSD is charged at up to 4% of the property value.
- Additional Buyer's Stamp Duty ("ABSD") – ABSD is charged in every residential property transaction save for Singapore Citizens purchasing their first properties. ABSD rates range from 5% (for a Singapore Permanent Resident purchasing his / her first property) to 25% (for an entity purchasing any property). A foreigner purchasing any residential property would be liable for ABSD at 20% on the property value.
Property tax is charged on the annual value of every immovable property at progressive rates ranging from 0 - 20%, depending on –
- the annual value band applicable to the property;
- whether the property is residential or non-residential;
- whether the property is owner-occupied.
Annual value refers to the gross amount at which the property can reasonably be rented out for a year. Valuation of properties is determined by the revenue authority. Neither the chargeability nor the rates of tax is affected by the residence, nationality or citizenship of the owner.
Portugal levies property taxes regardless of the residency of the owner. Sale of real estate property is subject to real estate transfer tax (IMT), with rates up to 6,5% in general and 10% for buyers located in lower tax jurisdictions. Ownership of property is taxed under IMI, with rates up to 0,45% for urban property, 0,8% for rural property, 7,5% for holders located in lower tax jurisdictions. An additional IMI of 0,4% to 0,7% is applicable to high value property (tax value above € 600.000).
Several French taxes may be due by a non-resident individual owning a real estate property located in France, upon its acquisition (§ 8.1.), during its ownership period (§ 8.2.) upon its sale (8.3.) and upon its transfer by gift or by death (8.4).
8.1. French taxes due upon the acquisition of a French real estate property by a non-resident individual
Transfer duties at the rate of approximately 6.20% (computed on the purchase price of the real estate property) as well as French notary’s fees should be paid by the purchaser regardless it is an individual or a company resident or non-resident of France.
The purchase of the shares of a company (French or foreign) owning a French real estate property which qualify as “société à prépondérance immobilière” is also subject to 5% transfer duties computed on the purchase price of the shares.
The definition of “société à prépondérance immobilière” for transfer duties purposes is different from those applying to wealth taxes (ISF/IFI), gifts and inheritance taxes and to capital gains taxation (see below).
8.2. French taxes due during the ownership period of a French real estate property by a non-resident individual
- Income tax is due on rental income received as explained in § 2.2.
- ISF was due up until January 1st 2017 as explained in § 4.1.
The concept of “société à prépondérance immobilière” (real estate company) and of real estate properties indirectly held by companies controlled (more than 50%) by the same family members allowed France to tax non-resident individuals regardless the ownership structure used to hold the French real estate properties.
- IFI is due as from January 1st 2018 as explained in § 4.2.
The scope of IFI is broad enough to include real estate properties indirectly owned by a non-resident individual through a trust, intermediate entities or companies (French or foreign) regardless their activities.
- Taxe foncière is a local tax which is annually due by the owners of French real properties regardless their quality (individuals or companies) and their country of residence.
- Taxe d’habitation is another local tax which is annually due by the users of French real properties regardless their quality (individuals or companies) and their country of residence.
8.3. French taxes due upon the sale of a French real estate property owned by a non-resident individual
The sale of a French real estate property by non-resident individuals is subject to French income tax on capital gains realised as explained in § 2.2.
Capital gains realised on the sale by non-resident individuals of shares of companies (French or foreign) qualifying as “sociétés à prépondérance immobilière” is also subject to income tax.
8.4. Transfers by gift or by death of a French real estate owned by a non-resident individual
They are subject either to gift tax or to inheritance tax as explained in § 5.
The concept of “société à prépondérance immobilière” (real estate holding company) and of real estate properties indirectly held by companies controlled by the same family members allowed France to levy gift and inheritance tax on non-resident individuals regardless the ownership structure used to hold the French real estate.
However the definition of “société à prépondérance immobilière” given by the French tax code is different for wealth taxes (ISF/IFI), gift and inheritance tax purposes, for transfer duties purposes and for capital gains taxation purposes (see our comments in § 2.2.).
Non-residents are taxed based on a notional income of 4% on the tax value of the respective property. The maximum rate is 24%.
Real estate located in Mexican territory is taxed by a local tax called “Predial”.
This tax shall be paid annually, and it is calculated by applying the rate foreseen in each state on the catastral value of the real estate, calculated in accordance with the procedure stated in each local law. In Mexico City, the tax rate can go from 1.5% to 20% on the value, depending on the catastral value of the property.
Assuming that the individual who owns the real estate is a foreign resident, he can also be taxed with income tax or value added tax, depending on the activities to which such real estate is being subject in Mexican territory.
Individuals who own real estate in the national territory shall pay income tax in the event that they decide to dispose of said property, provided that such alienation results in a gain or income for the individual.
In accordance with Article 160 of the Mexican Income Tax Law, tax is determined by applying a rate of the 25% over the total income obtained, without any deduction. The tax shall be paid by means of a withholding, made by the purchaser if he is a resident in Mexico or a resident abroad with a permanent establishment in the country; otherwise, the foreign individual shall pay the corresponding tax by means of a declaration that he shall present before the authorized offices within fifteen days after obtaining the income.
In the same sense, individuals who own real estate in the national territory shall pay income tax in the event they receive any income from the leasing of such property.
In accordance with article 158 of the law, tax will be determined applying the rate of 25% over the income obtained, without any deduction. By general rule, the tax is paid by means of a withholding made by the person making the payments. In the event that the person making the payments is a resident abroad, the tax shall be paid by means of a declaration filed before the tax authorities within fifteen days of obtaining the income.
It is important to mention that in both cases tax treaties could provide relief regarding the applicable rate.
The alienation of the real estate shall also cause value added tax, which must be paid at the rate of 16% on the sale value of the constructions, by the person who performs its alienation.
The leasing of such real estate shall also be taxed by Value Added Tax, unless the estate is destined or used exclusively for house-room.
ITBI is a municipal tax due on charged transfers [acquisitions/disposals] of real estate and real estate rights and is generally paid by the buyer or receiver of the real estate or real estate right. The amount of the tax varies from city to city and is calculated based on the reference value of the goods in question, (if this value is higher than the effective value of the transaction; on the other hand if transaction’s value is higher than reference value, the tax basis will be the former one), which is determined by the municipality. The applicable rate can vary from 2% to 6%. In the city of São Paulo the tax rate is 3%.
ITBI is not levied if both: (a.) the real estate is transferred to a company as a capital contribution or spin-off transaction and (b.) the main activity of the acquiring company does not involve real estate transactions. If the real estate property is transferred back to the previous owner (before the capital increase) ITBI will also not be levied.
IPTU is a municipal tax charged annually over urban properties and its rates are progressive and vary in each city, up to a maximum of 15% over the property's market value. If the property is located on rural areas, ITR is levied to the federal government and its rates are progressive and vary up to a maximum of 20% over the property's market value. Differing from the IPTU, the ITR rates are set by considering not only the market value of the property, but also its level of use and productivity.
ITBI and IPTU are due even if its owner is non-resident in Brazil since they are levied based only on ownership of real state. Please note that there some legal restrictions to non-residents own rural lands in Brazil.