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 (3rd edition)
The following taxes apply to a non-resident individual’s real property:
i. 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.
ii. Transfer tax:
Transfers of immovable property trigger notary fees and land registry taxes at 0.27% and 1.5% of the purchase price, respectively.
iii. National Consumption tax on real estate
A national consumption tax is triggered on the sale of immovable property, different from rural properties destined to agricultural activities, new or used, whose value exceeds 26.800 Tax Value Units (Approx. USD 277,000). Some exceptions may apply (assignments of fiduciary rights or funds that are not listed on the stock exchange).
This tax is not applicable to the disposals of properties destined to the execution social housing projects. The applicable rate is 2% and the taxable base is the entire sale price.
iv. 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.
v. 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 1.500.000).
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%.
Such real property is subject to wealth tax on Italian real estate (IMU), 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, and 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.
Real properties located in the Republic of Cyprus are subject to the Cyprus tax, no matter if the person (legal entity or a physical person) owning the property is Cypriot, foreigner, tax resident or non-tax-resident.
Likewise, income generated from the disposal of such real properties is subject to Cyprus tax. The personal or corporate income tax rates shall apply, depending if the owner of the property is an individual or a legal entity.
Capital gains tax at 20% applies if the disposal of the property is implemented by an individual as well as if the disposal incurred by a corporate entity and the disposal does not fall under their operations. Corporate entities that have the disposal as part of their operation will be taxed under the normal corporate tax rate.
Corporate tax rate is at 12,5% on the annual taxable profits of the corporate entity.
Rental income received by individuals or corporate entities will be subject to personal or corporate income tax rates as well as Special Defence Contribution tax. Individuals are taxed under the normal income tax rates described above with an amount of 20% of the gross rental income being deducted from the taxable income. Corporate entities include the rental income as part of their operating income and are taxed under the corporate tax rate on their annual taxable profits.
Immovable Property Tax
Notably, the Cyprus Government has provided a number of incentives to promote real property investments. One of these incentives was the abolishment of the Immovable Property Tax on the 1st of January 2017.
Value Added Tax (VAT) is levied on the purchase price of new real properties. The standard VAT rate is 19%, while individuals may apply for the reduced VAT rate of 5% for their first residence in Cyprus which will be used as their main and primary place of residence for a period of 10 years.
VAT also applies on rental income under the rates of:
- 19% if the property is rented for commercial use;
- 9% if the property is rented for short term holiday residency, and
- 0% if the property is rented for long term permanent residency of individuals
Fees on transfer of real property are imposed by the Department of Land and Survey in order to transfer the ownership of a real property from the previous owner to the new owner. The transfer fees are payable by the acquirer once the Title Deed of the real property is issued by the Department of Land and Survey.
No transfer fees are imposed for the transfer of real property that is subject to VAT. No transfer fees are imposed in case the ownership of the real property is transferred due to a succession or a will, or in case the real property is transferred from the parent to the child.
Where transfer fees are imposed, there is a 50% reduction on the below rates:
€0 to €85,000
€85,001 to €170,000
Municipal property taxes are based on the property’s value according to the valuation officially carried on by the Department of Land and Survey.
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.
Foreign residents that own real state in Mexico 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.
Regarding income tax, foreign residents that obtain an income from the sell of real state located in Mexico shall pay income tax in the amount resulting from applying a rate of 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 tax return that he shall present within fifteen days after obtaining the income.
In addition, 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. Tax will be determined by 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 tax return 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, at a rate of 16% on the sale value of the construction. The leasing of such real estate shall also be taxed by Value Added Tax, unless the real estate is destined or used exclusively for house-room.
Income from real property is taxed at the applicable slab rates of an individual under the category “income from house property”. This tax is applicable to individuals irrespective of their residency status in India. It is important to highlight that owners are taxed on actual rentals as well as notional rentals (if the property is not actually rented). Up to two residential properties are exempt from tax.
Non-residents are taxed based on a notional income of 4% on the tax value of the respective real property.
There is no property tax in Monaco.
Legal entities that hold real property rights to one or more real properties located within Monaco, irrespective of the headquarters’ location or of the law by which they are governed, must make an annual declaration regarding the change of or the absence of change of the beneficial owner or of one of the beneficial owners of these rights. Some entities are exempt from making this declaration. A local representative duly accredited by the Monegasque tax authorities must be appointed to accomplish such filing.
In the event of a change, a transfer tax equal to 4.5% or 7.5% of the entire value of the real property located in Monaco is owed. This is not applicable if the change is the result of a gift between spouses or to a direct lineal relative.
Sale of real estate located in Monaco also triggers the transfer tax of 4.5% or 7.5% depending on whether the beneficiary meets the criteria of transparency laid down by law.
Property tax is levied on the owner of the land, building or structure. Its rate is imposed by local authorities.
The transfer for consideration of real estate property located in Portugal is subject to Real Estate Property Transfer Tax (up to 6.5%) and Stamp Tax (0.8%). Real Estate transferred through the sale of shares in public limited companies (sociedade anónima) does not trigger the aforementioned taxes.
The holding of real estate property is subject to the Real Estate Municipal Property Tax, between 0.3% and 0.8%, levied annually on the tax value of the property.
Individuals owning real estate property in Portugal ,with a global tax value higher than EUR 600,000.00 are liable to an additional tax of up to 1.5%.
Rental income and capital gains from the disposal of real estate located in Russia are taxable regardless of the tax residence of the income recipient as ordinary income at the general rate (13% for residents and 30% for non-residents). No tax is assessed until the income is realized.
Beginning from 1 January 2020 specific deemed taxable base rules apply to the disposal of real estate where the sale price is below the threshold of cadastral value of the real estate multiplied by a decreasing coefficient of 0.7. In this case the threshold amount will be regarded as the deemed taxable income. Taxable base for the real estate gratuitously received will be equal to the cadastral value of this property.
Generally, income from the disposal of real estate is exempt from tax, provided that a minimum holding period of 5 years is fulfilled (Par. 4, Art. 217.1 of the Tax Code). As an exception, the lower holding period of 3 years applies to income from the disposal of (i) inherited real estate; (ii) real estate obtained by privatization; and (iii) real estate gratuitously received from a close relative (Par. 3 Art. 217.1 of the Tax Code). Beginning from 1 January 2020 this lower holding period will be extended to disposals of residential dwellings (house, apartment, room, etc.) provided that in the period immediately preceding 90 calendar days to the state registration of the sale the taxpayer (and / or spouse) has not owned another residential dwelling.
If the holding period is not fulfilled a tax resident taxpayer is entitled to get a property-related tax deduction once in a lifetime in the amount of RUB 1 million upon filing a tax return. The unused amount of deduction can be carried over to the next tax periods. In the case the taxpayer elected to use the deduction the tax base is calculated as the gross sales proceeds less the property-related deduction. Otherwise, the tax base is determined as the difference between the sales price and all expenses relating to the acquisition and the maintenance of the real estate. No analogous deduction is provided for non-resident individuals.
Real estate (property) tax
The individual real estate (property) tax is a municipal tax levied on the federal level on the cadastral value of real estate except for land which is subject to land tax. The subject of the individual real estate (property) includes: living buildings and premises (house, apartment, room), garages, parking spaces, unitary immovable facilities, construction sights and other buildings or dwellings and facilities owned by resident or non-resident individuals (Par. 1 Art. 401 of the Tax Code).
The rate of the individual real estate (property) may not exceed 0.1% to 2% of the cadastral value, depending on the type of property and on whether local authorities (of the subjects / states) have decided to lower or raise the tax rates (which is allowed by a maximum coefficient of 3). The limit of 0.1% applies to living buildings and premises (house, apartment, room), construction sights thereof, garages, parking spaces, unitary immovable facilities related to living buildings (multiplied by 3 in case of real estate located in Moscow and Saint Petersburg). The tax rate for specific types of the real estate (trade centres, offices and other specified non-residential buildings listed in Par. 1,2, Art. 378.2 of the Tax Code) with cadastral value of more than 300 million roubles rate cannot exceed 2%. For other types of real estate the limit is 0,5% (Subpar. 2), 3) Par. 2, Art. 406 of the Tax Code).
Land tax is a municipal tax payable by all individuals who own land (Art. 388 and Art. 389 of the Tax Code). The taxable base is the cadastral value of land as stated in the state land register as at 1 January of the relevant tax year. The tax rate depends on the purpose for which the land is used. The maximum rates are established at the federal level at 0.3% for agricultural land and land used for housing purposes and 1.5% for other types of land. The specific rates are set by the municipal authorities.
The taxable period for the purposes of real estate (property) tax and land tax is a calendar year. The tax should be paid to the tax authorities no later than 1 December of the year following the relevant tax period. Individuals who have not received an individual property tax assessment from the tax authorities are obliged to provide the tax authorities with the relevant information about the real estate and land owned by them by 31 December of the year following the one for which the tax is due. Failure to notify the tax authorities may result in a penalty of 20% of the property tax liability.
A real property situated in Serbia is subject to the Property Tax. Person liable to pay the Property Tax is the sole owner, or co-owners, regardless of nationality or residence.
Tax basis is the value of the property determined by the municipal tax authority on the basis of average price per square meter of properties in the relevant zone.
Tax rates are determined by the municipality on the territory of which the property is situated. For land the tax rate can be up to 0.3%. For buildings, flats, apartments, offices the rates are progressive (from 0.4% to 2%) and the relevant bands are defined in accordance with the property's value.
The Property Tax is assessed annually and is paid in four equal instalments.
Swiss real property held by Swiss or non-Swiss residents is subject to wealth tax at cantonal and communal levels. Moreover, the (rental) income therefrom is subject to income tax at federal, cantonal, and communal levels. If used by the owner, income tax is levied on the imputed rental value of real property. Property maintenance and interest costs are deductible.
Some cantons and communes levy an annual property tax. The applicable tax rates and the calculation method vary depending on the canton/commune where the real property is situated.
Real property transfer duty is levied by most cantons/communes when the real property changes hands at rates between 0.5-3.0% depending on the canton.
Moreover, the transfer of Swiss real property might be subject to capital gains tax or inheritance/gift tax, depending on how the transfer is made (sale, inheritance or gift).
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.
See the answers to questions 4 and 5 in respect of the transfer and capital gains taxes imposed on US-situs real property owned by a nonresident.
Property tax is payable in respect of ownership of Singapore immovable properties. Property tax is assessed based on the Annual Value of the property (being the estimated gross annual rent of the property if it were to be rented out as determined by the Inland Revenue Authority of Singapore), multiplied by the applicable tax rates. The applicable property tax rates is dependent on whether the property is owner-occupied or if it is owned for non-residential or commercial purposes. Rental received from the renting out of properties is taxed as income.
In addition to the taxation of the sale and purchase of Israeli real estate (described above), every resident or holder of an Israeli real estate property - whether owned or rented - is subject to the local municipal levy, known as “arnona”; although the amounts and rates vary between the different municipalities, it is always levied according to the type of property, its ordinary use, its square-meter area (as measured by the municipality) and the location of the property within the municipality’s boundaries.
Rental income from Israeli residential property is subject to income taxation. However, the taxpayer may choose from the following three different tracks, as per his or her full discretion:
a) Regular Taxation Track: according to this track, rental income from residential property is taxed at the individual’s progressive income tax rate, but all expenses incurred in the generation of rental income are deductible, including deductions for or depreciation and for interest expense.
b) Tax Exemption Track: according to this track, an individual who rents property to another individual for residential purposes is exempt from taxation up to a monthly rental income of ILS 5,090. Any monthly income above ILS 5,090 is subject to individual’s progressive income tax rate, after the deduction of all expenses incurred in the creation of rental income.
It should be noted, that (i) if the monthly income is less then ILS 10,060 a partial exemption is available, but not all expenses deductible (in fact, only an amount limited to the ratio between the amount of taxable rental income and the total income from rent is deductible); (ii) when the property is sold, the acquisition cost is reduced by the depreciation amount allowed to be deducted, as if the tax-payer had not chosen the exemption track.
c) 10% Track: this track allows for a flat 10% taxation of all rental income, provided it is taxed o the gross income, with no deductions allowed. However, when the property is sold, the acquisition cost is increased by the depreciation amount allowed to be deducted but not used, thereby increasing the capital gain. It should be noted that payment of the 10% tax is due by January 31st of each year.
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% (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.).
A real estate transfer tax with differing regional rates ranging from 3.5 to 6.5 per cent applies to:
- the acquisition of residential real property; and
- the acquisition of a substantial shareholding (at least 95 per cent) in a company holding residential real property.
Since the base for real estate transfer tax is the purchase price, no official valuation is necessary. Subject to the tax claim is, whoever is participating in the transfer.
An annual property tax may be due on the value of real property (on the basis of an assessed uniform value that is often less than the fair value of the property) at the discretion of the relevant local authority. Though the assessed uniform value is quite low, the property tax is becoming more and more significant because of continuously rising rates of assessment. Furthermore, the German Federal Constitutional Court recently held that the property values which were last assessed in 1964 or 1935 are inconsistent with the constitutional principle of equality of taxation. As a result, legislative action can lead to a significant increase in tax burden because the process of determining real property value will be altered. However, such changes will not become effective before 2025.
Ownership of the residential property establishes tax liability, regardless of the owner’s residence.
8.1 The value of real property situated in the UK (and of non UK property (including shares) 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, unless the circumstances fall within limited anti-avoidance rules in relation to borrowing.
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 property is charged to capital gains tax (§2.6), subject (in the case of residential property) 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. In addition, capital gains tax is charged at non-residential property rates, if a non-resident disposes of shares in a "property rich" company in which they have a "substantial interest". A company is classed as "property rich" if at least 75% of the value of its assets are (or are derived from) UK property. A non-resident is classed as having a "substantial interest" if they (together with any connected parties) hold a 25% interest (or greater interest) in the company at the date of the disposal, or have held such an interest at any time in the two years preceding the disposal.
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.