Is it common for commercial real estate transfers to be effected by way of share transfer as well as asset transfer?

Real Estate (2nd edition)

Cayman Islands Small Flag Cayman Islands

10.1 It is relatively uncommon as a purchaser would generally wish to acquire the asset without exposing itself to any liabilities of the corporate vehicle. There are no local tax advantages to structuring the purchase by way of share transfer.

10.2 It is, however, perfectly possible to structure an acquisition in this way and there may be valid reasons for doing so, particularly where the real property is sold as part of a going concern.

France Small Flag France

The parties may prefer to transfer commercial real estates through sales of shares rather than through sales of the real estate assets for saving tax and notary's fee.

The sell and purchase agreement for the sale of shares does not need to be drawn up in a notarial form and registered at the land registry and the rate of the registration duties for the sale of shares of a property holding company is 5% of the sale price which usually takes into account the debts and deficits of the company. The taxes and duties to be paid for the sale of a real estate asset mentioned below are often more important.

Germany Small Flag Germany

Yes, both deal structures are very comment. As noted in Q6, real estate is commonly held through specially formed entities and there may be a tax advantage to transferring the interests in those entities rather than the underlying real estate (for example, there may be a real estate transfer tax advantage under certain circumstances for the buyer and, in the case of corporations, an advantage with regard to capital gains taxation and/or a trade tax advantage for the seller).

Hong Kong Small Flag Hong Kong

Transfers are commonly effected by way of share transfer as well as asset transfer in Hong Kong. Share transfer is becoming more and more common, as the stamp duty payable on the sale and purchase of shares is currently equivalent to 0.2% of the higher of the consideration and the fair market value of the shares being transferred.

Hungary Small Flag Hungary

Real estates are commonly held through entities specially formed for this purpose and there could be advantages of transferring the interests in those entities, rather than the underlying real estate (for example, pre-emption right connected solely to the sale of real estate can be avoided; there could be operating agreements that shall not be transferred separately; or there could be loss carry forward in the property holding company that could be used up by the future owner), but there can be also risks linked to historical liabilities (for example tax risk), therefore applying a share or asset deal must be decided on a case by case basis. Please note that in general, the payment of property transfer tax cannot be avoided with the transfer of the property holding company instead of a direct asset sale).

Spain Small Flag Spain

Both asset transfers and share transfers are common, depending on many circumstances.

There is often a tax advantage in transferring the interests in a company (share deal) rather than the underlying real estate (asset deal). For instance, the following reasons may be an incentive for sellers to divest through a share deal:

i. Latent gains linked to the underlying asset (calculated as the difference between the market value of the asset at the time of the transfer minus its acquisition cost) do not materialise since there is no direct transfer of the asset.

ii. Local Tax on the Increase in Value of the Urban Land ("Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana") does not materialise since there is no direct transfer of the asset.

iii. Under certain circumstances, the capital gains arising from the transfer of the shares may not entail effective taxation in the case of the seller provided that (a) the seller is entitled to apply the provisions of the Spanish participation exemption regime or (b) the seller is entitled to apply the provisions of a specific Double Tax Treaty which prevents Spain from taxing capital gains arising from share transfers (even in the case of real estate underlying assets).

India Small Flag India

Yes. In case the asset to be transferred is the main asset held by the limited company and all shareholders are in favour of the transfer, shareholders prefer transfer of shares, as in the case of transfer of an asset, the consideration remains with the company. Taxation implications (specifically, tax on capital gains for the transferor and “income from other sources” for the transferee) will also have to be taken into account when considering how best to structure the transfer. Stamp duty on transfer of shares is lower than on transfer of assets.

Ireland Small Flag Ireland

Historically yes, but it is not as common in the last six years mainly as there was only a small difference in respective stamp duty rates on asset and share transfers. This is likely to become more commonplace again as stamp duty for commercial property was increased from 2% to 6% in Budget 2018 (unless the Government increases duty on transfers of shares deriving their value from real estate).

Russia Small Flag Russia

In Russia, complex real estate transactions are usually implemented by selling the company that owns and operates the respective assets (share deal), rather than via the sale of the property itself (asset deal). Share deals facilitate the sale of real estate as a going concern, which is much more difficult in case of asset deals. Moreover, share purchase agreements are VAT exempt.

However, asset deals are often used for purchasing land plots (sale of land is also VAT exempt) and/or individual real estate objects as opposed to operating businesses and complex facilities. Asset deals are also advantageous where due diligence of the seller’s company revealed tax, corporate or other company-related risks, or where such information is not available.

Switzerland Small Flag Switzerland

The sale and transfer of commercial real estate can be made either in the form of an asset deal or a share deal, should the seller own the real estate through a legal entity. Both forms are commonly used in practice. The choice of one form or the other will depend on tax, liability and commercial issues.

It will often take the form of a share deal when the real estate is used in the business activities of the seller and the business is also acquired by the buyer along with the real estate. In such case, the seller, being a company owning commercial real estate and having a commercial activity other than leasing its real estate to third parties, is considered for tax purposes as a commercial company, as opposed to a real estate company. By selling the shares of a commercial company (owning real estate for the conduct of its own commercial activities), no real estate capital gain tax or real estate transfer tax will be levied. These are the clear advantages of a share deal in the case of commercial companies. Nevertheless, because of liability issues and deferred real estate capital gain tax for the buyer, even in the case of a commercial company, buyers may prefer acquiring the commercial real estate and the business activities of the seller through an asset deal.

If the sole purpose of a company is the leasing of its real estate to third-party tenants, the company will be considered as a real estate company for tax purposes. By selling the shares of a real estate company (depending on the Canton), the buyer may avoid the real estate transfer tax, which is significant. On the other hand, the real estate capital gain tax will generally be due even in the case of a share deal, in which case the company is considered a real estate company.

United Kingdom Small Flag United Kingdom

Yes. As noted in Q6, real estate is commonly held through specially formed entities or structures and there is frequently a tax advantage to transferring the interests in those entities or structures rather than the underlying real estate (for example, a transfer of units in a JPUT will typically not require any stamp duty or transfer tax, compared to the stamp duty land tax that would be payable on a direct asset sale - see Q14 below for more details).

United States Small Flag United States

It is far more common for real estate transfers to be effected by way of deed (asset transfer) than by way of share transfer. Generally, unless there is a compelling commercial reason to do so, purchasers prefer to purchase the asset rather than to purchase the shares of the property owner because in a share transfer the property owner's liabilities continue after the transfer. In the case where a transaction is to be effected through a share transfer, additional due diligence needs to be carried out in respect of the applicable entity.

Peru Small Flag Peru

Yes, it is common for the transfer of real estate ownership to take place as a consequence of the transfer of the owning company. In this case, the due diligence prior to the acquisition must also include the company subject to acquisition.

Mexico Small Flag Mexico

Yes, depending on the parties’ needs and tax circumstances, real estate transactions can take place either through an asset sale or through a share or interest sale (whether equity or beneficial interest).

Italy Small Flag Italy

Both “share deal” and “asset deal” structure are frequently used to complete real estate transactions. The main driver between such structures (other than the difference in the transferred asset that, in case of “share deal”, is the stake in the target company owning the real estate property), is the tax regime. The “share deal” structure is more convenient in terms of transfer taxes (it does not entail mortgage and cadastral taxes, which apply to the “asset deal” transfer), but it could be less efficient whenever the purchasing entity is an Italian real estate fund.

The “share deal” structure is generally implemented through the same phases summarized above, with the following specifications:

a) As to Phase 1, the Due Diligence generally includes accounting, financial and a more in-depth tax analysis. From a legal perspective, the Due Diligence is extended to corporate matters, ownership of target company, encumbrances, third parties’ rights burdening the stake-holdings in the target company, and limits to their transfer as well.

b) As to Phase 3, the transfer deed (in such a case, having as object the stake in the target company) shall not be filed with the Real Estate Registries, but shall be registered with the competent Companies’ Register.

Turkey Small Flag Turkey

The answer depends on the characteristic of the company and scope of the investment to be made. In case it is an SPV set up for holding the real estate only or a new company having no trading activities yet but owning a real estate, it is more common to transfer the shares of the company. On the other hand, if the company owning the real estate has a history and have many operating activities, it would be risky to obtain the shares instead of directly transferring the real estate because the share purchaser also would be liable for the previous debts of the company. In such as case there will be a need for further and more detailed due diligence of the company and more safeguards and collaterals may be asked by the purchaser.

Cyprus Small Flag Cyprus

When the immovable property is owned by a company, the conveyancing process can be effected by transferring the shares of the company instead of transferring the assets itself. This way, the purchaser saves the transfer fees payable at the land registry upon tranfer and registration of the property into the purchaser’s name. However, the risk involved with this process is that the purchaser is acquiring a company with all its past obligations. In such cases thorough checks must be performed to make sure (as much as possible) that the company is not burdened 0with obligations.

Japan Small Flag Japan

Share transfer is not a common way to transfer real estate since many more factors are involved in share transfer transactions. For example, the purchaser may need to conduct due diligence on the company issuing the shares as well as the target real estate held by the company, and latent obligations and duties which are not on financial statements disclosed may become red flags to the transaction.

There are, however, share transfer transactions in some cases. For example, in the case where the target real estate has unrealized capital gains, the seller and purchaser may prefer selling the shares of the company holding the real estate rather than the sale of the real estate to avoid realization of the capital gain in the real estate, and, in turn, to circumvent corporate tax that would be triggered. Also, other taxes associated with the transfer of real estate, such as real estate acquisition tax, are not charged in share transfer transactions (please refer to Question No. 14). There may be tax benefits for choosing a share transfer depending on the details of the transaction.

Thailand Small Flag Thailand

Yes, it is common to transfer real estate either way. The selection of means and manner heavily depends on the commercial aspects, for example: consideration of the purpose of the acquisition –business operation or only assets -- and pricing. One issue worth noting is that if it is an asset transfer, then registration will be required and the registration fees will need to be taken into account –it is always advisable that the parties should agree and specify in the agreement who will be responsible for relevant fees and registration expenses.

Greece Small Flag Greece

If a real estate plot is held by a company and it is the company’s sole asset, a share transfer may be advisable or convenient. Otherwise, it is not common to effect a commercial real estate transfer by way of share transfer. The tax implications and benefits would then be the criteria for the choice of structure.

Bulgaria Small Flag Bulgaria

Sometimes the transfer of ownership is effected by way of share transfer or by selling all/ part of the commercial enterprise as a combination of assets, obligations and receivables. In such cases the acquirer avoids paying taxes for acquiring ownership over the immovable asset (the so-called stamp duty land tax).

However, often the buyer prefers asset acquisition in order to avoid any risks related to the company/ commercial enterprise. Further, the required due diligence investigation in case of share/ commercial enterprise transfer differs significantly and may cause additional costs and concerns. The contractual protection which the buyer needs also increases and purchase contracts become more complex.

Brazil Small Flag Brazil

Yes. Real estate transfers are commonly effected by both corporate and asset transfers. In said cases, the target companies shall also be subject to the legal due diligence.

Sweden Small Flag Sweden

Commercial real estate transfers are (currently) most commonly conducted by way of share transfer, please see Q6 above for a more thorough description. As noted, one of the main driving factors behind this is applicable tax (including VAT) rules.

Indonesia Small Flag Indonesia

Yes – it is common for transfer of real estate ownership to occur indirectly as a consequence of a share transfer in a company. In this case, there will be no change to the registered owners of the real estate in the land certificate. In the event of a share acquisition transaction, due diligence will need to be conducted on the company owning the real estate as well as on the real estate itself.

Updated: February 1, 2019