SELLING PART OF YOUR COMPANY?

[sandybear124]

We have purchased 2 apartments in the same block in Vodice via the company route.Our intention was to rent 1 of the apartments and keep the other for our own use.the 1st apartment we purchased was completed in may 06,the 2nd in july07

We have not been able to rent as the builder does not have the builders permit and is not prepared to apply for one.This has prevented us acquiring a users license so we cannot rent the apartment.

If we cannot resolve this situation we will consider selling one of the apartments.Bearing in mind both apartments are owned by the company is this difficult and what are the tax implications?

Assuming we can sell the apartment, can we change the remaining apartment to private ownership as we do not receive any income? Currently we are paying an accountant 7000 kunas a year for doing virtually nothing

[valiant]

cant you rent out the apartment but tell authorities that youre letting friend stay there for free? you can make a contract at a javni biljeznik between you and the people renting.you can actually make a fake agreement at the javni biljeznki saying that your friends are staying there fo free and that you have the right to kick them out. and make another contract saying that the people renting out are required to pay rent regularly and take care of the apartment and that you have the right to make them leave and to give them a date o leave in advance. now you can show the auhorities the 1st agreement. and keep the 2nd agreement between you and the people renting.

if this country skrooz you , then skroo them atleast 10 times as hard. there is no other way.

[mirabelle]

sandyb - how much did you know about building planning/permissions (I assume rather than permit) (not) given when you bought? Solicitors should check up on that surely? Quite a fundamental here as in most places. Could well be that lack of that will affect all ongoing transaction eg no clean title equals no sale (at least at "proper" price) etc etc.

[Carol]

selling a property owned by a company? as easy as selling a property owned by a person (exactly the same in all ways in fact).

Selling PART of a company? Very difficult because that would make you the buyer's business partner: so there would be three things to convince the buyer on : the property itself, you and the clealiness of the company.

Selling a whole company including a property? Not so difficult.

I think you probably just meant option 1 didn't you?


Tax implications to option 1: 20% profit tax would apply (you can set the company's expenses against any profit to reduce the tax bill).

Checking that a property is legally built is fairly basic. A surprising number of properties are offered for sale without the usage permit because the developer often does not want to pay the hefty communal taxes. No usage permit on a new building = no rental license = no legal rental income. What does your lawyer say?

[sandybear124]

The properties are clean so don't think there would be a problem there. Option 1 would seem the best way, by selling a property owned by the company.

Does the the 3 year capital gains exemption not apply to a property owned by a company as we would would not sell until next year. With regard to expenses set against any profit what is allowed, are utility bills included?

Could we sell the other apartment to ourselves for the price we bought it for so we own it privately?

With regard to our lawyer sorting out the usage permit with the builder - he lost interest after the the builder refused to cooperate.

Finally can anyone recommend an English speaking accountant in the Vodice/Sibenik area who will act for us in running a dormant company at a reasonable price

[felicia]

Rental law changed again September 2007. No licence to rent without original building certificate with 'commercial use' a much more expensive option for builders. Applies to every (Croat and foreign) new application from September last (I know to my cost). However am advised by agent that this cannot last as it has been calculated that they will lose some 5 million/billion euros of fiscal revenue.

[mambo]

Selling something without a building permit will be very difficult, unless you can find another 'dumb foreigner' who knows nothing about local rules.
The absence of the license will surely lower the possible asking price if you ask me, unless of course you keep your mouth shut and basically defraud your future buyer.

As a company you can of course sell the property, but you have to be careful. If it looks like you sell it to make a profit you have to be registered for that activity, so make sure you declare it is for reasons of raising capital (or something like that).
Selling part of the company does not make any sense to me, the buyer would indeed become your business partner and could lay claim to the other property if he finds out you cheated him.

If you want to sell the whole company you will need to transfer the property to another (new) company and then you could sell the whole company, but I fear that the cost of setting this up will be huge, so does not make any sense at all.
Which will leave you with simply selling the property, charge pdv and if you make a profit, pay the profit tax.

[Carol]

she does not need to charge pdv unless the company is pdv registered. by the sounds of it her company has done absolutely nothing, certainly not develop the properties, so it would be crazy to be pdv registered. Therefore the 5% rett rather than the 22% pdv would apply to the sale.

Capital gains tax exemption (the 3 year rule) only applies to private owners not when it is a business that owns a property.

You can sell the apartment you want to keep to yourselves and then sell the company along with the remaining property to someone else. It costs about €1000 in notarial fees to effect this sale. Also the buyer has to pay an accountant and a lawyer to check the company out first (called doing the due diligence). Some agencies charge more for such a sale because it is more complicated and there are more pitfalls , typically if the existing accountant has not maintained the accounts properly. So there is more work for the agency and greater risk that the sale will fall through, leaving the agency with nothing to show for their work.

Buying a company rather than a property has the advantage for the buyer that the 5% RETT does not apply, although this may change in the future.

As to the price at which you can sell the apartment to yourselves, there is no law that says you can't sell it for even €1. However, the tax officers would have to be confident that there was no fraud going on, so you'd probably have to set a reasonable price.

Two things to know though if you get your company to sell the apartment to you personally:-
1. A change of property ownership is taking place, so you'll be charged 5% RETT on the sale.
2. You actually have to pay the cash to your company, so you'd have a cash flow to manage. Possibly the way round this is to have the sales contract doing it in stages, so you pay a first installment of €10k, then have you company repay it to you as a loan capital repayment, then you pay the second installment of €10k and so on until the apartment is paid for.

Mambo is right... your property is worth less if people can't use it as a buy to let. So you need that usage permit to maintain the value.

[Carol]

Accountant... if you think about it, why does your accountant need to be in Sibenik? Almost everything can be done by phone, email and post. You simply don't need to see them in the flesh very often, if at all (even though face to face meetings are the preferred way of doing business in Croatia). I can give you details of an english speakign accountant based in Split who has clients in the Sibenik area, if it help.

If your company does nothing, then you can declare it dormant thus reducing the amount of work the accountant has to do which would drastically reduce the annual cost.

[sandybear124]

The apartments do have a building permit.
(1) So if we sell 1 apartment what taxes will we have to pay?
(2) When the buyer has paid for the apartment can we withdraw the money from our companny bak account witot a problem


(with regard to the

[sandybear124]

The apartments do have a building permit.

(1) So if we sell 1 apartment what taxes will we have to pay as a company?

(2) When the buyer has paid for the apartment can we withdraw the money from our company bank account without a problem?

(3) With regard to the 2nd apartment it would seem the only advantage is in transferring it to private ownership is the saving in accountants fees, is this correct ?

(4) WE would appreciate the name of an accountant who has reasonable fees

(5) Is there any way we can acquire a usage permit even if the builder does not cooperate

[Carol]

A building permit has nothing to do with the taxes you'll pay either on buying or on selling.
Those taxes are defined by whether or not a company owns the property and if it is a company, whether or not that company is PDV registered and has developed the property.

Usage permit = building permit + built according to the building permit + communal taxes.
As far as I know the usage permit is granted for the whole project as defined in the building permit (not just your apartment) and the communal taxes are big.

[Carol]

also you question 1:-
If your company sells apartment 1, it will have to pay 20% profit tax. Profit tax is the profit for the whole year and it is based on the profit your company makes over the year. So you have to take into account expenses and depreciation. (this is why you need an accountant you can communicate with).

2. Your company back account money belongs to your company not to you personally. You have to have a valid reason for withdrawing the money and putting it in your pocket. However repayment of your loan capital is a valid reason and payment of a dividend is another valid reason. So yes you can get it out but it would be a big problem for you as a company owner/ director if you go to the bank and take a chunk of the company's money for yourself.
(Again you obviously need an accountant to explain this to you).

3. On balance I can't see any advantage to moving the 2nd apartment out of the company's ownership unless you were thinking of holding onto it for years but never doing anything with it.

4. Send me an email and I'll reply with her details. [e-mail]

5. answered above i.e. maybe yes, but it would be a poor investment