UK Limited Company to Own a Foreign Property Trading Company


A

A Passi

Can i pick some brains please.

Looking at the booming property market in Eastern Europe, I am
contemplating to buy some properties in Prague.

However, to do this, i will need a local company in Prague which i can
setup without much problems.

However, my questions are:-
1. Can my UK Ltd Company own that Prague Ltd company.
I do not intend to use those properties for holiday purpoases.
2. If (1) is possible, will UK Ltd company provide a loan to Prague
Ltd Company? Or will this arrangement be as simple as investing in say
"overseas stocks"?
3.Is the double taxation treaty applicable for corporation tax as
well?

I understand that using Ltd company route i can not use my allowances
for CGT. But this will be a long term investment and can act as my
pension.

Do i need any further special considerations?
 
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B

Biwah

However, my questions are:-
1. Can my UK Ltd Company own that Prague Ltd company.
Yes. This is done all the time to avoid civil law inheritance rules, among
other things. An EU/EEA company can own the shares of a Czech one.
2. If (1) is possible, will UK Ltd company provide a loan to Prague
Ltd Company? Or will this arrangement be as simple as investing in say
"overseas stocks"?
Perhaps a combination of the two. Get competent tax advice. One problem is
that losses in the Czech Republic cannot pass through to offset gains and
profits in the UK. You need to structure your business to preserve the
losses that are bound to occur in the beginning to offset future profits.
3.Is the double taxation treaty applicable for corporation tax as
well?
Of course. You can get info from the International Bureau of Fiscal
Documentation. Their stuff is in most tax libraries.
http://ibfd.nl
 
J

Jonathan Bryce

A said:
Can i pick some brains please.

Looking at the booming property market in Eastern Europe, I am
contemplating to buy some properties in Prague.

However, to do this, i will need a local company in Prague which i can
setup without much problems.

However, my questions are:-
1. Can my UK Ltd Company own that Prague Ltd company.
Yes

I do not intend to use those properties for holiday purpoases.
2. If (1) is possible, will UK Ltd company provide a loan to Prague
Ltd Company? Or will this arrangement be as simple as investing in say
"overseas stocks"?
UK rules allow you to do it either way. You would need to check the Czech
position elsewhere.
3.Is the double taxation treaty applicable for corporation tax as
well?
Yes

I understand that using Ltd company route i can not use my allowances
for CGT. But this will be a long term investment and can act as my
pension.

Do i need any further special considerations?
You need to register the business for tax purposes with the Inland Revenue
in the UK as well as comply with any Czech tax rules.

I don't know what the audit requirements for czech companies are. You may
need to appoint an auditor over there.
 
B

Biwah

You would need to check the Czech position elsewhere.
EU law prohibits discrimination. However, EU bankruptcy and tax law are
imperfect, and one should consult with local lawyers and accountants to see
(1) whether you won't lose some tax benefits one way or the other and (2)
whether you will be subject to more favourable insolvency rules if you
retain a UK corporate "seat".

UK, and for all I know Czech, tax law does not allow you to offset foreign
losses against domestic profits even from the same line of endeavour (real
estate investing, for example). The USA, for example, does allow this.

Careless choice of entity can mean you lose the benefit of double taxation
relief. This is not a DIY project.
 
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T

tim

Biwah said:
EU law prohibits discrimination.
EU law allows proportionate responses to counter legitimate concerns.

Whilst it is true that the EU does not allow countries to forbid legitimate
trading companies the opportunity to trade in a foreign county, I can see
every reason why a law that banned foreign shell companies from investing
in a foreign country's real estate would be permisable. This looks purely
like a tax dodge (whether it is or not will depend upon the respective
country's tax rate for each type of holding) and a law to closed this dodge
would, I think, be allowed.

tim
 

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