Czech Republic: Overview

RENTAL YIELDS

Yields are moderate at 6.5%-7.5% in Prague

Yields in Prague are moderate by the standards of Eastern Europe, in part because the prices of apartments and houses have already risen strongly in the past few years. Central Prague properties have yields ranging from 6% to 7% while properties within the suburbs have yields of 4.5% to 7.2%. Smaller properties in the center command higher yields while it is the reverse in the suburbs.

Properties close to the tourist destinations in the country side command the highest yields, up to 7.6%.

However, there is an oversupply of luxury rentals. Rentals for luxury flats and villas in Prague have fallen 20%-70% since the year 2000, with the top end units getting hit the hardest.

Read Rental Yields  »

TAXES AND COSTS

Rental income tax can be high

Rental Income: Rental income is deemed to be corporate income, and is taxed at a flat rate of 24%. Local companies, and foreigners buying through a company, may reduce their tax liabilities by deducting interest payments and operational costs, and depreciation, computed on a straight line or accelerated method.

Capital Gains: Capital gains are taxable as ordinary income at the flat rate of 24%.

Inheritance: No inheritance tax is payable by direct relatives or spouses.

Residents: Foreigners can own properties once they have acquired a ‘permanent resident’ status. But under that status, they will be taxed on their worldwide income.

Read Taxes and Costs  »

BUYING GUIDE

Total transaction costs are moderate in the Czech Republic

Roundtrip costs in the Czech Republic are moderate. VAT is only applicable to newly build properties: 5% is payable on sale of properties if they are sold within 3 years of acquisition (or 5 years for secondary properties). Real estate transfer tax is 3% (payable by the seller). Total round-trip costs are around 7%-11% for properties transferred after three years of acquisition.

Read Buying Guide  »

LANDLORD AND TENANT

Czech law is pro-landlord

Czech law is kind to landlords (although 90% of the population still lives in the old, controlled rental sector).

Rents: Rents can be freely agreed between landlords and new renters of houses with vacant possession, and the parties may freely negotiate any contract length.

Tenant Security: At the expiry of the contract, the tenant must vacate; no notice need be given, and he is not entitled to substitute housing. There is no maximum deposit.

Read Landlord and Tenant  »

ECONOMIC GROWTH

Prague: Europe’s most beautiful city

The Czech Republic was born on January 1, 1993, when the Czechoslovak Federal Republic split into two independent states, the Czech Republic and Slovakia. Since May, 2004, the Czech Republic has been a member of the European Union. However, the country has not adopted the euro yet and still uses its national currency, the Czech crown.

The Czech Republic is small, at only 78,864 sq. km. with a population of 10.2 million. But its natural beauty and cultural heritage make it a major cultural destination, especially Prague, perhaps Europe’s most beautiful city. The Czech Republic’s many charming towns, castles and chateaux, ancient villages and, of course, many spas, are all waiting to be discovered and enjoyed.

The Czech Republic's economy unexpectedly expanded accelerated in the last quarter of 2007, growing at the fastest pace in two years, fueled by investment, solid exports and rising employment. Gross domestic product grew at a 7.0% annually in Q4, compared with 6.4% in the third quarter, and 6.6% for 2007 as a whole.

In addition, inflation picked up to 2.8% in 2007, which is 0.3 percentage points higher than 2006. The unemployment rate in 2007 was only 6.2%. GDP per capita is around US$24,400, up by more than 287% since 1993.

The government of President Vaclav Klaus adopted a flat 15% tax rate on all personal income in January 2008. Gradually, corporate income will fall to 19% by 2010 from 21% this year. However, VAT rate will be raised from 5% to 9%.

There appears to be a build-up in the mortgage market, which is attributable to strong demand by the growing young middle class. Estimates from the Czech Statistical Office reveal the need to finish approximately 50,000 dwellings annually until 2010. Mortgage financing is freely available to both Czech nationals and foreign investors. Mortgage interest rates rose dramatically in line with the general interest rate increase within the Euro area, to 5.19% in November 2007.