Mr. E, a high net-worth Hungarian resident, has decided to invest a large part of his wealth in real property. He is buying these properties in Hungary and a number of other countries in both Central and Eastern Europe. Mr. E wants to know how the rental income and capital gains if he sells the properties can be arranged for in a tax-effective manner.

Suggested solution:

Assuming Mr. E is not in the business of property development, he can acquire real property in the countries concerned through local companies that are either directly or indirectly controlled by himself. To minimize local taxes, these local companies can be wholly owned by a holding company in a country which has a favorable holding company regime with the following benefits:

  • No withholding tax on dividends or if they have, only at a low rate.
  • No corporate income tax upon receipt by the holding company.
  • No withholding tax on dividends paid by the holding company.

Luxembourg is one of the countries that meet these conditions for a holding company regime. A more tax effective solution would be a Cyprus company holding Lux Co and directly or indirectly owned by Mr. E.

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