Structuring the investment
Real property may be acquired by way of an asset deal or by way of a share deal (if the real estate is owned by a legal entity).
In an asset deal, the transfer of title on real properties is made on the basis of an asset sale and purchase agreement concluded between the seller and the buyer of the real property, which could be a new entity or a pre-existing entity. In any event, the purchaser has to be validly established before the business sale and purchase agreement is signed. The purchaser becomes the singular legal successor of the acquired real property. Title on real property is transferred to the buyer based on a valid contract (asset sale and purchase agreement) and a specific mode of acquisition, namely by issuing a declaration allowing the transfer of ownership (clausula intabulandi) and the registration of title into the land register. In principle, asset deal transactions enable the purchaser to 'cherry-pick' real properties it wants to purchase and to leave less attractive land with the seller. Disadvantages of an asset deal are the following:
- there is no universal legal succession: valid legal title and specific modus acquirendi is necessary for the transfer of each asset;
- the acquisition of agricultural land requires a special proceeding and other pre-conditions (e.g., transfer may not be possible or is time consuming);
- consents may be required for the transfer of third party contracts or financing arrangements related to the land;
- the statutory right of a tenant to prematurely terminate the lease agreement may be triggered;
- statutory pre-emption rights (by municipalities or co-owners) need to be waived; and
- real estate transfer tax may be triggered by the transaction.
In a share deal, the shares of the entity holding real property would be transferred to the purchaser. The transfer of shares requires a valid share purchase agreement and the registration of the transfer of the share in the court register (with respect to business shares in limited liability companies) or central registry of dematerialised securities (with respect to shares of joint stock corporations). Generally speaking, a share deal is less complicated than an asset deal but would require the buyer to diligence the financial and legal status of the entire company.
For commercial real estate, it is usual to set up special purpose vehicles in form of a limited liability company.
Real property transactions structured as asset deals are subject to real estate transfer tax of 2 per cent (calculated from the value of the real estate including buildings), if the transaction is not subject to mandatory VAT (such as non-built-up building plots; sale of land with newly erected buildings that have not yet been handed over or used, or if the sale of such land happens within two years after the first handover or use) or if the parties have not opted into payment of VAT. The real estate transfer tax is a final cost and cannot be offset, unlike VAT. Share deals do not trigger real estate transfer tax.
The right of foreigners (foreign nationals and legal entities established abroad) to acquire ownership of real estate in Slovenia is primarily set out in the Constitution of the Republic of Slovenia, which stipulates that foreigners may acquire ownership rights on the real properties if preconditions provided by law or by an international treaty ratified by the Slovenian parliament are fulfilled.
Foreigners are entitled to purchase real property in Slovenia if reciprocity is established by the Ministry of Justice, as stipulated in the Reciprocity Act. Prior to the acquisition of real properties, an application shall be filed with the Ministry of Justice to issue a decision on establishment of reciprocity with respect to the transaction. Statutory term for issuing this decision is 90 days and no ordinary legal remedy is admissible against it.
No reciprocity is required for foreigners from member states of the European Union (EU), who may freely acquire real estate in Slovenia (i.e., under the same conditions that apply to Slovenian citizens and entities). The same rules also apply for acquirers from member states of the Organisation for Economic Co-operation and Development (OECD), the European Free Trade Association (EFTA) and for individuals with the status of a Slovene without Slovenian citizenship. Companies established under Slovenian law can acquire real properties without any restrictions (i.e., establishment of reciprocity), regardless of its shareholders being foreign persons or entities.
With respect to the possibility of acquiring real properties in Slovenia, foreigners can be classified into the following groups:
- foreigners that do not require a decision of the Ministry of Justice on establishment of reciprocity (nationals and legal entities from member states of EU, OECD and EFTA);
- foreigners that require a decision of the Ministry of Justice on the establishment of reciprocity (nationals and legal entities from candidate states for future membership of the EU: Albania, Macedonia, Montenegro, Serbia and Turkey); and
- foreigners that can not acquire ownership on real properties or can only obtain it on the basis of inheritance (which, among others, include nationals and legal entities from Bosnia and Hercegovina, China, Russia and Ukraine).