What are the usual steps to buy a real estate property in Slovenia?
Ownership of a real estate property is not transferred to the buyer when the parties have agreed the essential purchase terms, mainly the identification of the property and price. The buyer becomes the formal owner when he enters into the land register. First, the parties sign a private purchase contract agreeing on the main purchase terms and conditions (this is a lawyer′s job, after he checks the legal status of the property) and exchange 10% of the price as down payment (usually, not necessary). Second, the contract agreement must be submitted and approved by Financial Administration of Republic of Slovenia and the transaction taxes must be paid (2% or VAT). And after that the seller must appear in front of a Notary Public in order to notarize his signature on the purchase contract. After the full price is paid, the seller has to hand over the notarized purchase contract to the buyer. At this pointthe buyer has to register his ownership at the Land Registry to become the legal owner of the property in order to protect the acquisition.
What legal checks should be done before buying a property?
It is recommended that the buyer engages a lawyer to carry out due diligence in order to confirm that:
- The property complies with the urban planning regulations of the area.
- The vendor is the registered owner in the Land Registry.
- The property is free of Encumbrances in the Land Registry and up to date in the payment of the taxes and community fees.
- The property must be in good conditions of habitability.
Buying property through a company in Slovenia
Using a company as a Buyer of the property is only recommended when the owner intends to use the property as a business, either by renting or through acting as a developer. Otherwise, the double taxation (at the company and at shareholder’s levels) and the annual running costs make the company ownership of a property less advantageous when compared to buying as individual. If the seller and the buyer of a new building or building plots are companies, the 22% VAT shall be charged.
In compliance with the Slovenian Money Laundering Prevention Rules, lawyers, estate agents, post offices, funds, banks, notaries, etc.,dealing with a real estate transaction, are obliged to investigate the origin of funds to be invested in the purchase of the property. Failure to do so when money laundering is involved exposes these professionals to very serious penalties, both criminal and economic.
If the lawyer detects there is money laundering involved, he shall stop advising the client and report the case to the Ministry of finance – Office for the Prevention of Money Laundering.
What are the purchase costs and taxes?
Purchase costs and taxes incurred in the purchase of a property are usually paid in the following way.
The buyer pays the followings:
- Agent Fee: upon the agreement, but not more than 4.0 %.
- Notary and Land Registry Fees: 0.3% of the purchase price approx.
- Lawyers’ Fees: there are no specific fees set by the Bar Association.It depends on the amount of the transaction and the degree of work undertaken, usually up to 1.0% of the purchase price plus VAT.
- Two types of taxes:
- Transfer Tax: 2 % of price (income of local authorities, not state – tis tax is seller′s obligation). When both parties are entrepreneurs or companies, it is possible to pay 22% VAT rather than Transfer Tax if some requisites are met – the sale of built-up building land, on which the facilities have not yet expired two years after the first occupation or use. However, a reduced rate of VAT applies to the supply of dwellings and other permanent residence and parts of buildings if they are part of social policy;
- Capital Gain Tax: the rate of tax is reduced for every completed five years of ownership of the property: up to 5 years 27.5%, after 5 years 20%, after 10 years 15%, after 15 years 10% and after 20 years of holding the property, no capital gain tax is paid. It is an obligation of the seller.
What documentation must the buyer have in place before buying a property?
- Identity card or passport;
- Slovenian Tax number and Slovenian personal identification number (could be obtained by lawyer with power of attorney and copy of passport)
For entities (companies, associations, etc):
- Company identification number;
- Slovenian Tax number.
What precautions have to be taken regarding off-plan purchases?
It is convenient to do the following checks:
- Verify the developeris the registered owner of the land where the dwelling will be built.
- Ask for copy of the building permit.
- Verify that the building permit corresponds to the project under which the building will be built.
- Make sure payments to the developer are done via bank transfer to a special account opened by the developer for this purpose which is controlled by the bank.
- Verify the developer givesthe buyer abank guarantee assuring the refund of the money as purchase price. Such a guarantee can be executed in the event that building works don’t start or are not completed on the date promised by the developer.
- The private purchase contract should clearly state a date for the handover of the property.
- Assure thestatutes of the future community of owners don’t impose any unreasonable limitation of ownership.
- First Occupancy License must be granted before going to completion at the Notary.
Tips for clients looking to build their own home
First, before buying or starting with any works, we need to check at the Local Municipiality, the possibilities and conditions to build on specific plot according to the Municipal general plan and Municipal detail plan. It the answer is positive for the investor, he should prepare and submit a project to the Municipiality and get the building permit. For that we need to pay also a contribution for using public infrastructure networks (water supply, electricity, roads, etc.), that contribution depends on the location and available infrastructure.
It is convenient to find a reputable project company and the builder and formalize with them a proper contract in written form (should prepare a lawyer). Construction must be supervised by a supervisor. The investor must obtain anoperating permit before using it. Typically, residential houses are less demanding facilities, so anoperatingpermit can be obtained without a technical inspection. The investor shall file with the administrative unit, in addition to the application on the form of the statement of the designer, the supervisor and the contractor, that the works are completed, in accordance with the issued building permit and that the prescribed essential requirements are met. After completion of construction, each building must be entered in the building cadastre.
Annual running costs.
The following taxes can be levied by the Slovenian and local authorities every year.
- Real estate tax: it is calculated by each Municipiality applying a percentage to the cadastral value of the property. It is paid annually regardless of whether the property is used or not, rented or not.
- Income Tax: The law establishes an income tax if the property is rented. For periods when the property is rented, the owner must pay an income tax of 20% of the rents received minus expenses incurred in maintaining the property (non EU citizens have no right to deduct expenses).
Other costs are community fees, which are not substantial.
What minimum legal checks should be done when selling a property?
The vendor must assure he can deliver the property in the conditions agreed in the private contract. It is important to describe the property accurately as possible (with both, actual and legal Encumbrances). In case of a hidden defect showing up after completion (regardless of the vendor being aware of it or not) the buyer can claim damages and, in case of serious defects, the termination of the contract.
The price must be paid in full at completion. This is usually done with a banker’s draft that the buyer hands over the vendor simultaneously with the signing of the purchase contract in front of the notary. Taxes (Transaction tax and Capital gain tax) must be paid even before notarization. After that the new owner can be registered with the Land Registry.
For further questions you can contact one of our real estate law specialists: