Ferenc Kiss, a Hungarian high net-worth individual living in Budapest, is
investing substantial amounts of his wealth in real property, both in Hungary
and in other Central and Eastern European countries.
Mr. Kiss wonders how the return on his investment can be arranged for in a
tax-effective manner. The same question arises in case he sells the property in
these countries and he realises a gain.
Assuming that Mr. Kiss is not engaged in developing real property, the nature
of his income is rental income or, in the case of sale, a capital gain. In many
countries, this is considered "passive income" for tax purposes.
The acquisition of the real property in the countries concerned can be made
through local companies directly or indirectly controlled by Mr. Kiss. These
local companies can be wholly owned by a holding company in a country with a
favourable holding company regime. Any dividends distributed by the companies in
the countries where the real property is situated should:
Moreover, if the holding company sells the shares in the real property
companies, any capital gains resulting therefrom should not be subject to
A country meeting the above conditions for the holding company regime is
Luxembourg. A Cyprus company holding the Luxembourg company and directly or
indirectly owned by Mr. Kiss would be a tax-effective solution. See the diagram
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