What role does the book value of the real estate play in a share deal transaction?
And why address depreciation, investments, and other matters
In a share deal, the residual value of the property determines the buyer's future tax depreciation as well as the amount of the 21% deferred tax. The buyer does not acquire a new depreciation base: they take over the accumulated depreciation, technical improvements exceeding CZK 80,000, and the ten-year period for adjusting the VAT deduction. The lawyers at ARROWS show how to reflect this in the price and in the SPA. Below you will also find a calculated price bridge.
Key takeaways
What doesn't actually change in a real estate share deal
A share deal means that the buyer acquires a share (or stock) in the company that owns the real estate. The legal and tax owner of the property does not change – only the owner of the company changes. The Land Registry remains unchanged, lease agreements continue to run, and the entire tax and accounting history of the property also continues. We have discussed the specifics of these transactions in more detail in the article Sale of a company with real estate assets.
This is precisely what many buyers underestimate. In an asset deal (direct purchase of real estate), the purchase price becomes the new acquisition cost of the asset, and the buyer starts depreciating from scratch, typically over 30 years for depreciation group 5 or 50 years for group 6 (administrative buildings, hotels). In a share deal, nothing of the sort happens: the SPV continues to depreciate from the original acquisition cost, reduced by the depreciation already claimed. A comparison of both structures, including typical scenarios for companies with real estate, is also analysed in the book Jak prodat firmu s nemovitostmi (How to Sell a Company with Real Estate).
It is good to distinguish between two concepts. Accumulated depreciation is an accounting category – the sum of accounting depreciation, which is deducted from the acquisition cost on the balance sheet to give the accounting residual value. The tax residual value is the acquisition cost reduced by tax depreciation according to the Income Tax Act, which usually does not match the accounting depreciation. The latter is decisive for the transaction price, while the former is crucial for the company's image on the balance sheet.
A model example that every CFO can calculate
An administrative building acquired in 2008 for CZK 100 million, depreciation group 6, straight-line depreciation over 50 years. In 2026, the tax residual value is approximately CZK 64 million, and the market value according to an expert valuation is CZK 180 million.
In an asset deal, the buyer would depreciate from CZK 180 million, i.e., approx. CZK 3.6 million per year, and at a 21% tax rate would save about CZK 756,000 in tax per year. In a share deal, depreciation continues from CZK 100 million, i.e., CZK 2 million per year, with a saving of CZK 420,000. The difference of over CZK 330,000 per year for the remaining depreciation period is not a detail – it is part of the price that the buyer pays extra if they do not negotiate it back.
Latent tax: the biggest unstated item in the share price
A low residual value also means a second thing. When the SPV eventually sells the property (or is liquidated), the difference between the sale price and the tax residual value is taxed at a rate of 21%. In our example, this amounts to (180 - 64) × 21% ≈ CZK 24.4 million in tax, which you do not see anywhere in the share price, but which is borne by the buyer.
This latent (deferred) tax is a standard negotiation topic. In practice, the discount ranges from zero (a strong seller, multiple interested parties, a long investment horizon for the buyer) to the full nominal value (a buyer with a clear exit plan in the form of an asset deal). Most often, the parties meet on a discounted portion – taking into account the probability and time lag of a future sale. It is also possible to negotiate in the opposite direction: the seller argues that the buyer is acquiring a ready-made SPV, running leases, established financing, and time.
Beware of one current detail. Only accounting units that prepare full-scope financial statements or form a consolidation group are required to account for deferred tax. An amendment to the Act on Accounting (Act No. 316/2025 Coll.) from 1 January 2026 has narrowed the mandatory audit requirement to only large and medium-sized accounting units – so for a typical small real estate SPV, the deferred tax may not be visible on the balance sheet at all. You have to calculate this number yourself as part of the financial and tax due diligence, from depreciation schedules and tax returns.
This is also related to the other side of the table. As of 1 January 2026, the annual limit of CZK 40 million for the exemption of income from the sale of shares and stocks for natural persons who meet the holding period test (5 years for a share in an s.r.o., 3 years for stocks) is abolished; the limit remains only for crypto-assets. A seller who has held the SPV for a sufficiently long time now sells the share tax-free regardless of the price – and will therefore prefer a share deal. The buyer should know that the seller actually has this saving. The fairest solution, which works best in practice, is to divide the tax benefit between both parties according to who bears what risk – not to try to push the other party to zero. The ARROWS legal team models these scenarios together with tax advisors even before submitting an offer.
Accumulated depreciation, depreciation plan, and errors regularly found in an SPV
The depreciation records are one of the best diagnostic spots in a real estate SPV. Here is what commonly appears:
Incorrect classification into a depreciation group. The difference between group 5 (30 years) and group 6 (50 years) for a building worth one hundred million is more than CZK 1.3 million in annual depreciation. Incorrect classification means either overstated costs and a risk of a tax assessment, or a needlessly deferred tax saving.
Technical improvement booked as a repair. The Income Tax Act considers extensions, additions, structural alterations, reconstructions, and modernisations to be technical improvements if they exceed a total of CZK 80,000 for a single asset in a tax period. A reconstruction disguised as a "repair" means a one-off expense was claimed where it shouldn't have been – resulting in a tax assessment, a penalty of 20% of the assessed tax, and late payment interest. The burden of proof lies with the taxpayer, which means the buyer after the transaction.
Interrupted depreciation. This is legal in itself (§ 26(8) of the Income Tax Act) and can even be an advantage, as the unused tax shield remains for the future. However, it is often a signal that the company had no income from which to claim depreciation, or that its accounting was not in order.
Unfinished investment on account 042. An asset not put into use is not depreciated. If an investment has been "hanging" for years, there is usually something else behind it: a missing occupancy permit, a disputed construction, a dispute with a supplier, or an unclaimed retention. Using a building without an occupancy permit is a violation of the Building Act with a risk of sanctions and reliably blocks refinancing.
Missing documentation. Inventory and depreciation cards, invoices for technical improvements, protocols for putting assets into use, building passports. Without them, you cannot prove the acquisition cost or the extent of technical improvements, and any future inspection is a lottery for the buyer. The period for tax assessment is generally 3 years, but it can be extended up to 10 years – so you need documentation even for a year that seems long past. For older industrial sites, there are also environmental liabilities, which we discussed in the article Sale of an industrial site via a share deal.
Potential problems | How ARROWS helps (konzultace@arws.cz) |
Incorrect residual value in the valuation: the share price is calculated from the market value of the property, but the latent tax is not reflected in the price – the buyer pays tens of millions more. | Tax and legal due diligence and price bridge: we verify depreciation schedules and tax returns, quantify the latent tax, and reflect it in the purchase price and in the definitions in the agreement. |
Technical improvement claimed as a repair: a tax assessment, a 20% penalty, and late payment interest will fall on the company already under the buyer's ownership. | Tax indemnity and security: we will prepare tax warranties and an indemnity clause without a de minimis threshold, link them to the statute of limitations for tax assessment, and secure part of the price in escrow. |
Investment without an occupancy permit or documentation: the building cannot be legally used, the bank will refuse financing, and there is a risk of sanctions from the building authority. | Verification of the building-legal status: we check permits and occupancy approvals, arrange for additional proceedings, and represent you in negotiations with the building authority. |
Technical improvement carried out by the tenant without written consent: a dispute over settlement upon lease termination and non-tax-deductible expenses for one of the parties. | Review of lease agreements: we evaluate consents for depreciation, settlement mechanisms, and set up the documentation to be defensible before the tax administrator. |
Unmapped VAT impacts: a change in the use of the property after acquisition triggers an adjustment of the tax deduction and a refund of part of the previously claimed VAT. | Analysis of VAT history and setting up future use: we trace the claimed deductions, calculate the remaining ten-year period, and propose a procedure that will not trigger a refund. |
Investment in real estate: who paid for it, who depreciates it, and who owns it
The question "who invested" has three separate answers for real estate SPVs – legal, tax, and economic. And they do not automatically align.
A technical improvement carried out by a tenant can be depreciated by the tenant only if they have the owner's written consent and the owner does not increase the acquisition cost by the value of the improvement. Without consent, these expenses are not tax-deductible. Upon termination of the lease, a settlement occurs: if the owner does not reimburse the improvement, a non-monetary income may arise for them. The buyer of the SPV inherits this agenda with every lease agreement – and in shopping centres or office buildings, there can be dozens of them. A detailed analysis can be found in the article Alterations to offices and non-residential premises by the tenant.
Investments financed by loans and borrowings from a shareholder. For related parties, the thin capitalisation test and the tax deductibility of interest are monitored, and for cross-border groups, the arm's length interest rate (transfer pricing) is also a factor. A change in the owner of the share typically triggers the change of control clause in the loan documentation – without the bank's consent, the entire loan may become due on the closing date.
Subsidies. A subsidy for the acquisition or technical improvement of an asset reduces its acquisition cost, and thus future depreciation. Independently, the project sustainability conditions apply, which may be affected by a change in the ownership structure – in extreme cases, with the obligation to return the subsidy. For subsidised industrial and energy assets, this is one of the most frequently overlooked items in the entire due diligence process.
VAT and other “tails” that remain in the SPV
From a VAT perspective, the transfer of a share is an exempt supply and is not subject to tax; moreover, since 2020, there has been no real estate acquisition tax for properties. This is the main tax attraction of a share deal. However, inside the company, the VAT history remains untouched.
The key is the period for adjustment of tax deduction under Section 78 of the VAT Act. For buildings, units, their technical improvements, and land, this period is 10 years from acquisition. If the SPV claimed a full deduction and the buyer changes the use after the acquisition – for example, switching from a taxed lease to a VAT payer to an exempt lease to a non-payer – a proportional part of the deduction is returned to the state. Technical improvements and significant repairs also have their own ten-year period (§ 78da). We described the context in the article Sale of assets and VAT.
If you are considering an exit in the form of an asset deal, be aware of the new rules. From 1 July 2025, for the supply of a selected immovable property, only the first transfer for consideration made before the end of the 23rd calendar month after the completion of the building or its substantial change is taxed; the second and every subsequent transfer is exempt. A substantial change is now also defined in the law by a 30% cost limit relative to the future sale price, and the definition of a building plot has also changed. The General Financial Directorate issued detailed information on this in January 2026, and the interpretation is still settling in practice – for reconstructed properties, we therefore recommend assessing the impacts before signing the contract. We would be happy to go through it with you at konzultace@arws.cz.
How the value of the property becomes the price of the share: a step-by-step bridge
This is where the money is decided. An expert valuation tells you what the property is, but you are buying a share in a company – that is, the property with its debts, liabilities, cash in the bank, and unfinished business. The path from one number to the other is called the equity value bridge. We continue with our model example.
Bridge item | CZK | Note |
Agreed property value | 180,000,000 | per expert valuation, appendix to SPA |
− Bank loan (principal + accrued interest) | −95,000,000 | per bank's payoff letter as of closing date |
− Shareholder loan including interest | −12,000,000 | repaid, or assigned to the buyer |
+ Cash (unrestricted) | +4,500,000 | excluding restricted funds |
− Tenant security deposits | −3,200,000 | held by SPV, but are third-party funds |
− Rent paid in advance | −1,800,000 | deferred revenue |
+ Rent receivables (up to 30 days past due) | +900,000 | older receivables booked at zero |
− Unpaid liabilities (management, utilities, suppliers) | −1,100,000 | as of the effective date |
− Accounted latent tax (50% of CZK 24.4 million) | −12,200,000 | result of negotiation, not a formula |
− Costs to complete investments | −6,000,000 | HVAC and occupancy permit for 2nd floor |
− Remediation of defects found in due diligence | −2,500,000 | inspections, damp proofing, missing PENB |
= Share price (equity value) | 51,600,000 | of which 8,000,000 in escrow |
The table immediately shows why parties who have previously agreed on the property value argue about the "price": between 180 million and 51.6 million lie eleven separate negotiation topics.
How to fix the individual items in the agreement
The number alone is not enough. Each item must have specified in the agreement how it is determined, as of which date, and what happens if it turns out to be different.
The property value should be included in the agreement as a fixed number, not as a reference to a valuation. The valuation is an appendix and a basis; if the price were "according to the valuation," you would open up a dispute over the interpretation of the valuation. Address any deviations with a separate condition (for example, the right to withdraw if the buyer's bank values the property below a set threshold).
Define net debt by a list, not a general term: principals, accrued interest, early repayment fees, loans from the shareholder and their related parties, unpaid profit shares, leasing. For the closing, request a payoff letter from the bank and a written confirmation from the shareholder about the loan amount. Simultaneously, address the bank's consent to the change of owner (change of control) as a condition precedent.
Working capital stands and falls on the effective date and on two details that always surprise in real estate: rent paid in advance (typically quarterly in advance, meaning money in the account that does not belong to the buyer) and the reconciliation of service charges with tenants. Specify who will prepare the reconciliation for the current year, who gets the overpayments, and who will cover the underpayments.
Latent tax should be included in the agreement as a fixed, agreed-upon discount, not as a formula linked to a future sale. A formula sounds fairer, but it breeds disputes over the inputs. At the same time, explicitly state in the agreement that this item is reflected in the price and will not be claimed duplicatively under the warranties.
Address the costs to complete investments in one of three ways: the seller completes them before closing (condition precedent), a price discount with the buyer assuming the risk, or a holdback released against invoices and the occupancy permit. The last option is usually the most functional because it motivates the seller to complete the matter.
Never leave defects found in due diligence under a general warranty. A known risk does not "fit" into a warranty – specific findings are addressed by the price or by a targeted indemnity with security. This is precisely why escrow is created: in our example, CZK 8 million, released in parts according to the development of the tax risk for the disputed technical improvement.
Choose the mechanism as a whole according to the situation. For a real estate SPV with predictable cash flows, a locked box is suitable: a fixed price as of the effective date, interest for the period until closing, and protection against leakage – i.e., against the payment of profit shares, repayment of a shareholder loan, management fees to the seller's group, or waiver of receivables. For operating assets (a hotel, a retail park with turnover), completion accounts with a post-closing calculation make more sense. The key clauses of an SPA, including earn-out, escrow, and limitation of liability, are also clearly explained in the book Jak prodat firmu s nemovitostmi (How to Sell a Company with Real Estate).
Potential problems | How ARROWS helps (konzultace@arws.cz) |
Price "according to valuation" instead of a fixed number: the parties interpret the valuation differently after signing, the closing is delayed or fails. | Precise price definitions: we fix the price and all bridge items, attach the valuation as a basis, and link any deviations to a clear condition precedent. |
Rent paid in advance and unreconciled service charges: the buyer pays for money that they will have to return to tenants or provide services for. | Working capital setup: we define the effective date, rules for service charge reconciliation and tenant overpayments, and treat security deposits as third-party funds. |
Change of control in the loan agreement: the transfer of the share makes the entire loan due on the closing date. | Negotiations with the financing bank: we secure consent for the change of owner, coordinate the payoff letter and refinancing as of the closing date. |
Leakage between the effective date and closing: the seller pays out profit or repays their own loan, and the value you paid for flows out of the company. | Protection against leakage: we define prohibited payments, agree on a pound-for-pound compensation obligation, and secure it with a holdback or bank guarantee. |
A discovered defect hidden in a general warranty: the seller defends by claiming the buyer knew about the risk and does not pay the indemnity. | Targeted indemnity and escrow: for each finding, we prepare a specific indemnity without a de minimis threshold and secure it with a purchase price escrow, which you can hold with us. |
The ARROWS law firm manages real estate transactions as part of its company sales and transaction advisory services, from structuring through due diligence and SPA negotiation to closing and management of the purchase price escrow. We are insured for our clients for damages up to CZK 400,000,000, and thanks to the ARROWS International network, we also handle transactions with a cross-border element, where the seller or investor is from abroad.
Final summary
The residual value of a property is not an accounting detail for the accounting department. It determines how much tax the buyer will actually pay in the coming years, how large a tax shield they are acquiring, and how high the latent tax being transferred with the share is. Accumulated depreciation, technical improvements, tenant investments, subsidies, and VAT history form a set of risks that are not interrupted in a share deal – they pass along with the company to the buyer.
And because you are buying a company, not a building, the price bridge determines the outcome. The difference between the property value and the share price is often in the tens of percent, and each of its items is a separate negotiation topic that must be defined in the contract by a number, a formula, or a mechanism – not by goodwill. Sellers who master this logic before the buyers usually negotiate better terms; that's why we have described the entire process in the book Jak prodat firmu s nemovitostmi (How to Sell a Company with Real Estate) and in the article How to prepare a company for sale.
If you do not want to risk tax assessments, unnecessarily lower depreciation, blocked financing, or a dispute over investment settlement, entrust the review and setup of the transaction to the ARROWS law firm. Contact us at konzultace@arws.cz and we will go through the structure of your specific transaction with you.