Case Study: Foreign buyer restriction in Europe

Foreign buyer restrictions in Europe are a set of national legal mechanisms that limit or condition the acquisition of real property by non-citizens, non-residents or foreign-controlled entities. These restrictions are not uniform across the continent - they range from outright prohibitions on agricultural land purchases to notification and approval requirements for residential and commercial property. For international investors, misreading the applicable framework before signing a preliminary agreement can result in voided transactions, forfeited deposits and regulatory penalties. This article examines the legal architecture of foreign buyer restrictions in several key European jurisdictions, identifies the most effective structuring tools, and maps the procedural and commercial risks that arise at each stage of a cross-border acquisition.

The European Union';s foundational principle of free movement of capital, enshrined in Article 63 of the Treaty on the Functioning of the European Union (TFEU), prohibits restrictions on capital movements between member states and between member states and third countries. However, Article 65 TFEU permits member states to apply national provisions that distinguish between taxpayers who are not in the same situation with regard to their place of residence or the place where their capital is invested. This carve-out, combined with transitional arrangements negotiated at accession, has allowed several EU member states to maintain restrictions that would otherwise conflict with the single market framework.

The practical result is a patchwork of national regimes. Some restrictions target the nationality of the buyer. Others focus on the residency status, the nature of the land (agricultural versus urban), or the corporate structure of the acquiring entity. A non-EU buyer faces a different set of rules than an EU citizen purchasing in the same country, and an EU citizen purchasing agricultural land in a new member state may face restrictions that do not apply to a domestic buyer.

The European Court of Justice (ECJ) has repeatedly examined national restrictions on foreign property acquisition. Its consistent position is that restrictions must be justified by overriding reasons of public interest, must be proportionate to the objective pursued, and must not go beyond what is necessary. National courts and administrative bodies in member states are bound by this standard when applying their domestic rules to cross-border transactions.

Understanding which layer of law applies - EU treaty law, national statute, bilateral investment treaty, or administrative regulation - is the first analytical step in any foreign acquisition. A common mistake among international clients is to rely on general EU free movement principles without checking whether a specific national derogation or transitional arrangement applies to their transaction.

Switzerland is not an EU member state, and its restrictions on foreign property acquisition are among the most comprehensive in Europe. The Lex Koller (Federal Act on Acquisition of Real Estate by Persons Abroad, SR 211.412.41) governs foreign purchases of residential property. Under this framework, non-resident foreigners - including EU and EEA nationals who do not hold a Swiss residence permit - require cantonal authorisation to acquire residential real estate. The authorisation is subject to annual quotas allocated to each canton, and approval is not guaranteed.

Commercial property and property used for business purposes is generally exempt from Lex Koller restrictions, which creates a structuring opportunity for investors whose primary interest is commercial real estate. However, mixed-use properties require careful analysis, and the Federal Office of Justice monitors compliance actively. Violations can result in forced divestiture and administrative fines.

A non-obvious risk under Lex Koller is the indirect acquisition rule. Acquiring shares in a Swiss company that holds residential real estate can trigger the same authorisation requirement as a direct purchase, if the acquisition results in a foreign person gaining control over the property. This rule catches many corporate buyers who assume that purchasing equity rather than land avoids the restriction.

Austria negotiated a transitional period at EU accession that allowed it to maintain restrictions on the acquisition of secondary residences and agricultural land by EU citizens. The relevant framework is now embedded in the nine provincial (Länder) land transfer laws (Grundverkehrsgesetze), which differ significantly from province to province. In Tyrol, for example, the Tiroler Grundverkehrsgesetz requires approval for any acquisition of agricultural or forestry land and imposes use obligations on approved buyers. In Vienna, the regime is more permissive for urban residential and commercial property.

Non-EU buyers face additional scrutiny across all provinces. The approval process involves demonstrating a legitimate purpose, economic ties to Austria, and in some cases proof that the acquisition serves the public interest. Processing times vary but typically run between 30 and 90 days depending on the province and the complexity of the transaction.

A practical scenario: a Singapore-based family office seeking to acquire a ski chalet in Tyrol as a secondary residence would face both the secondary residence restriction and the non-EU buyer requirement. The transaction would require provincial approval, and approval for secondary residence use is routinely denied in certain Tyrolean districts designated as primary residence zones.

Poland';s restrictions on agricultural and forestry land acquisition by foreigners are among the most actively enforced in the EU. The Act on Shaping the Agricultural System (Ustawa o kształtowaniu ustroju rolnego) gives the Agricultural Property Agency (Krajowy Ośrodek Wsparcia Rolnictwa, KOWR) a right of pre-emption over agricultural land transactions and the right to challenge acquisitions that do not meet statutory criteria. Foreign buyers - including EU citizens - must obtain KOWR consent to acquire agricultural land above certain area thresholds.

The 2016 amendments to the Act significantly tightened the regime. Individual farmers with a minimum of five years of personal farming experience in the relevant municipality are now the preferred class of buyer. Corporate acquisitions of agricultural land require KOWR approval and must demonstrate that the acquisition serves agricultural purposes. In practice, KOWR exercises its pre-emption right selectively, but the threat of pre-emption affects pricing and deal certainty.

Urban and commercial property in Poland is generally accessible to foreign buyers without sector-specific restrictions, though non-EU buyers must obtain a permit from the Ministry of Interior under the Act on Acquisition of Real Estate by Foreigners (Ustawa o nabywaniu nieruchomości przez cudzoziemców). The permit process for urban residential property typically takes 60 to 90 days and requires demonstrating a connection to Poland (family ties, business activity, or residency).

To receive a checklist on foreign buyer permit requirements for real estate acquisition in Poland and Austria, send a request to info@vlolawfirm.com

The Czech Republic lifted most restrictions on EU citizen property acquisition after its transitional period expired. Non-EU buyers, however, remain subject to permit requirements for certain categories of land. Agricultural and forestry land acquisition by non-EU nationals requires approval from the State Land Office (Státní pozemkový úřad). Urban residential and commercial property is generally accessible to non-EU buyers, though corporate structures are often used to streamline the process.

A common structuring approach in the Czech market is for a non-EU investor to establish a Czech limited liability company (společnost s ručením omezeným, s.r.o.) and acquire property through that entity. This avoids the individual permit requirement but does not eliminate all regulatory exposure - the corporate acquisition must still comply with anti-money laundering (AML) requirements and beneficial ownership disclosure rules under the Czech AML Act (Zákon o některých opatřeních proti legalizaci výnosů z trestné činnosti).

Romania';s Constitution (Constituția României) historically prohibited foreign nationals from owning land. Following EU accession, EU citizens gained the right to acquire agricultural land after a transitional period that expired. Non-EU nationals remain prohibited from owning agricultural and forestry land directly. Urban land can be acquired by non-EU nationals subject to reciprocity conditions established by bilateral treaties.

The practical workaround for non-EU investors in Romania is corporate acquisition through a Romanian or EU-registered entity. Romanian law permits foreign-owned companies registered in Romania to acquire all categories of real property without the nationality-based restriction. However, the corporate structure must be genuine - a shell company established solely to circumvent the restriction risks challenge under the general principle of abuse of rights (abuz de drept) recognised in Romanian civil law.

Both Portugal and Spain are generally open to foreign property acquisition, including by non-EU nationals. Neither country imposes nationality-based restrictions on urban residential or commercial property. Agricultural land in both countries is subject to general planning and environmental regulations but not to foreign ownership prohibitions.

Portugal';s Golden Visa programme (Autorização de Residência para Atividade de Investimento) historically linked real estate investment to residency rights, though legislative changes have restricted the qualifying property categories. Spain operates a similar investor visa framework. These programmes do not restrict foreign acquisition but create an incentive structure that has shaped market behaviour and pricing in certain regions.

A non-obvious risk in both jurisdictions is the municipal pre-emption right (direito de preferência in Portugal, derecho de tanteo y retracto in Spain). Municipalities and, in some cases, regional governments hold statutory pre-emption rights over certain categories of property. Failure to notify the competent authority before completion can render the transaction voidable, and the pre-emption right can be exercised retroactively in some circumstances.

The most widely used tool for navigating foreign buyer restrictions is acquisition through a locally incorporated entity. An EU-registered company - regardless of the nationality of its shareholders - generally benefits from EU free movement of capital and is treated as a domestic buyer for the purposes of most national restrictions. This approach works in Poland, Czech Republic, Romania and most other EU member states.

The key conditions for this structure to be effective are:

• The entity must be genuinely incorporated and registered in an EU member state.
• It must have a real economic presence, not merely a registered address.
• The beneficial ownership must be disclosed in accordance with the EU Anti-Money Laundering Directives (AMLD4 and AMLD5), transposed into national law.
• The acquisition must not be structured primarily to circumvent a national restriction, as this risks challenge under the ECJ';s anti-abuse doctrine.

The cost of establishing and maintaining a local entity varies by jurisdiction. In Poland and Czech Republic, formation costs for a limited liability company typically start from the low thousands of EUR. Annual maintenance, including accounting and statutory filings, adds to the ongoing cost. These costs must be weighed against the deal value and the alternative of a direct acquisition with permit requirements.

In jurisdictions where corporate acquisition through a foreign-owned entity is restricted or commercially unattractive, a joint venture with a local partner can provide access to the market. The local partner holds the qualifying interest in the property, while the foreign investor holds an economic interest through a contractual or equity arrangement.

This structure carries significant risks. The foreign investor';s interest depends on the enforceability of the contractual arrangements, which in turn depends on the local legal system. In jurisdictions with weaker property rights enforcement, the foreign investor may find that the local partner';s legal title is difficult to challenge if the relationship deteriorates. Robust shareholders'; agreements, pledge arrangements over the local partner';s shares, and dispute resolution clauses referring to international arbitration are essential mitigants.

Many European states are parties to bilateral investment treaties (BITs) that provide substantive protections to foreign investors, including fair and equitable treatment, protection against expropriation without compensation, and access to international arbitration. Where a foreign buyer restriction constitutes a measure tantamount to expropriation or a breach of fair and equitable treatment, the investor may have a BIT claim against the host state.

BIT protections are not a substitute for compliance with national law, but they provide a backstop remedy where national restrictions are applied in a discriminatory or arbitrary manner. The procedural requirements for BIT claims - including notice periods, cooling-off periods and the choice of arbitral forum - must be observed strictly. A non-obvious risk is that many intra-EU BITs have been terminated following the ECJ';s Achmea judgment, which held that intra-EU investor-state arbitration clauses are incompatible with EU law. This significantly limits BIT protection for EU-to-EU investments.

To receive a checklist on structuring a cross-border property acquisition in Europe to minimise regulatory exposure, send a request to info@vlolawfirm.com

The most costly mistakes in cross-border European property acquisitions occur before the preliminary agreement is signed. Many jurisdictions require that a preliminary sale agreement (compromis de vente in France, umowa przedwstępna in Poland, Vorvertrag in Germany and Austria) be signed before the permit or approval process begins. If the buyer signs a binding preliminary agreement without first confirming that the applicable restriction can be satisfied, the buyer risks losing the deposit if the permit is refused.

In practice, it is important to consider whether the preliminary agreement contains a condition precedent (condition suspensive) tied to regulatory approval. Without such a clause, the buyer';s deposit is at risk regardless of the outcome of the permit process. Sellers in competitive markets often resist condition precedent clauses, creating pressure on buyers to proceed without adequate protection.

A common mistake is to assume that the restriction applicable to one category of property (agricultural land) does not apply to another (urban residential). In several jurisdictions, the boundary between categories is not always clear from the land register entry alone. In Austria, for example, a property classified as residential in the land register may still be subject to provincial agricultural land transfer rules if it includes attached garden or meadow parcels above a certain area threshold.

Similarly, buyers sometimes assume that acquiring a property through a company avoids all restrictions, without checking whether the jurisdiction applies its restriction to indirect acquisitions through corporate vehicles. Switzerland';s Lex Koller and Poland';s agricultural land regime both contain indirect acquisition rules that can catch corporate buyers off guard.

The permit and approval processes in European jurisdictions vary significantly in duration. Swiss cantonal authorisation under Lex Koller can take three to six months. Austrian provincial approval under the Grundverkehrsgesetz typically takes 30 to 90 days. Polish Ministry of Interior permits for non-EU buyers run 60 to 90 days. These timelines affect deal structuring, financing arrangements and the risk of price renegotiation.

A practical scenario: a UAE-based investor agrees to acquire a residential property in Vienna with a 30-day closing period. The investor';s legal team identifies, after signing, that provincial approval is required and will take 60 days. The seller is not obligated to extend the closing period, and the investor faces either a breach of contract claim or a forced renegotiation. The cost of this mistake - in legal fees, renegotiation costs and potential deposit loss - can easily reach the mid-five figures in EUR.

All EU member states have transposed the EU Anti-Money Laundering Directives into national law. Real estate transactions above certain value thresholds require enhanced due diligence by notaries, real estate agents and lawyers. Foreign buyers must be prepared to provide detailed beneficial ownership information, source of funds documentation and, in some cases, a legal opinion on the corporate structure.

Failure to provide adequate AML documentation can delay or block a transaction. In some jurisdictions, notaries are prohibited from completing a transaction if AML requirements are not satisfied. The cost of non-compliance is not limited to the transaction - regulatory penalties for AML breaches in real estate can be substantial, and reputational consequences for the buyer';s group can extend beyond the specific deal.

The choice between direct acquisition, corporate vehicle and joint venture is fundamentally an economic decision shaped by the regulatory environment. Direct acquisition is the simplest structure but is unavailable or restricted in several jurisdictions for non-EU buyers. Where available, it avoids the ongoing cost of maintaining a corporate entity but provides no structural flexibility for future disposals or refinancing.

A corporate vehicle adds formation and maintenance costs but provides flexibility, limited liability and, in most EU jurisdictions, access to the market without nationality-based restrictions. The corporate structure also facilitates future transfers of the economic interest through share sales rather than property transfers, which can be more tax-efficient and avoids triggering transfer taxes in some jurisdictions.

A joint venture with a local partner is the most complex and highest-risk structure. It is appropriate where the target market is otherwise inaccessible and where the deal value justifies the legal and commercial complexity. Lawyers'; fees for structuring a joint venture acquisition in a restricted European market typically start from the low tens of thousands of EUR, depending on the complexity of the transaction and the jurisdictions involved.

A corporate acquisition vehicle should be replaced by a direct acquisition approach when the jurisdiction';s corporate acquisition rules are as restrictive as the individual acquisition rules - for example, where the restriction applies to foreign-controlled entities regardless of their place of incorporation. In such cases, the cost and complexity of the corporate structure provides no regulatory benefit.

A joint venture structure should be replaced by a BIT-based investment protection strategy when the local partner risk is unacceptably high and the host state';s conduct raises concerns about fair and equitable treatment. Conversely, where the host state';s legal system provides adequate enforcement of contractual rights, a well-drafted joint venture agreement is preferable to the cost and uncertainty of international arbitration.

A Hong Kong-based private equity fund seeks to acquire a commercial office building in Warsaw valued at EUR 15 million. The fund is not an EU entity and does not hold a Polish residence permit. Direct acquisition would require a Ministry of Interior permit, which takes 60 to 90 days and involves demonstrating a connection to Poland. The fund instead establishes a Polish spółka z ograniczoną odpowiedzialnością (sp. z o.o., limited liability company) with a registered office in Warsaw. The sp. z o.o. acquires the property directly, avoiding the individual permit requirement. The fund';s beneficial ownership is disclosed in the Central Register of Beneficial Owners (Centralny Rejestr Beneficjentów Rzeczywistych, CRBR) as required by Polish AML law. Total formation and transaction legal costs start from the low five figures in EUR, representing a small fraction of the deal value.

To receive a checklist on structuring a commercial real estate acquisition in Poland or other European jurisdictions as a non-EU investor, send a request to info@vlolawfirm.com

What is the most significant practical risk for a non-EU buyer acquiring property in Europe?

The most significant practical risk is entering into a binding preliminary agreement before confirming that the applicable foreign buyer restriction can be satisfied. Many European jurisdictions require a preliminary agreement before the permit process begins, but if the permit is refused, the buyer may lose the deposit and face a breach of contract claim. The solution is to insist on a condition precedent clause in the preliminary agreement that suspends the buyer';s obligations pending regulatory approval. Sellers in competitive markets resist this, so the negotiation of this clause is itself a critical legal task.

How long does the permit or approval process typically take, and what does it cost?

Timelines vary significantly by jurisdiction and transaction type. Swiss Lex Koller cantonal authorisation runs three to six months. Austrian provincial approval typically takes 30 to 90 days. Polish Ministry of Interior permits for non-EU buyers run 60 to 90 days. Czech State Land Office approvals for agricultural land are similar. Legal fees for navigating these processes start from the low thousands of EUR for straightforward cases and increase substantially for complex or contested applications. The cost of an incorrectly structured application - including delays, renegotiation and potential forfeiture - typically exceeds the cost of proper legal advice at the outset.

Is it always better to use a corporate vehicle to avoid foreign buyer restrictions in Europe?

Not always. A corporate vehicle avoids nationality-based restrictions in most EU jurisdictions, but it adds formation costs, ongoing maintenance obligations and beneficial ownership disclosure requirements. In jurisdictions that apply their restrictions to foreign-controlled entities regardless of place of incorporation - such as Switzerland under Lex Koller for residential property - the corporate structure provides no regulatory benefit. The correct approach is to analyse the specific restriction in the target jurisdiction before choosing a structure, rather than defaulting to a corporate vehicle as a universal solution. In some cases, a direct acquisition with a permit application is faster, cheaper and more commercially straightforward than establishing and maintaining a local entity.

Foreign buyer restrictions in Europe are a legally complex and commercially significant feature of cross-border real estate investment. They operate at multiple levels - EU treaty law, national statute, provincial regulation and administrative practice - and their interaction requires careful analysis for each transaction. The most effective strategies combine early due diligence, appropriate structuring, and procedural compliance with AML and beneficial ownership rules. The cost of getting this wrong - in forfeited deposits, delayed closings and regulatory penalties - consistently exceeds the cost of specialist legal advice at the outset.

Our law firm VLO Law Firms has experience supporting clients across European jurisdictions on foreign buyer restriction matters, including structuring corporate acquisition vehicles, navigating permit and approval processes, and advising on bilateral investment treaty protections. We can assist with transaction due diligence, entity formation, permit applications and dispute resolution where a restriction has been applied in a manner that may be challengeable. To receive a consultation, contact: info@vlolawfirm.com