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OVERVIEW OF CZECH REAL ESTATE TAX

Rental income and capital gains of Czech real estate

Rental income

Individuals

Introduction

Rental income is taxed as part of a taxpayer’s annual income.

Liability to tax

Rental income received by individuals is subject to 15% income tax. 

Basis to tax

The tax base is calculated as rental income of immovable and movable property (excluding occasional rent of movable assets) reduced by the deductible expenses. Expenses can be determined either as actually spent expenses or as a percentage (30%) of gross income as lump-sum expenses but no more than CZK 600,000.

The taxpayer can decide whether to apply the expenses actually incurred or percentage of gross income.

Companies

Introduction

Rental income is taxed as a business income.

Liability to tax

Rental income is subject to 19% corporate income tax.

Basis to tax 

Subject to 19% corporate income tax is difference between the business income and related expenses.

Capital gains

Individuals

Introduction

Capital gain is taxed as part of a taxpayer’s annual income. 

Liability to tax

Capital gains received by individuals is subject to 15% income tax.

Capital gains derived from the sale of real estate can be exempt from taxation if an individual has held the real estate as a non-business asset for longer than 2 years in case that the individual has primary residence in the property immediately before the sale at least 2 years. If the property was used for less than two years, the exemption is granted only if the gain will be used for the taxpayer´s housing. In case that the taxpayer does not have residence there the holding period for exemption is extended to 5 years.

Basis of tax

The difference between the sale price and the acquisition costs.

Losses

Loss derived from the sale of real estate that is not part of business assets cannot be offset against gain derived from other sales. If the real estate is part of the individual’s business assets, the capital gain loss can be offset against other taxable income except the employment income.

Companies

Introduction

Capital gains are taxed as business income. 

Liability to tax

Capital gains are subject to 19% corporate income tax.

Basis of tax

Subject to 19% corporate income tax is difference between the business income and related expenses. Tax deductible expenses in respect of real estate properties is tax net book value. 

Czech VAT & transfer taxes

Value Added Tax

Introduction

Value added tax (VAT) is based on the increase in the value of a product or service at each stage of the supply chain.

Rental income

Individuals

Liability to tax

Rental income is subject to Czech VAT if the rented property is located in the Czech Republic. 

Basis of tax

As general rule, rental income of real estate is exempt from VAT, except in the following situations:

  • short-term rent of real estate (lasting up to 48 hours)
  • provision of accommodation services
  • rental of premises and parking places for vehicles
  • rental of safe deposit boxes
  • rent of fixed equipment

However, the lessor can opt for a VAT-able supply of the property (in case of rent to another VAT taxpayer for VAT purposes). The applicable tax rate is 21%.

Rental income of movable things is always subject to VAT. 

Companies

The same rules as for individuals apply above.

Capital gains

Individuals

Liability to tax

A sale of real estate is in principle VAT-able transaction if the property is located in the Czech Republic. 

Basis of tax

Transfer of land is VAT exempt except for building plots and land which forms a functional unit with a building. The transfer of buildings within 5 years after their acquisition or the issuance of use of permit are subject to 15%/21 % VAT (the lower rate is applicable to transfer of residential properties). Transfers of real estate 5 years after their acquisition are exempt from VAT.

In case of an exempt supply the seller may opt for VAT-able supply upon buyer’s agreement. Reverse charge applies in such a case (i.e. VAT is applied by the purchaser).

Companies

The same rules as for individuals apply above. 

Transfer Taxes

Introduction

The immovable property acquisition tax is imposed on any transfer of immovable property located in the Czech Republic.

Liability to tax

The person acquiring immovable property is liable for tax. 

Basis of tax

The tax base for immovable property acquisition tax is equal to the acquisition value of real estate reduced by expenses incurred in connection with the expert valuation. The acquisition value is equal to the higher of agreed price or comparative tax value or the official value of real estate stated in accordance with the Czech Evaluation Act.

Czech Local taxes

Introduction

Subject to tax is real estate located in the Czech Republic. The tax is calculated annually based on the property ownership as of 1 January of the respective year.

The tax rates depend on the purpose of usage of a real estate and its location.

Liability to tax

The owner of the real estate located in the Czech Republic is liable to tax.

Basis of tax

The real estate property tax base depends on the type of an immovable property and its actual area or built up area. The tax base of plots of arable land, gardens, and permanent grass growth etc. is the price of land determined as a multiple of the actual area of the plot in square metres and the average price per square metre of the land, as laid down in a Decree.

Tax base for buildings shall be built-up area in square metres and floor area for the flats or the separate non-residual space in square metres.

Czech Net Wealth/worth taxes

There are no Net Wealth/worth taxes in the Czech Republic.

Vehicles for Czech real estate

Commonly used vehicles for Czech real estate

Limited liability company

Czech limited liability company must include the designation “společnost s ručením omezeným” or its abbreviated form “spol. s r.o.” or “s.r.o.” in its commercial name. Limited liability company is the most frequently used vehicle for the ownership of Czech real estate. The amount of the contribution determines the share of the shareholder. Shareholders guarantees the company’s liabilities only up to the amount of outstanding deposits. Individuals who hold shares in the Czech limited liability company receive capital income (dividends) that is subject to 15 % withholding tax. Profit generated by the Czech limited liability company is subject to 19% corporate income tax. 

Joint stock company

Czech joint stock company must include the designation “akciová společnost” or its abbreviated form “a.s.” in its commercial name. Czech joint stock company is liable for breaches of its obligations by its entire property. Its shareholders are not liable for breaches of the company’s obligations at all. The Czech joint stock company is a widely used vehicle for the ownership of Czech real estate. Individuals who hold shares in the Czech joint stock company receive capital income (dividends) that is subject to 15 % withholding tax. Profit generated by the Czech joint stock company is subject to 19% corporate income tax.

Limited partnership

Czech limited partnership must include the designation “komanditní společnost” or its abbreviated form “k.s.” in its commercial name. Czech limited partnership is established by a memorandum of association concluded between at least two persons, at least one being a general partner whose liability is unlimited, and at least one being a special partner, whose liability is limited. Profit and loss are divided between the company and the general partners. Profit attributable to the company is subject to 19% corporate income tax. Profit attributable to the general partner is subject to 19% corporate income tax or 15% personal income tax depending of the recipient. Dividends are subject to 15 % withholding tax.

Trusts

Svěřenský fond

On January 1st, 2014, a new and updated version of the civil code came into effect, introducing various amendments in the area of administration of assets, giving rise to a whole new range of instruments. One of those is the ‘trust-like’ Quebec inspired version of the Anglo-Saxon Trust Fund, retaining its strong civil law nature affected by the common law institute – “Svěřenský fond”. It is attractive for both business and private use.

The main essence of the trust lays in the separation of property and the lack of legal personality, being only defined by the property itself and the afore-stated purpose. A trust is constituted through a transfer of a part (or the whole) property by the settlor (founder), administered by a trustee in favour of a beneficiary. In practice, a trust may be used to avoid rising legal restrictions normally associated with inheritance. A trust may also be used to satisfy a variety of needs in the range of business and corporate relationships, management and ownership of real estate to minimize tax burdens, as well as just to levy the burden of asset management for wealthy individuals.

Svěřenský fond is subject to corporate income at a tax rate of 19%.  It is subject to the same provisions of the Income tax act as Limited liability company or Joint stock company. The transfer of assets by a person or a company to the Svěřenský fond is not taxed. Dividends paid to Svěřenský fond and capital gain from the sale of the interest in the subsidiary are exempt from taxation if the holding at least a 10% in the subsidiary for uninterrupted 12 months is met.

Czech investment funds

In the Czech Republic became available two forms of investment through the fund. They are subject to more demanding regulation and administrative duties than a regular corporate entity.

  • Qualified investment fund
  • Joint stock company with variable capital (SICAV)

The above-mentioned investment funds are subject to 5% corporate income tax rate if all conditions stipulated by the Czech tax law are met. The funds are subject to relatively high regulatory requirements and are supervised by the Czech National Bank.

Family foundation

The Czech private foundation has no shareholders, but only beneficiaries. The income from non-commercial activities that do not generate a surplus of revenue over related expenses is exempt from tax provided that other conditions are met. 

Foreign partnership

The residence of partnership is determined by the place where the main business decisions are made. Foreign partnership which has permanent establishment in the Czech Republic is subject to corporate income tax. 

Specific real estate vehicles for Czech real estate

There is no special real estate vehicle in the Czech Republic. Various legal forms of companies listed above are used to own real estate.

 

 

Contact persons

Jaroslav Sůsa

Senior Manager

+420 226 219 000

jaroslav.susa@rsm.cz

Kateřina Provodová

Head of Tax Czech Republic

+420 226 219 000

katerina.provodova@rsm.cz

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