DIRECT SALE OF REAL ESTATE
This section shows the most important tax implications of direct sale of real estate (asset deal). Firstly, the impacts for resident and non-resident individuals are explained, thereafter the impacts for resident and non-resident companies.
Resident individuals
Capital gains
Gains derived from the direct sale of real estate are subject to individual income tax. As of 1 January 2021, the income of individuals is taxed at a progressive tax rate of 15% and 23%. The rate of 15% applies to the tax base up to 48 times the average annual wage (i.e. up to CZK 1,701,168 in 2021). The rate of 23% applies to the tax base above this limit.
The gains derived from the sale of real estate can also 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 for at least 2 years immediately before the sale.
In case that the taxpayer does not have residence the holding period for exemption is extended to 5 years for real estate acquired by 31 December 2020 at the latest. For real estate acquired no earlier than 1 January 2021 the period is extended to 10 years.
The gain from the direct sale of real estate may be exempt even if the above-mentioned holding periods are not met but the gain will be used for the taxpayer´s housing within limited period.
Deductibility of costs
The individuals who own the real estate as a business asset can reduce the gain from sale of the real estate by the residual value of the real estate and by the expenses incurred in connection with the sale.
Other individuals reduce the gain from the sale of real estate by the purchase price (possibly increased by other costs incurred during the ownership) and by the expenses incurred in connection with the sale.
Losses – carry back/forward
If the real estate is part of the individual’s business assets, the loss can be offset against other taxable income except the employment income. The loss derived from the direct sale of real estate that is not part of business assets cannot be offset against the gain derived from other sales.
Value added tax
Transfers of real estate after lapse of 5 years from issuance of first building permit, first approval for use or from the first use are exempt from VAT. Substantial change of the real estate restarts the five-year period. The transfers of buildings before lapse of this period are subject to 15%/21% VAT (the lower rate is applicable to transfers of residential properties).
Transfer of land is exempt from VAT except for building plots and land which forms a functional unit with a building.
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).
Non-resident individuals
The income generated by the real estate located in the Czech Republic constitutes Czech source income.
Non-resident individuals are treated in the same way as resident individuals.
Resident companies
Capital gains
The gain from the sale of Czech real estate is subject to Czech corporate income tax as business income. Business income is taxed with the rate of 19%. The tax base is calculated as income from the sale of real estate reduced by the tax net book value of real estate.
Deductibility of costs
The expenses incurred in connection with the sale of real estate can be deducted.
Losses – carry back/forward
Generally, the tax losses can be carried forward for five subsequent periods. Newly it is also possible to claim tax losses two years back with cumulative limit of CZK 30 million. For the first time, it is possible to carry back the tax loss generated in the period ending no earlier than 30 June 2020.
Value added tax
Transfers of real estate after lapse of 5 years from issuance of first building permit, first approval for use or from the first use are exempt from VAT. Substantial change of the real estate restarts the five-year period. The transfers of buildings before lapse of this period are subject to 15%/21% VAT (the lower rate is applicable to transfers of residential properties).
Transfer of land is VAT exempt except for building plots and land which forms a functional unit with a building.
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).
Non-resident companies
The income generated by the real estate located in the Czech Republic constitutes Czech source income.
Non-resident companies are treated in the same way as resident companies.
INDIRECT SALE OF REAL ESTATE
This section shows the most important tax implications of indirect sale of real estate (i.e. share deal). Firstly, the impacts for resident and non-resident individuals are explained, thereafter the impacts for resident and non-resident companies.
Resident individuals
Capital gains
The gain from the sale of shares is exempt from personal income tax if an individual has held the shares as a non-business asset for an uninterrupted period of more than three years in case of shares in joint stock company or 5 years in case of sale of ordinary share (in Czech “kmenový list”) or shares in limited liability company. This rule applies to shares acquired after 31 December 2013.
In addition to the above, income from the sale of any shares is exempt if the total income does not exceed CZK 100,000 during the taxable period. If the income from the sale of shares exceeds the limit, the whole amount is subject to tax.
If the gain is not exempt, it is subject to personal income tax. As of 1 January 2021, the income of individuals is taxed at a progressive tax rate of 15% and 23%. The rate of 15% applies to the tax base up to 48 times the average annual wage (i.e. up to CZK 1,701,168 in 2021). The rate of 23% applies to the tax base above this limit.
Deductibility of costs
The tax base being calculated as the income from the sale of shares reduced by the purchase price of the shares and charges related to its acquisition.
Losses – carry back/forward
The loss from the sale of shares by individuals can only be deducted from the same type of income.
If the shares are part of business assets, the losses can be offset against other taxable income except the employment income. The tax loss can be carried forward for five subsequent periods. Newly it is also possible to claim tax losses two years back with cumulative limit of CZK 30 million. For the first time, it is possible to carry back the tax loss generated in 2020.
Non-resident individuals
The income from the sale of shares in the company located in the Czech Republic is treated as income from the source of the Czech Republic.
Non-resident individuals are treated in the same way as resident unless a double tax treaty stipulates otherwise.
Resident companies
Capital gains
Generally, the capital gain from the sale of the Czech real estate company is subject to Czech corporate income tax unless the conditions for tax exemption in accordance with EU Parent – Subsidiary Directive are met. The main condition for tax exemption is that the parent company maintains a holding of at least 10 % in the subsidiary for an uninterrupted period of at least 12 months and have an appropriate legal form.
Business profits are taxable with 19% tax rate.
Non-resident companies
The income from the sale of shares in the company located in the Czech Republic is treated as income from the source of the Czech Republic
Non-resident companies are treated in the same way as resident unless a double tax treaty stipulates otherwise.
