CZECH GOVERNMENT PROPOSES ABOLITION OF CZECH REAL ESTATE ACQUISITION TAX
The Government approved the proposal of an Act repealing the Senate statutory measure No. 340/2013 Coll., on real estate acquisition tax (hereinafter the “Proposal“). This was stated by the Minister of Finance Alena Schillerová at a press conference held after the government meeting on April 30, 2020. However, the Proposal, which aims in particular to restore the functioning of the real estate market, must first pass through the legislative process.
Besides, the abolition of the real estate acquisition tax, which is currently 4% of the total purchase price, will have a retroactive effect. This means that buyers who had a deadline to file a real estate acquisition tax return by March 31, 2020 (the deadline is extended to August 31, 2020, due to the Covid-19 pandemic) will no longer have to pay this tax. The proposal, therefore, applies to real estate for which the change of ownership was registered in the Czech Cadastre in December 2019 or later. If the buyer has already paid the tax in question, the tax will be refunded.
However, part of the submitted Proposal is also the abolition of the possibility to apply tax deductions of interest on housing loans from the tax base. However, the abolition of this option is not immediate. Option to apply the tax deductions of interest on mortgage loans from the tax base will be kept if the change of ownership of the real estate was registered in the Czech Cadastre before December 31, 2021.
The Proposal also envisages the extension of the so-called time test for the sale of investment houses and apartments. Until now, income from the sale of a house or apartment after at least 5 years of ownership has been exempt from the income tax.
According to the proposal, this period should be extended to 10 years. Newly, the income tax from the sale of a house or apartment shall be exempt from the income tax after 10 years from the acquisition of ownership. If the sale is made earlier, it should be exempt only if the income from the sale is used to secure the seller´s housing needs (provided that the money from the sale is used to buy another real estate within one calendar year after the sale). However, this restriction shall not affect houses or apartments if the owner has resided in them for at least two years immediately prior to their sale.
The extension of this time test to 10 years shall become effective (if the legislative process is successful) from January 1, 2021.
For more information on this subject, please feel free to contact:
JUDr. Monika Rutland, partner
rutland & partners, law firm
tel: +420 226 226 026