The VAT amendment brings a number of changes: from shortening the deadline for VAT exemption to checking whether a one-time sale is actually not subject to tax.
Anyone who owns, sells or buys property should be alert. Several changes that may affect your wallet have been in effect since July. The most significant is the change in the deadline for VAT exemption on new buildings. It is being reduced from 5 years to 2 years.
In case you are the owner of a newly approved building and decide to sell it within two years, you don't have to deal with VAT anymore. However, if you wanted to sell it before the July term, you would have to add tax to the price.
The reason for the aforementioned step is the legal shortening of the VAT exemption period. The sale of real estate is now exempt from payment after 23 months from approval or significant modification of the building. The period starts running in the calendar month immediately following.
"So far, a time limit of five years has applied, in which case if the building was completed, it was always a taxable transfer,"
Ilona Semerádová from the bnt law office explained to LP-Life.
It should be added that there will be no need to pay for any further pre-sales that may occur during a two-year period.
Further legal amendments
But this is not the only change that the amendment to the VAT Act No. 461/2024 Coll. brings from the start of the summer. The seller will also have to take into account the situation which is called a "Significant change in construction" in professional terminology. It is a case where the costs of reconstructing the original object exceed 30 percent of the future purchase price. If such a state arises, it is now obligatory to add VAT to the price as well.
From the summer, the state will additionally scrutinize those who have decided to invest in speculative construction. This happens at the moment when you have a house built, in which you then do not live and plan to sell it quickly with the prospect of making a profit. The financial office can evaluate such an activity as your deliberate economic activity, from which tax needs to be paid.
What recommendation does this imply for the sellers? Consider whether the construction was really created for your own needs, or whether it was an investment from the beginning with the aim of subsequent sale. Each case is individual and the assessment by the financial office depends on a number of circumstances. Consultation with an expert can prevent unwanted surcharges, penalties or even disputes with the authorities.
One must still consider that taxable performance also involves the supply of a construction site. This also includes preparatory construction work, such as the deforestation of land, landscaping, introduction of networks, and strengthening of access roads, which are a premonition of the future construction use of such an area.
The definition of a construction site claims that it is such an area, on which, according to the spatial planning documentation issued by the municipality, the delimitation of the built-up area, or the decision of the building authority, a structure permanently connected with the ground can be placed. However, this is associated with information that the range of administrative actions that can make a site a construction site is narrowing. Some areas, where it will already be evident in advance that it will not be possible to place a building on them in the future, will therefore be excluded from such a definition.
Social Housing
VAT of 21 is reduced to 12 % for buildings intended for social housing. The reduced tax rate will cover cases where more than half of the floor area of an apartment building is allocated for residential purposes for social purposes. This applies to small units of up to 120 square meters, as well as larger apartments, provided that the condition is met that the floor area of small apartments will make up more than half of the total area of the house.
"From now on, the decisive factor for family and residential buildings will be the entry in the register of territorial identification, addresses and properties, in order for the reduced VAT to be applied,"
added Semerádová.
From the updates we have introduced here, it follows, among other things, that it is no longer possible to rely on a one-off sale of property from July. The VAT amendment introduces a fundamental shift into practice. The previous procedure, which resulted in automatic exemption from VAT, ceases to apply. The key will be whether the sale has the characteristics of a business.
Finally, a piece of good news for landlords is the advantage of VAT application when renting to tenants registered in the European Union. This was not possible before. So far, it only applied to tenants registered with us.
Sources: own questioning, Trend Report, Hospodářské noviny, Peníze.cz, Amendment to the VAT Act No. 461/2024 Coll.
