Even in these difficult economic times, the real estate market in the Czech Republic still attracts foreign investors. Some entering the market are corporate investors while others are individuals who are looking for a favourable investment opportunity or a place to live. Whatever the situation, if you own any form of property in the Czech Republic, with certain exceptions, you have to pay tax on it.
Real estate tax
Real estate tax comprises building (in respect of a structure) tax and land tax. The legal basis for real estate tax is Act No. 338/1992, on Real Estate Tax (“the Real Estate Tax Act”). The tax is paid by the owner listed in the Land Register (katastr nemovitosti) which is kept by the local Land Registry office (katastrální úřad). However, in special cases the tax can be paid by the user or lessee. The tax is generally based on the size of the property, not on market value, as opposed to real estate transfer tax. Real estate tax is the only tax where the revenue goes to the municipality rather than the central government.
The taxable period is a calendar year. The real estate tax return must be filed with the tax authority within whose boundaries the property is located, by 31 January of the first taxable period. In the following years a real estate tax return does not need to be submitted if no change in the property occurs or there is a change of tax rates or other parameters under the real estate tax legislation.
Property owners shall receive a bill (payment order) to pay the tax. Usually, if the tax liability is lower than 5,000 CZK the whole tax amount is due on 31 May of the taxable period. If higher, the tax is due in two installments, by 31 May and 30 November. For corporations, entrepreneurs or individuals having rental income; real estate tax, if paid, is treated as a tax deductible expense.
Generally, buildings and flats situated in the Czech Republic are subject to building tax. Certain buildings are exempt such as buildings owned by the state, municipality or the church; buildings used as schools or museums; or “for the improvement to the environment,” etc. Recently the real estate tax exemption on new buildings (for living purposes) or new flats was abolished.
The tax base for buildings is the ground area in square meters and for flats or non-residential space the area in square meters multiplied by a coefficient of 1.2. The tax rates depend on the use of the building and therefore vary from 1 CZK per square meter (residential buildings) to 10 CZK per square meter (business premises).
An additional charge of 0.75 CZK per square meter is levied for each floor above ground level. Certain rates are multiplied by a coefficient ranging from 1 to 5, depending on the location of the property (for example 5 for Prague). A further coefficient of 2 to 5 may apply based on the decision of the local municipality (not applicable for Prague). Tax for a typical 100-square meter flat in Prague would amount to 600 CZK. It would be calculated as follows:
100 (area in square meters) * 1.2 (coefficient for flats) * 1 (tax rate) * 5 (coefficient) = CZK 600
The following types of land situated in the Czech Republic and registered with the Land Register are subject to the land tax:
– agricultural land, such as arable land, vineyards, hop fields, gardens, orchards, pasture land and
– other types of land, such as forests (with a predominantly commercial function), ponds (used for intensive and industrial fish farming), built areas and courtyards, building plots of land, other areas.
There are different methods of setting the tax base and applying the tax rate depending on the type of land. The tax base is derived from an area of the plot of land in square meters. The tax rates vary according to the type of land. In addition, certain rates are multiplied by a coefficient ranging from 1 to 5 depending on the location of the property (for example 5 in Prague, but applicable to building plots of land only). An additional coefficient ranging from 2 to 5 may apply based on a decision of the local municipality (not applicable to Prague).
The following types of land are tax exempt: land which has been built upon, under Section 2(2)(a), land owned by the state, municipalities and regions; cemeteries; public parks and sports grounds, agricultural and forested land, for a specified time period given by law.
Real Estate Transfer Tax
The legal basis of real estate transfer tax is Act No. 357/1992, on Inheritance Tax, Gift Tax and Real Estate Transfer Tax (“the Real Estate Tax Act”). In most cases the seller of the real estate is liable to pay the real estate transfer tax, whereas the purchaser is the guarantor.
The tax base is the price of the real estate, which is generally the higher of the purchase price or appraisal price. The tax rate is 3% of the tax base. The real estate transfer tax is high compared to real estate tax; therefore it is worth reviewing the transaction in order to optimize taxation. For example, mergers or demergers do not trigger real estate transfer tax.
Certain transfers of real estate are tax exempt, e.g. regarding ownership transfers connected with restitution, certain transfers from the state and other exceptions given by law.
The tax return must be filed with the respective tax authority within 3 months following the month in which the right was registered with the Land Register. The tax is due by the deadline for filing the tax return.
Taxes are filed with the tax authority within whose boundaries the real estate is located. For example, if the property is located in the Prague 2 borough, the tax return is filed with the tax authority for Prague 2.
For corporations or individuals real estate transfer tax is deductible only if paid.
Tax forms can be downloaded from the website of the Ministry of Finance under the following link. Hard copies are also available from all tax authorities although are in Czech only.
KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 145 countries and have more than 123,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services.
KPMG has been active in the Czech Republic since 1990, when the first office in Prague was opened. Currently, KPMG Czech Republic employs 850 people, with offices in Prague, Brno, České Budějovice, Liberec and Ostrava. KPMG Czech Republic provides audit, tax services, risk advisory services and financial advisory services. Of our 690 professionals, 29 are partners, 24 certified auditors, 85 certified accountants and 51 tax advisors. In KPMG Czech Republic, a total of 24 qualified foreign practitioners are employed.