VAT changes for renting of immovable property in Czechia from 2021

Martin Sotolář
The new year usually brings new tax and accounting changes and the year 2021 is not an exception. One of the many changes is also the effectiveness of the amendment to the Czech VAT Act from 2019 related to the taxation of renting of the immovable property between VAT payers. This amendment was passed in 2019, however, the effectiveness of this part was set at on start of the year 2021. 

The current approach valid by the end of 2020 stipulates an exemption from applying the VAT for the rent of the immovable property (except for short-term rent, renting of parking spaces for vehicles etc.). Nevertheless, on the other hand, it is not possible to claim the VAT for the in-put related to it, and also, the coefficient for the VAT claim is reduced as well. To counter this, the Czech VAT Act enabled to apply VAT for the renting of the immovable property between two VAT payers (for their economic activity). In such a case, VAT might be applied for this transaction and the in-put VAT might be claimed.

The amendment effective from 1 January 2021 restricts the possibility to apply the VAT. Therefore, this might lead to the obligation to apply for exemption and forbidding the claim the in-put VAT or reducing the above-mentioned coefficient for some companies. Starting from 1 January 2021, it is not possible to apply VAT for rent of:

  • family house (according to the real estate cadastre),
  • space for living,
  • units without non-residential space other than a garage, cellar, or storage room,
  • constructions for which at least 60% of the floor area consists of living space (the same procedure is followed in the case of land lease or building rights).

In other words, the VAT amendment is aimed primarily at renting real estate, which is not primarily intended for economic activity (from the new year, for example, it will not be possible to apply VAT to renting an office in a family house, etc.). In practice, this amendment also impacts on already claimed VAT related to acquired properties listed above or their technical improvements. In both cases, we would strongly recommend revision to avoid the potential risk.

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Jiri Sindelar
Jiří Šindelář
Tax Director

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