The Czech real estate transfer tax (RETT) was abolished in September 2020 to support Czech taxpayers as a response to the COVID-19 crisis. The abolition applies retrospectively to all real estate transfers registered since 1 December 2019. RETT that has already been paid can be reclaimed.
RETT of four percent was applied on all real estate transfers in the Czech Republic. It was one reason why foreign and local investors used special purpose vehicle companies (SPVs) to own Czech real estate, as RETT did not apply to share transfers and thus share deals enabled the avoidance of RETT in real estate transactions. Now, these structures may not be necessary and it will be possible to acquire Czech real estate directly without the acquisition of the SPVs, with their potentially unkown history and possible tax and other risks, explain the Ecovis experts. This could be useful for both natural persons and companies. There are no limitations for foreign ownership of Czech real estate in place.
Higher Income Tax on Real Estate Transfer Profits Instead of Real Estate Transfer Tax
In exchange for the abolition of the RETT, the time limit for exemption from Czech income tax applicable to profits of natural persons from real estate transfers has been increased to 10 years, starting from 1 January 2021. The current period of 5 years is maintained for real estate acquired before this date. The current regulation providing an exemption from personal income tax for the sale of real estate, in which the seller resides, after 2 years of ownership is also maintained. A broader exemption from personal income tax in the case of using the income from real estate transactions to alleviate the housing needs in the Czech Republic was also introduced into the tax system.
You can find more information and details on these particular points on the Ecovis Czech web page
As compensation for the Czech state budget, the maximum tax deduction of interest on a loan in the Czech Republic was halved from CZK 300,000 to CZK 150,000 for mortgage loans concluded from 1 January 2021.
For further information please contact:
ECOVIS ježek, advokátní kancelář s.r.o., Prague, Czech Republic