Sales Tax on Real Estate in the Czech Republic
Before you decide to sell an apartment, house or land in the Czech Republic, it is worth checking whether you will pay property sales tax. If you are not exempt from this tax, you may be surprised by the relatively high amount you will have to pay when you sell. So, what should you know about property sales tax, when it is payable, and in which cases you do not have to pay it according to Czech legislation?
Who pays the property sales tax?
In the Czech Republic, income tax on the sale of real estate is paid by the seller, unless he or she is exempt. An individual may be exempt under the conditions explained below. On the other hand, a company cannot be exempt and always pays income tax on the sale of real estate.
Are there exemptions from tax on the sale of real estate?
Yes, there are. And Czech legislation defines several of them. Income tax on the sale of real estate does not apply to you if:
- you have owned the property sold for more than 5 years (applies to property acquired before 1 January 2021) or 10 years (applies to property acquired after 1 January 2021). This is the so-called time test. Acquisition here means purchase, acquisition by gift, inheritance or any other way of acquiring the property. This exemption applies to all types of real estate.
- you have lived in the property for at least 2 years before the sale. This does not have to be a permanent residence, but it is sufficient to use the property for your personal living purposes, even occasionally. Importantly, however, the property must be a property that has been approved for permanent residence, i.e., it must be an apartment or a family home, not a studio or a cottage – these properties are not eligible for the exemption,
- you use the money you receive from the sale of the property to meet your own housing needs (purchase of another flat, house or land for building a house, construction of a house or renovation). However, this exemption option has several other sub-conditions and is quite complex, so we discuss it in more detail in the article How to use the money from the sale of a property to buy another property.
What is the amount of income tax on the sale of a property in the Czech Republic?
The income tax rate on the sale of real estate is 15 percent for individuals and 19 percent for companies. But beware! It is not 15 percent on the entire sale price, but on the difference between the purchase price of the property (the amount you bought the property for and the price you sold the property for). The tax is therefore only on the profit from the sale of the property, but even this can end up being very high given that property prices have risen exponentially in recent years.
What does the calculation of tax on the sale of a property look like?
If we wanted to illustrate how to calculate the tax on income from the sale of a property, the calculation would be as follows. You bought a flat for 3.4 million and sold it for 5.6 million, so you made 2.2 million CZK on the sale – and you tax this profit. If you had other expenses related to the sale of the apartment (furnishing the property, real estate agent’s commission, escrow, legal services, etc.), then you can deduct these from the profit and reduce your tax. For our model example, let’s set these partial costs at CZK 200,000. In this case, the basis for calculating the tax on the sale of the property will be 2 million. The 15 per cent tax will therefore amount to CZK 300,000.
If you are unsure about calculating the tax on the sale of a property, you can ask a tax advisor or an experienced real estate agent for help. You can also find help on the internet. There is a calculator for property sales tax.
How to pay tax on the sale of a property in the Czech Republic?
Tax on income from the sale of property must be reported on the tax return for the year in which the transaction took place. So if you sell your apartment, house or land in 2022, you must include this in your tax return, which you will file in the Czech Republic by 31 March 2023. This is also the deadline for paying the tax. You will file the return with the tax office to which you belong according to your place of residence.
Do I have to pay tax on the sale of an inherited property?
If you are selling a property that you have acquired through inheritance, several factors determine whether you will pay tax on the sale of an inherited property.
If the apartment, house or land is inherited from the testator in the direct line of descent (parents, spouse, children), then you must find out if the testator was exempt from estate sales tax, and if so, that exemption automatically passes to you. Thus, if you inherit an apartment, for example, from a parent who has owned it for 20 years, then he/she is certainly exempt (he/she has owned the apartment for more than 5 years) and therefore you can sell the apartment immediately after the inheritance proceedings are completed and you will not have to pay income tax on the sale of this apartment.
However, if you want to sell a property inherited from a testator who is not in the direct line, then the exemptions do not pass to you. To avoid the tax, your only option is to meet the exemption conditions yourself.
Do I have to pay income tax on the sale of a property acquired by gift?
Yes, the sale of a property acquired by gift is also subject to 15% income tax. Czech legislation treats donated real estate similarly to purchased real estate, so the only way to avoid the tax is to meet the conditions for exemption from real estate sales tax, as described in the answer to the exemption options. So, review these three exemption options to determine whether or not you will pay the tax.
If you sell a gift property, even if you do not meet the exemption requirements, you will calculate the tax in the same way as you would for a property you purchased. You just get an appraisal of the value of the property on the date of the gift instead of the purchase price, and you follow the same procedure as we described in our answer to the question about how the tax on the sale of real estate is calculated. It is important to add, however, that you are likely to run into the problem here that the price of the property according to the appraisal will come out slightly lower (usually 20-30%) than the actual market value of the property, and the income tax will therefore come out slightly higher than you expect. This is due to the fact that in the Czech Republic, forensic experts have to value the property according to the decreed prices, which are lower than the market prices.
Are you selling a property and want to take the hassle out of the transaction? Put the sale in the hands of our experienced real estate brokers. At Kotula Real Estate Agency, we will guide you through the entire process and make sure you get the maximum amount for your property. Contact us!
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