The extensive amendment to the VAT Act, which has been delayed for a long time, already has a paragraph-by-paragraph wording. Most of the amended provisions are scheduled to come into force on 1 January 2025. As the area of immovable property will undergo significant changes, we would like to draw your attention to them in advance.
At the outset, it should be mentioned that the amendment is at the beginning of its legislative journey. It follows that it may undergo both parametric and substantive changes. We will of course keep you informed of any updates.
It should also be mentioned that a new GFD information on immovable property should be issued in the second half of the year, replacing the information issued on the amendment to the VAT Act for 2016. The information will clarify the will of the legislator and give practical examples.
Let's take a brief look at the most significant changes.
When applying VAT rates to the construction of social housing and construction and assembly work for residential buildings, we are used to monitoring the conditions for applying a reduced tax rate. The amendment will not change these circumstances.
However, individual definitions will be refined. For the relevant amendments, the proposed effective date is 1 July 2025.
The construction of a family house and an apartment building will now have their own definition for VAT purposes. This leaves out the Building Act and related regulations.
The aim of the new regulation will be to link the definition of these buildings to the maximum extent possible to the registration of the building in the basic register of territorial identification, addresses and immovable property (RÚIAN). The facts listed in the RÚIAN will take precedence over facts that are not defined in it.
It is necessary to add that with the adoption of the new Building Act, the category of family houses has been expanded to include buildings with a third floor set back from the street boundary line by at least 2 metres. These buildings, which meet the definition of family houses under the new Building Act and which were not considered family houses under the previous Building Act, will be the only exception to the rule on the decisiveness of registration in the RÚIAN.
In the case of the first construction, when the building is not yet registered in the RÚIAN, it is necessary to proceed mainly from the project, building permit, etc.
The definition of a residential building for social housing will be modified. It will now be sufficient that more than half of the floor area is made up of living space for social housing (flats for housing up to 120 m2).
In the case of buildings for mixed use (apartment building with non-residential premises), which are nevertheless predominantly used for social housing, these buildings will also be regarded as if they were entirely used for social housing.
For the purposes of VAT, building land will now be defined as land if a building fixed to the ground can be placed on this land on the basis of spatial planning documentation issued by the municipality, the definition of the built-up area or a decision of the building authority under the Building Act.
The only exceptions will be situations where it is apparent from objective circumstances that the land, although formally developable, cannot be developed with a building firmly attached to the ground or is highly unlikely to be developed.
Of course, a building plot will be considered in the case of building or paving the access road, bringing water supply and so on.
The Act will include a clarification that where land is supplied with an insignificant structure, that structure will be disregarded. Only the supply of land which does not form a functional unit with a building firmly attached to the ground and is not building land can be exempted from tax.
The proposed effective date is also postponed to 1 July 2025 for changes in the delivery of immovable property.
The construction is considered completed:
A substantial alteration of a completed immovable property shall be deemed to be such alteration, the purpose of which is to change its use or the conditions of its occupation, if the actual costs incurred for such alteration, net of tax, by the person making the supply of the immovable property exceed 30% of the taxable amount of the supply.
This is not a material change in the case of regular maintenance, regardless of its value.
A domestic taxpayer or a person not established in the Czech Republic (who will not be registered for VAT in the Czech Republic and will not benefit from the regime for small enterprises) will be able to treat the supply of immovable property, including land, which meets the conditions for exemption as taxable. The buyer, who is a domestic taxpayer or a person registered for tax in another EU Member State, must consent to this taxation.
A person not established in the Czech Republic (who will not benefit from the small business regime in the Czech Republic) may also decide to treat the lease of immovable property to a domestic taxpayer for his economic activities as a taxable supply.
A domestic taxpayer will be able to decide that even a lease to a person registered for tax in another EU Member State for its economic activities will be a taxable supply.
In connection with the introduction of this new concept into the VAT Act in 2011, the Ministry of Finance of the Czech Republic issued information in which it was declared that in the case of the delivery of property so-called "turnkey" the RMVVČ will not be used. That is, according to the above mentioned Information, the RMVAT will not be applied in the case of the construction of a building/renovation of a building by one general contractor.
Although the above Information is still valid, in particular following the judgment of the Court of Justice of the European Union C-92/13 of 10 September 2014 in the case of Gemeente ʼs-Hertogenbosch and the judgment of the Supreme Administrative Court 2 Afs 232/2020 -70 of 6 September 2021 in the case of the Regional Hospital Kolín, the non-application of the RMVČ in the case of turnkey delivery has been broken and the RMVČ has been extended to include turnkey construction situations. The courts have also concluded that the value of the land provided should be included in the tax base in the case of so-called self-delivery.
Due to the disproportionate burden on taxpayers, this special regime is abolished by the amendment.
However, according to the current wording of the transitional provisions to this Act, the above regime must be used even if construction is started before the amendment comes into force (probably by 31 December 2024) and the property is put into a condition fit for use during 2025.
The RMVVC would not have to be used only if the property, the construction of which began before the amendment took effect, was not placed in a usable condition until 2026.
In the case of putting the property in a condition fit for use in 2026, the taxpayer can de facto choose whether to use the RVTL, or correct the claimed full input deduction (reduce the full deduction in the proportion in which the property will be used for taxable purposes) or not claim the VAT deduction at all.
Autor: Petr Linx
petr.linx@bdo.cz
At the outset, it should be mentioned that the amendment is at the beginning of its legislative journey. It follows that it may undergo both parametric and substantive changes. We will of course keep you informed of any updates.
It should also be mentioned that a new GFD information on immovable property should be issued in the second half of the year, replacing the information issued on the amendment to the VAT Act for 2016. The information will clarify the will of the legislator and give practical examples.
Let's take a brief look at the most significant changes.
APPLICATION OF RATES
When applying VAT rates to the construction of social housing and construction and assembly work for residential buildings, we are used to monitoring the conditions for applying a reduced tax rate. The amendment will not change these circumstances.
However, individual definitions will be refined. For the relevant amendments, the proposed effective date is 1 July 2025.
The construction of a family house and an apartment building will now have their own definition for VAT purposes. This leaves out the Building Act and related regulations.
The aim of the new regulation will be to link the definition of these buildings to the maximum extent possible to the registration of the building in the basic register of territorial identification, addresses and immovable property (RÚIAN). The facts listed in the RÚIAN will take precedence over facts that are not defined in it.
It is necessary to add that with the adoption of the new Building Act, the category of family houses has been expanded to include buildings with a third floor set back from the street boundary line by at least 2 metres. These buildings, which meet the definition of family houses under the new Building Act and which were not considered family houses under the previous Building Act, will be the only exception to the rule on the decisiveness of registration in the RÚIAN.
In the case of the first construction, when the building is not yet registered in the RÚIAN, it is necessary to proceed mainly from the project, building permit, etc.
The definition of a residential building for social housing will be modified. It will now be sufficient that more than half of the floor area is made up of living space for social housing (flats for housing up to 120 m2).
In the case of buildings for mixed use (apartment building with non-residential premises), which are nevertheless predominantly used for social housing, these buildings will also be regarded as if they were entirely used for social housing.
DELIVERY OF LAND
From 1 July 2025 we should use the new definition of building plot.For the purposes of VAT, building land will now be defined as land if a building fixed to the ground can be placed on this land on the basis of spatial planning documentation issued by the municipality, the definition of the built-up area or a decision of the building authority under the Building Act.
The only exceptions will be situations where it is apparent from objective circumstances that the land, although formally developable, cannot be developed with a building firmly attached to the ground or is highly unlikely to be developed.
Of course, a building plot will be considered in the case of building or paving the access road, bringing water supply and so on.
The Act will include a clarification that where land is supplied with an insignificant structure, that structure will be disregarded. Only the supply of land which does not form a functional unit with a building firmly attached to the ground and is not building land can be exempted from tax.
DELIVERY OF IMMOVABLE PROPERTY
While the existing legislation provides for a five-year time test, the proposed amendment seeks to tax only the first supply of the selected immovable property within two years of its completion or substantial change. Even if there is a further supply within this new period, that supply will already be exempt. Deliveries made after that period will also be exempt. The supply of unfinished immovable property will always be subject to tax.The proposed effective date is also postponed to 1 July 2025 for changes in the delivery of immovable property.
The construction is considered completed:
- (i) on the date of the entry into force of the first approval decision; or
- (ii) the date of fulfilment of the conditions for the permanent use of the selected immovable property, if no approval decision is issued for the selected immovable property
A substantial alteration of a completed immovable property shall be deemed to be such alteration, the purpose of which is to change its use or the conditions of its occupation, if the actual costs incurred for such alteration, net of tax, by the person making the supply of the immovable property exceed 30% of the taxable amount of the supply.
This is not a material change in the case of regular maintenance, regardless of its value.
PRICE EXCLUSIVE
From 1 January 2025, the normal price (for VAT purposes) must be determined if the taxpayer supplies immovable property to its employees or their relatives at a lower price.RELATIONSHIP WITH PEOPLE FROM ABROAD
As of 1 July 2025, the relationship for persons who do not have their registered office or permanent establishment in the country is regulated.A domestic taxpayer or a person not established in the Czech Republic (who will not be registered for VAT in the Czech Republic and will not benefit from the regime for small enterprises) will be able to treat the supply of immovable property, including land, which meets the conditions for exemption as taxable. The buyer, who is a domestic taxpayer or a person registered for tax in another EU Member State, must consent to this taxation.
A person not established in the Czech Republic (who will not benefit from the small business regime in the Czech Republic) may also decide to treat the lease of immovable property to a domestic taxpayer for his economic activities as a taxable supply.
A domestic taxpayer will be able to decide that even a lease to a person registered for tax in another EU Member State for its economic activities will be a taxable supply.
SELF-GENERATED ASSETS
The self-created property regime (PCPR) is a concept that was introduced into the VAT Act in 2011.It refers to situations where the VAT payer has fixed assets built or reconstructed with the help of third parties, which, after being put into a condition suitable for use, are used both for purposes that do not give rise to a right to deduct (activities outside the scope of VAT or for activities exempt from VAT without a right to deduct VAT) and for taxable activities from which the payer is fully entitled to deduct VAT (so-called "VAT deduction"). Mixed use).In connection with the introduction of this new concept into the VAT Act in 2011, the Ministry of Finance of the Czech Republic issued information in which it was declared that in the case of the delivery of property so-called "turnkey" the RMVVČ will not be used. That is, according to the above mentioned Information, the RMVAT will not be applied in the case of the construction of a building/renovation of a building by one general contractor.
Although the above Information is still valid, in particular following the judgment of the Court of Justice of the European Union C-92/13 of 10 September 2014 in the case of Gemeente ʼs-Hertogenbosch and the judgment of the Supreme Administrative Court 2 Afs 232/2020 -70 of 6 September 2021 in the case of the Regional Hospital Kolín, the non-application of the RMVČ in the case of turnkey delivery has been broken and the RMVČ has been extended to include turnkey construction situations. The courts have also concluded that the value of the land provided should be included in the tax base in the case of so-called self-delivery.
Due to the disproportionate burden on taxpayers, this special regime is abolished by the amendment.
However, according to the current wording of the transitional provisions to this Act, the above regime must be used even if construction is started before the amendment comes into force (probably by 31 December 2024) and the property is put into a condition fit for use during 2025.
The RMVVC would not have to be used only if the property, the construction of which began before the amendment took effect, was not placed in a usable condition until 2026.
In the case of putting the property in a condition fit for use in 2026, the taxpayer can de facto choose whether to use the RVTL, or correct the claimed full input deduction (reduce the full deduction in the proportion in which the property will be used for taxable purposes) or not claim the VAT deduction at all.
Autor: Petr Linx
petr.linx@bdo.cz