How to tax rental income, sale of property or car, or dividends?
Most self-employed persons and others will not be obliged to file a tax return this year. How to deal with filing taxes on the sale of property or a vehicle, income from renting out a flat or other space, or income from shares?
This year, the tax return will be physically submitted no later than the day after Easter Monday, i.e. on 2 April. At the same time, self-employed persons are obliged to submit the declaration online using a data box. For them and others who choose to file electronically, the later deadline of 2 May applies. If filing through a certified tax advisor, the deadline is 1 July.
However, employees earning less than CZK 20,000 per year from renting do not have to file income tax returns at all if certain conditions are met. For the current tax return for 2023, this amount has been increased, while for 2022 the income limit was still CZK 6,000. Persons with no other taxable income are then subject to a limit of CZK 50,000 per year, which typically applies to pensioners, non-working students and persons on parental leave.
To calculate the tax, it is important to know how much the taxpayer earned from renting in the previous year - the tax base is the profit from renting. This means the rent received less the expenses associated with the rental - this can include depreciation of the property, property tax, estate agent fees, the cost of small furniture, interest on property finance or the cost of repairs or insurance on the property. If the landlord does not want to record the actual expenses related to the rental, he can use a flat-rate expense allowance of 30% of income, up to a maximum of CZK 600,000.
After deducting the expenses from the income, the tax base remains, on which the taxpayer must pay 15% tax. However, if the profit from the rental of real estate or the sum of the partial tax bases exceeds an amount greater than 48 times the average wage, i.e. CZK 1,935,552 for the tax period of 2023, the tax base above this limit is already subject to a 23% tax rate.
The above applies to long-term leases. Income from short-term rentals, mainly through intermediary platforms, is treated differently, as income from the provision of accommodation services and therefore self-employment. Here the regime is different in that the person should have the relevant trade licence, pay social security and health insurance contributions, and also deal with VAT obligations.
However, a large number of sellers are exempt from property sales tax because they meet one of the income exemption conditions contained in the Income Tax Act.
An individual does not have to pay tax on income from the sale of real estate if he or she has owned the property for more than 5 years (in 2021, the time limit was extended from 5 to 10 years, but only applies to real estate acquired after 1 January 2021).
The taxpayer is also exempt from paying the tax if he/she has lived in the property for at least 2 years immediately before the sale. If the property is owned by a married couple, it is sufficient if at least one of them has lived there.
Meeting the residence condition does not necessarily mean that you must have a property listed as your permanent residence on your ID card. It is sufficient if you can prove that you have lived in the property during any inspection, for example by correspondence received (bank statements, utility bills), utility or internet documents held at the address in the name of the taxpayer, or by an affidavit or witness statement from a neighbour.
If the taxpayer does not meet any of the previous conditions, he or she still has a chance to take advantage of the tax exemption in some cases by using the money from the sale to satisfy his or her own additional housing needs by the end of the year following the year of the sale of the property. This means buying a flat or house, renovating it, building on the land you bought or paying off a loan that was used to meet your housing needs. However, the intention to use this exemption must be notified to the tax office by the deadline for filing the tax return for the period in question.
The tax exemption applies only to individuals who do not have the property classified as commercial property (if it is classified as commercial property, tax must always be paid on its sale).
In some cases, the taxpayer may be required to report exempt income to the tax office. This applies in a situation where the exempt income exceeds CZK 5 million and the tax administrator is unable to ascertain the data from the registers and records to which it has access. This is for example a situation of sale of immovable property not registered in the Land Registry or sale of immovable property abroad. The notification must be submitted by the deadline for the tax return for the calendar year in question.
In the case of movable property that has been classified as business property, this income can only be exempted 5 years after it has been removed from business property.
The shareholder is only obliged to declare income in the tax return if dividends are paid by a joint stock company that is a foreign tax resident. In such a case, the taxpayer is obliged to include it in the tax return, either in Schedule 4 under the separate tax base or in the "income from capital assets" section under the regular tax base.
Which of these options to choose depends on whether it is worthwhile for the taxpayer to use a separate tax base without progressive tax rates (i.e. 15%) or a regular tax base where progressive tax rates are applied, but on the other hand unused deductions from the tax base and tax credits can be claimed. The relevant sections of the tax return then show the gross value of the dividend paid, i.e. without taking into account any broker or foreign tax payers.
Most self-employed persons and others will not be obliged to file a tax return this year. How to deal with filing taxes on the sale of property or a vehicle, income from renting out a flat or other space, or income from shares?
This year, the tax return will be physically submitted no later than the day after Easter Monday, i.e. on 2 April. At the same time, self-employed persons are obliged to submit the declaration online using a data box. For them and others who choose to file electronically, the later deadline of 2 May applies. If filing through a certified tax advisor, the deadline is 1 July.
Income from rental property must be declared
Earnings from renting out an apartment or house, garage or other property must be included in the calculation of income tax. Partial lettings of property, such as one room, must also be included in the return.However, employees earning less than CZK 20,000 per year from renting do not have to file income tax returns at all if certain conditions are met. For the current tax return for 2023, this amount has been increased, while for 2022 the income limit was still CZK 6,000. Persons with no other taxable income are then subject to a limit of CZK 50,000 per year, which typically applies to pensioners, non-working students and persons on parental leave.
To calculate the tax, it is important to know how much the taxpayer earned from renting in the previous year - the tax base is the profit from renting. This means the rent received less the expenses associated with the rental - this can include depreciation of the property, property tax, estate agent fees, the cost of small furniture, interest on property finance or the cost of repairs or insurance on the property. If the landlord does not want to record the actual expenses related to the rental, he can use a flat-rate expense allowance of 30% of income, up to a maximum of CZK 600,000.
After deducting the expenses from the income, the tax base remains, on which the taxpayer must pay 15% tax. However, if the profit from the rental of real estate or the sum of the partial tax bases exceeds an amount greater than 48 times the average wage, i.e. CZK 1,935,552 for the tax period of 2023, the tax base above this limit is already subject to a 23% tax rate.
The above applies to long-term leases. Income from short-term rentals, mainly through intermediary platforms, is treated differently, as income from the provision of accommodation services and therefore self-employment. Here the regime is different in that the person should have the relevant trade licence, pay social security and health insurance contributions, and also deal with VAT obligations.
Tax can be avoided when selling property
Income tax also applies to the sale of immovable property. The rate of tax on the sale of immovable property is between 15% and 23%. The tax is calculated only on the profit, i.e. the positive difference between the sale price and the purchase price and the costs associated with the sale.However, a large number of sellers are exempt from property sales tax because they meet one of the income exemption conditions contained in the Income Tax Act.
An individual does not have to pay tax on income from the sale of real estate if he or she has owned the property for more than 5 years (in 2021, the time limit was extended from 5 to 10 years, but only applies to real estate acquired after 1 January 2021).
The taxpayer is also exempt from paying the tax if he/she has lived in the property for at least 2 years immediately before the sale. If the property is owned by a married couple, it is sufficient if at least one of them has lived there.
Meeting the residence condition does not necessarily mean that you must have a property listed as your permanent residence on your ID card. It is sufficient if you can prove that you have lived in the property during any inspection, for example by correspondence received (bank statements, utility bills), utility or internet documents held at the address in the name of the taxpayer, or by an affidavit or witness statement from a neighbour.
If the taxpayer does not meet any of the previous conditions, he or she still has a chance to take advantage of the tax exemption in some cases by using the money from the sale to satisfy his or her own additional housing needs by the end of the year following the year of the sale of the property. This means buying a flat or house, renovating it, building on the land you bought or paying off a loan that was used to meet your housing needs. However, the intention to use this exemption must be notified to the tax office by the deadline for filing the tax return for the period in question.
The tax exemption applies only to individuals who do not have the property classified as commercial property (if it is classified as commercial property, tax must always be paid on its sale).
In some cases, the taxpayer may be required to report exempt income to the tax office. This applies in a situation where the exempt income exceeds CZK 5 million and the tax administrator is unable to ascertain the data from the registers and records to which it has access. This is for example a situation of sale of immovable property not registered in the Land Registry or sale of immovable property abroad. The notification must be submitted by the deadline for the tax return for the calendar year in question.
The sale of movable property is usually exempt from income tax
If an individual sells movable property, income tax is usually not applicable. The exceptions are motor vehicles, aircraft or boats, for which the period between purchase and sale must exceed one year for the income to be exempt.In the case of movable property that has been classified as business property, this income can only be exempted 5 years after it has been removed from business property.
Shareholders only have to declare dividends from abroad
Those who invest in shares of companies that pay their shareholders a share of profits or dividends will avoid including them in their tax return if they are shares of a Czech company. If the company paying the dividends is a tax resident in the Czech Republic, the dividends are subject to a 15% withholding tax. Therefore, the amount that the shareholder receives on account is already taxed.The shareholder is only obliged to declare income in the tax return if dividends are paid by a joint stock company that is a foreign tax resident. In such a case, the taxpayer is obliged to include it in the tax return, either in Schedule 4 under the separate tax base or in the "income from capital assets" section under the regular tax base.
Which of these options to choose depends on whether it is worthwhile for the taxpayer to use a separate tax base without progressive tax rates (i.e. 15%) or a regular tax base where progressive tax rates are applied, but on the other hand unused deductions from the tax base and tax credits can be claimed. The relevant sections of the tax return then show the gross value of the dividend paid, i.e. without taking into account any broker or foreign tax payers.