The recent change in the Czech real estate acquisition tax – 2016

Czech acquisition tax – previous model

The sale of previously owned property in the Czech Republic (excluding the sale of new flats by contractors) is subject to a transfer tax. This tax was formerly known as the Real Estate Acquisition Tax, on in short REAT. The tax totaled 4% of the value of the property.

Czech acquisition tax – new model

According to the new law, valid as of April 2016, this tax shall now be paid by the buyer and not, as previously, by the seller.

According to the old real estate law, the buyer only served as a guarantor of the seller's tax liability, and only if the seller did not pay the tax could the tax authorities collect it from the buyer. Nonetheless, the acquisition tax could also be applied to the buyer, depending on the consent of both parties.

The new law is intended to simplify the old legislation on this subject. Henceforth, no one but the buyer will be able to pay the acquisition tax.

The REAT tax equals 4% of the property value. It is not based on the purchase price, to avoid manipulation of property prices with the intention of evading or decreasing the additional payment of acquisition tax. Hence, if the purchase price appears suspicious to the tax authorities, they can demand assessment of the property and the tax will follow the assessment and not the reported purchase price.

What will happen in the future?

Experts estimate that real estate prices will gradually rise by about 3.8% following this change. The new law may also have a certain effect on the mortgage market, particularly when the client mortgages 100% of the property (this is possible only if the buyer has Czech citizenship and is a local resident). The question is whether the banks will also be willing to loan buyers the necessary funds to pay the 4% acquisition tax.

Benefits and shortcomings

The greatest shortcoming of the new acquisition tax model is the fact that every property will "cost" 4% more than its real price, but there is also a considerable benefit for buyers. One of the significant benefits of buying property in the Czech Republic is that the value of the property rises over time (property prices in Prague rose from 2013-2015 by more than 15% on average, and this trend is expected to continue). Thus, when the property is sold, in the event that the investor wishes to liquidate his assets, the 4% will then be paid by the buyer – and this sum will obviously grow with the rising value of Prague properties.

Read more about taxation of real estate in the Czech Republic. Need more information? To schedule a consultation contact us.