Changes in Property Transfer Tax Regime

Regulated by statutory measures of the Czech Senate No. 340/2013 Sb., the property transfer tax regime will be amended by Act No. 254/2016 Sb. with effect from 1 November 2016; and the daily life of real estate agents (as well as that of the parties to real estate transactions – i.e. sellers and buyers) will be affected by the major changes introduced thereby.

With reference to Section 2 of the aforementioned statutory measures, the property transfer tax is imposed on gratuitous transfers of property (incl. transfer of property upon realisation of securing rights or claims secured by property) located in the Czech Republic unless specified otherwise. In general, the tax is imposed on gratuitous transfers of buildings, houses, units and lands.

With reference to the wording effective until 31 October 2016, the tax is paid primarily by the transferor (seller) whereby the parties may agree in the purchase agreement that the tax will be paid by the transferee (buyer). If the tax is paid by the transferor, the transferee acts as a guarantor for tax payment.The parties may thus agree who will file the tax return and pay the tax.

As per the amended wording effective from 1 November 2016, the tax will be paid by the transferee (buyer). The taxpayer will thus be one and the same. Simultaneously, the taxpayer can no longer be chosen by the parties. Yet, there is nothing that could prevent the parties from agreeing that the tax will in factbe paid by the transferor (seller). The only legal (and in case of legal entities also the accounting) consequence thereof will be that the purchase price agreed in the purchase agreement will de facto be paid to the transferor less the tax (example: purchase price = CZK 1,000,000; the parties agree that the tax will be paid by the seller; as presumed by law, the tax is still to be paid and the tax return filed by the buyer; in this case, the seller is paid the purchase price less the tax, the tax of CZK 40,000 is paid to the Tax Office and the buyer thus complies with the stipulated statutory duty).

As per the amended wording, the transferee (or transferor) will no longer act as aguarantor for tax payment.

The amended wording further introduces several changes regarding the property being subject to tax:

-       Public utility networks: The tax is not newly imposed on transfers of property constituting a part of the public utility networks but rather on transfers of a building (or part thereof) under the cadastral act constituting a part of such networks; and neither is on gratuitous transfers of a part of the public utility networks. In case of public utility networks or parts thereof, the tax is imposed only on the gratuitous transfer of a building under the cadastral act constituting a part of the networks.

-       Superficies: The tax is newly collected also if the superficies-related period is extended. That is, the tax is paid by the transferee both when the superficies are created and when the respective period applying to the superficies is extended.

As per the amended wording, the tax is not imposed on the first gratuitous transfer of family houses and units in blocks of flat, whether new or modified. However, only if these aretransferred within the first five years after the construction works have been finished or the property has been put in use, whichever comes earlier. Replacing the term “new” with “finished or used and enjoyed”, the amended wording introduces a more precise definition of the commencement of the applicable period stated above.

Conclusion

In general, the amended wording of statutory measures of the Czech Senate No. 340/2013 Sb. can be viewed as being other than systematic; and as undermining the established real estate market practices by causing inevitable adjustments in the purchase prices of offered property. The transitional period may as well give rise to complications; especially if the transaction-related contract documents fail to address the fact that the amended wording of the statutory measures will take effect in the course of the transaction. As stipulated in the final provisions of the amended wording, the related tax duties, rights and obligations arising before the amended wording takes effect are regulated by the then applicable wording of the statutory measures; whereas the applicability is given by the moment the motion to record the property rights in the Land Register is filed rather than by the moment the respective purchase agreement is executed. The foregoing needs to be taken into account also with respect to the contracts and agreements contemplated to be executed before 1 November 2016 as the tax regime may change in the period from the moment the purchase agreement is executed and the moment the motion to record the property rights is filed. It is clear that the main (and probably the only) interest of the legislator was to reinforce its standing as the creditor of taxpayers. Newly, the tax will be paid by the owner of property whose value largely exceeds the tax assessed. The instability of (not only) the real estate market caused by the amended statutory measures can never be worked out by the clearly intended government interest in making the tax collection “more comfortable”; especially if directed against the general public.

Michal Svatoň

(The author is a lawyer at NIELSEN MEINL – www.nielsenmeinl.com)