As we previously informed in the May 2015 edition of our Newsletter, the amendment of the VAT Act introduced a few important changes with respect to transfers of real estates. The effective date of some of those changes was delayed as of 1 January 2016; these are further described below.
If your partner in a real estate transaction is a VAT payer, a VAT-exempt transfer is usually not in your mutual interest, for it involves matching (non-deductible) inputs to such a transaction and adjusting procedures for a partial VAT claim due to a lower VAT coefficient.
In such a case the amendment brings some good news to you, as from 1 January 2016 onwards, the seller may decide on a taxable transfer (given the buyer’s approval) even if such a transfer would qualify for an exemption. If the seller decides to apply VAT, the local reverse change mechanism has to be applied. Therefore, as of 2016, there are no mandatorily exempt transfers of real estates.
On the other hand, if your partner is the final customer, i.e. usually an individual without a possibility to claim input VAT, a VAT-exempt transfer is preferable. However, the scope of exemptions has been significantly reduced both for buildings and land plots as of 2016.
a) Broader Construction Site Definition
A transfer of undeveloped land is still exempt, but the definition of a construction site (the transfer of which is taxable) has been broadened to include also a land plot which has been subject to any steps with respect to a future construction or where such steps are taken in its vicinity. Based on the information issued by the
tax authority, these “steps” may be both of a construction and administrative nature (e.g. filing of an application for a zoning permit).
a) Significant Change of Property
With regards to other real estate transfers where a 5-year test since completion applies, the criteria have been made stricter as the time test for exemption is now restarted with every significant change of the property. The above-mentioned information from the tax authority describes a significant change such as a situation where more than one floor is added to a building or other alterations which expand the floor area by more than 50 % are made.
Moreover, any repairs, maintenance or other construction changes for which an occupancy permit or a notification is necessary are regarded as significant changes, provided that the value of such works exceeds 50 % of the original value of the property, usually based on an expert’s opinion.
Nevertheless, the guidelines included in the information from the tax authority are not exhaustive and numerous matters are as yet unresolved or unclear; this area therefore remains very complicated.
Should you have any questions regarding the issues above, please do not hesitate to contact Romana Pelcová.