The obligation to keep accounts falls within the competence of the statutory body. As a non-profit organisation, the SVJ keeps slightly different accounts from ordinary entrepreneurs and has a tailored chart of accounts, which also differs from the chart of accounts for entrepreneurs. The management of the accounts does not have to be carried out by the SVJ committee itself, but only ensures that they are properly maintained by an external accountant or management company. The committee must then ensure that the person in question has all the supporting documents necessary for keeping the accounts.
The HOA committee should regularly, i.e. at least once a year, provide the unit owners with information on how their property is managed. In essence, they are mainly accountable to them, as the accounts of the HOA are in most cases not of much interest to other authorities, such as the tax authorities, due to the minimal amount of tax returns filed (see below).
Nevertheless, for accounting errors (e.g. incorrectly kept accounts or not keeping accounts at all), SVJs are liable to fines of up to 6 % of the value of the assets of the SVJ.
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Approval of the annual accounts
Each JUA must prepare annual accounts after the end of the financial year, which include an overview of the management of the community’s funds. The summary of the accounts shall be submitted for approval by the committee or the chairman of the JUA.
The annual accounts shall consist of:
- a balance sheet,
- a profit and loss account (profit and loss account),
- the annexes containing supplementary information.
The annual accounts must be approved by the owners’ meeting and subsequently deposited in the collection of documents of the commercial register. This power cannot be delegated to another body of the HOA. It shall be approved by a simple majority of the votes of the unit owners present, unless the statutes provide for a different qualified majority. The unit owners themselves are generally divided into two groups when voting. The larger group is happy to have someone manage their property for them, they trust their elected committee, and they will raise their hand for almost any form of annual financial statements. The smaller group of owners prefer to keep a close eye on their assets and check the individual items in the tables presented. This is, of course, quite all right, unless they turn into shysters who demand to see proof of every single postage bill.
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Even for unit owners who are not familiar with accounting, the entries relating to the SVJ’ s claims should be important, because if they are not recovered, they will become time-barred and eventually it is possible that the other owners will share in their payment. A similar interest should be attached to the obligations of the HOA, for which the unit owners may also be legally liable.
Once approved, the financial statements should be published by depositing them in the collection of deeds.
Tip for article
Tip: The collection of documents is an important part of the commercial register, where important documents related to the establishment and further functioning of business and other entities registered in the register are stored. What is required by law to be published and what are the penalties for violation? We have written about this in our blog article.
Audit of accounts and financial statements
The audit committee or auditor, if appointed, is authorised to re-audit the accounts.They will first of all check whether the accounts are kept correctly and in accordance with the Accounting Act, i.e. whether they are clear and complete, including all necessary supporting documents. The Commission must also be assisted by the JAC committee.
What about taxes and tax returns?
The obligation of the HOA to file a tax return regularly depends on whether the HOA has generated taxable income, for example, from renting out common areas or interest from a bank account. If it has no taxable income, the HOA does not have to file a tax return, which is the case for most HOAs that focus only on managing the building. The key is whether it has only non-taxable income, exempt income or income on which tax is deducted at a special rate. An HOA is not a business entity and typically does not have income that is subject to taxation. The majority of income is derived directly from unit owners for the management of the building and grounds. This income is not subject to tax.
The distinction between whether a particular income is income of the HOA or the individual owners and whether the HOA or the unit owner should be taxed is perhaps the most common error.
A classic example of such an error is the treatment of income from the rental of common areas – such as the rental of a former drying room where someone sets up his workshop. Here, it is typically the income of the individual co-owners from a legal perspective, as the HOA does not own the common parts of the building (although the owners may subsequently decide that the funds will be used within the HOA and may not even physically dispose of them themselves). They should still tax it themselves and reflect it in their tax returns.
Should the JVU dispose of income that is subject to income tax, then it is obliged to register and subsequently file a tax return. However, there is not much such income, for example: interest on deposits in the bank accounts of the HOA or interest on late payments and contractual penalties paid by third parties for breach of obligations under contracts negotiated by the HOA.
HOAs are not subject to VAT, so they are not subject to value added tax.
House management vs. supply of services
The two basic areas that the accounting of the HOA deals with are the management of the house itself (cleaning, inspection of chimneys, ducts, insurance of common parts of the house, bookkeeping, winter maintenance, etc.) and the supply of services for the housing, e.g. water, heat and electricity supply for the common housing.
The management costs are considered to be the costs of the HOA, while the costs of the housing services are the costs of the unit owners. Management and service costs must logically be accounted for separately and in different ways. They will also be reported differently in the financial statements. The inclusion of some costs in the correct category is also assisted by the Government’s regulation on the regulation of certain matters relating to condominiums.
The costs of services (e.g. water, heat, electricity) are invoiced by the HOA to the service providers. They require the JUA to make ongoing advance payments, which are paid to the JUA by the unit owners. After the end of the accounting period, the advance payments from the owners are compared with the actual costs and on this basis overpayments (which are paid to the owners) and underpayments (which are paid by the owners) are determined. Receivables and payables for services are also recognised in the balance sheet.
Summary
Proper accounting is crucial for an HOA as it ensures transparent management of owners’ funds. Each JUA must keep accounts in accordance with the law and draw up annual accounts at the end of the year, which provide an overview of the financial situation and must be approved by the owners’ assembly and deposited in the commercial register. The obligation to file a tax return arises only if the JVU generates taxable income, for example from interest or renting common areas. Otherwise, the SVJ does not have to file a tax return. Correct and timely fulfilment of all accounting and tax obligations helps to avoid penalties and ensure the smooth running of the community.
