When buying a property, the buyer must not forget the obligation to pay real estate acquisition tax, often still referred to by its former name as real estate transfer tax.
When buying a property, the buyer must not forget the obligation to pay real estate acquisition tax, often still referred to by its former name as real estate transfer tax.
Please note that in 2019, an amendment to the law abolished the real estate acquisition tax and the effective date in this respect is 31 March 2020. For more information, see the article Abolition of the real estate acquisition tax. The information below relates exclusively to the legal situation prior to this date.
Previously, the tax on the acquisition of immovable property (flats, houses or land) was overwhelmingly paid by the seller. Only if the seller and the buyer agreed, the buyer paid the tax. Over time, the rules have been overturned. How is it today? Who files the tax return and when do I need to provide the tax office with an expert’s report?
As we have already mentioned, until the end of 2016, the seller usually paid the tax and the buyer acted as guarantor in case the seller did not pay the tax properly. It was also possible to contractually transfer the tax liability to the buyer. However, the law now lays down a clear rule whereby the tax liability is borne exclusively by the buyer or purchaser of the property. The seller is not even a guarantor and is therefore in no way affected by the payment of the tax. Nor is it possible to contractually transfer the tax liability to the seller. The tax will therefore always be paid by the buyer only.
Only transfers of real estate for consideration are subject to tax, the most typical example being the purchase of real estate. However, it can also be, for example, an exchange of land. Conversely, transfers of real estate without consideration are never subject to tax, most often in the case of a gift of real estate. The law also provides for certain exceptions where no tax is payable even though the transfer is for consideration. These are mainly sales of new houses or flats when they are first sold.
Tip: The relationship between landowners can be settled in a different way than by selling or donating the land, by exchanging it. This is not a frequent option, but we do see it from time to time. For example, when heirs inherit different plots of land or parts of land that they would like to consolidate and organise more efficiently. Read more about the tax aspects and practical advice for exchanging land in our next article.
Thetax return must be filed by the end of the third calendar month following the calendar month in which the new owner was registered in the Land Registry. The Land Registry will always notify the buyer in writing of the registration. The tax return shall be submitted to the tax office in whose district the property being purchased is located. The tax itself must also be paid within the deadline for filing the tax return. The time limit for filing the tax return and paying the tax must be carefully observed, as failure to comply with it may result in a fine of up to 5 % of the tax for late filing of the tax return, as well as default interest of at least 14 % per annum for late payment of the tax. This could make the purchase of a property significantly more expensive if the tax obligations are not met.
Instructions on how to complete the property tax return, as well as an electronic form, can be found directly on the Internal Revenue Service website.
Tip: If you are a property owner, you are subject to the obligation to register for tax. You can do so by filing a property tax return. But you don’t have to file this every year; in principle, you only need to file it once. If this obligation applies to you, read how to file your property tax return.
The tax rate on the acquisition of immovable property is 4% of the tax base, which is the price of the property being acquired. In order to determine the amount, the agreed purchase price must be compared with the usual price in the locality for similar properties. The tax is then calculated on the higher of the two. You will not usually need a calculator. In most cases, however, it will be set at 4% of the agreed purchase price, meaning that for every one million of the purchase price, you will also have to pay 40,000 crowns in tax to the state. This rule will apply if the purchase price is more than 75% of the locally normal price (which is determined by the tax office) or more than 75% of the price determined by an expert’s report that the buyer can provide with the tax return. The tax would be calculated on 75% of the normal price or 75% of the price established by the expert’s report if this price is higher than the agreed purchase price.
Are you planning to buy a property?
We will provide you with a complete contractual and legal service related to the purchase or sale of real estate. We can do it within 48 hours, flawlessly and professionally.
Today, in the vast majority of real estate transfers, an expert’s report is no longer required to accompany the tax return. In the case of ordinary transfers for consideration of flats, family houses, cottages or garages, an expert’s report is therefore not required, where, as we have already mentioned, the tax office compares the agreed purchase price with the normal price. This price is determined by the authority according to price maps or table values according to the condition of the property being transferred. However, if the buyer is not satisfied with this comparison, he may compare the purchase price with the price established by an expert’s report. The purchase price will then be compared with 75 % of the price according to the expert’s report. The tax will again be paid on the higher amount. The cost of the expert’s report can also be deducted from the tax base.
Example: Martin bought a cottage in very poor condition so that he could renovate it to his liking. The purchase price was agreed at CZK 100,000, taking into account the condition of the cottage. However, the normal price was CZK 275 000. It was therefore more advantageous for Martin to have an expert’s report prepared, which valued the cottage in accordance with the condition of the property at CZK 100,000. By doing so, Martin saved CZK 4,250 in tax.
This is appropriate where 75% of the normal price would exceed the purchase price. Although this would be small, the price of surrounding properties would be high, which could increase the tax. If, for example, the house being bought is in extremely poor condition and needs extensive renovation, it may be more advantageous for the buyer to provide an expert’s report.
If you would like to draw up or review a purchase contract, including the preparation of a real estate tax return, please see our offer.
Download the free e-book 5 tips to buy or sell real estate risk-free and go smoothly through the process of selling or buying a house, apartment and land.
We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
