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How will the property tax increase?

The Czech Republic has a relatively low level of property tax compared to many other EU countries. At the same time, unlike many neighbouring countries, it is typical for Czechs to live in their own home. In sum, it is clear that much more can be collected in property taxes than the current 1% of total tax revenue. And this is now being taken up by the government as part of its consolidation package. What is going to happen in this respect?

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Chapters of the article

The government is basing its figures on figures according to which the average share of property tax in European countries is about 3%. That is why one of the items in the so-called consolidation package is aimed in this direction.

What is property tax?

To clarify what kind of tax we are talking about. Property tax is a property tax that we pay based on the mere fact that we own property. It is therefore not related to the transfer, sale or gift of the property, nor is it an inheritance tax.

The regime for this tax is governed by the Real Estate Tax Act. It stipulates that the taxpayer is any natural or legal person who owns or uses immovable property (land or a building). It can be levied on buildings or dwelling units as well as on land.

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For the record, the UK has a very different property tax system. It is a local tax, collected by local (municipal) authorities. The tax base is based on the value of the market rent, whether notional or actual. The amount of the tax depends on the size, age and nature of the property, and also on the band in which it is classified.Interestingly, it is paid by the occupier, i.e. the tenant if applicable.

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. So when and under what conditions does filing a tax return apply to you? This is dealt with in a separate article.

What is the projected increase?

The interesting thing about this type of tax is that its amount will be different if you live in Prague or, for example, in a flat in Horní Lhota. The Real Estate Tax Act mentions a coefficient for calculating the tax, which varies depending on the size of the municipality. It is based on the number of inhabitants in the municipality from the last census. The law sets the coefficients in seven levels, namely:

  • 1.0 in municipalities with up to 1000 inhabitants,
  • 1.4 in municipalities over 1,000 inhabitants and up to 6,000 inhabitants,
  • 1.6 in municipalities over 6 000 inhabitants and up to 10 000 inhabitants,
  • 2.0 in municipalities over 10 000 inhabitants up to 25 000 inhabitants,
  • 2.5 in municipalities over 25 000 inhabitants and up to 50 000 inhabitants,
  • 3.5 in municipalities over 50 000 inhabitants, in statutory towns and in Františkovy Lázně, Luhačovice, Mariánské Lázně and Poděbrady,
  • 4.5 in Prague.

In addition, municipalities can also adjust the coefficient themselves by decree, either for the entire municipality or only for some of its territory. If the municipality does not set different coefficients for individual parts of the municipality by decree, then the statutory coefficient applies.

TheMinistry of Finance originally proposed an increase in the property tax in order to support the state budget. The Union of Towns and Municipalities disagreed with this form of budget strengthening. It pointed out that traditionally it was a tool for towns to increase their budgets. Even now, the tax revenue is 100% of the municipality’s income. Moreover, municipalities cover the costs of basic services related to the use of real estate.

According to the final decision of the government, the revenue from the increase will actually benefit the municipalities. Tax rates are to be increased by an average of 1.8 times. However, the increase may not happen everywhere. It will also be influenced by which municipalities have the aforementioned local coefficient. Here, taxpayers will pay slightly more. On the other hand, where the local coefficient is not set, they will gain from the adjustment.

At least some good news for property owners is that just by virtue of a change in the rate or a change in the local coefficient, they do not incur a new obligation to file a tax return. If the amount of tax changes from year to year in this way, there is no need to recalculate the amount of tax. The tax authority will automatically take these changes into account when calculating the tax for the current year itself.

Increase or decrease in tax?

Although the change is primarily intended to lead to an increase in tax, paradoxically it may result in the opposite. In fact, municipalities also have the option of setting the local coefficient below one, namely from 0.5, which allows them to slightly reduce the tax rate. In practice, however, such a procedure is not expected.

Tip: Are you a new or long-time property owner? Check out a quick summary of property tax – what it is, when it is due and how and when to apply for it. Our article also answers common questions about what to do if you no longer own the property, or what to expect if you didn’t file your tax return on time.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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