Real Estate Transfer Tax




Even in the times of current recession scenario, there is a huge inflow of foreign investors into the Czech Republic Real Estate market. No matter how you come to own a piece of land in this beautiful paradise, the law requires you to pay tax on it. The system of taxation in Czech Republic is quite similar to the taxation systems adopted by the rest of Europe. Apart from Value Added Tax, Income tax, Real Estate Tax, Road Tax, Estate Tax and Gift Tax, they also have a Real Estate Transfer tax in Czech Republic that in fact acts as a base to determine the price of the real estate in the Czech market. Until 31st December, 2003, the Real Estate Transfer Tax was levied at 5%. However, now it has been reduced to only 3%.

- Who pays the tax?




In normal conditions, the real estate transfer tax is paid by the seller or the transferor in the Czech Republic. Yet, this onus lies on the buyer or transferee when such estate is acquired as a part of condemnation, execution of any judgement, settlement proceedings, bankruptcy, or in a public auction. However, even in such cases, other persons are also allowed to pay such taxes.

- When is such tax paid?

The real estate transfer tax is paid when a transfer of property rights in a real estate is assigned in exchange for a reward and this process also includes the settlement of shared joint ownership. Another situation where such tax is paid is when there is an exchange of real estate between different parties. Only the transfer of properties that are exempted from tax - like transfers done by business companies or cooperative societies - does not need to pay such real estate transfer tax.

- What all taxes are to be paid on such transfer of real estate?

Unlike some other countries that impose stamp duty, Czech tax law recognises only one type of transfer tax - the Real Estate Transfer Tax. This tax is regulated by the Act No. 357/1992 Coll., on Inheritance Tax, Gift Tax and Real Estate Transfer Tax.

It is true that the real estate transfer tax is higher than the real estate tax and hence it would be advisable to review you transaction deal to optimise your profits. In cases where mergers or demergers are announced, such tax does not need to be paid. The tax is deductible for corporate income tax purposes.

Any sales of immovable by the seller invoke this tax and they are required to file a return to this effect within 30 days of registration of the sale. Where the seller fails to pay such real estate transfer tax, the liability is automatically transferred to the buyer. The transfer tax is fixed at 3% of the purchase price or the appraised value payable by seller - whichever is higher.

The Czech taxation system could get mind boggling at times and hence it would be advisable to seek the expert guidance of tax advisors. This helps them to decrease their tax burdens by making the right choices.