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| September 22, 2020

Real estate acquisition tax abolished

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With the aim of encouraging the real estate market, which has been negatively influenced by the coronavirus crisis, and to support accessibility of people's own housing, a draft bill on abolishment of the real estate acquisition tax was approved at a meeting of the Chamber of Deputies of the Czech Republic on 15 September 2020 in a version adjusted according to amendments from the Senate. Abolishment of the real estate acquisition tax has retroactive effect. According to transitional provisions, only the transfers against remuneration, for which the deadline for submitting tax return ended before 31 March 2020, will be subject to the real estate acquisition tax. If the deadline for submitting tax return expires on 31 March 2020 or later, tax liability to the real estate acquisition tax does not arise. This means that the real estate acquisition tax will no longer apply to acquisition of real estate in case it was/ will be entered in the land register in December 2019 or later. If the taxpayer has already paid the real estate acquisition tax, although the given transfer of real estate is no longer subject to the real estate acquisition tax, he may submit a request for return of overpayment.

The original draft approved by the Chamber of Deputies did not enable using deduction of interests from a loan from construction savings or a mortgage loan from the personal income tax base as a result of cancellation of the real estate acquisition tax. Based on amendments from the Senate, the Chamber of Deputies eventually approved the bill in a version, which does enable deduction of interests. Nevertheless the highest possible sum of deduction of interests has been lowered from the current CZK 300,000 to CZK 150,000. According to transitional provisions, for loans accepted by the taxpayer for housing needs before 1 January 2021, the current higher limit for using deductions will apply.

At the same time, within this amendment, the time test for exemption of income from the sale of real estate under article 4 paragraph 1 letter b) of the Income Tax Act, i.e. real estate not intended for own housing, is being prolonged from the current five years to ten years, with effect as of 1 January 2021.

The President of the Czech Republic signed the act on 18 September 2020, and only the formal publication in the collection of laws will now follow.