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Petra Vaněčková | January 13, 2017

Real estate tax – paved areas and their use for business purposes

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Although the year 2017 does not bring any major changes in terms of the real estate tax, entrepreneurs should keep their eyes open anyway.

This is due to the fact that the interpretation of some terms tends to be a problem in practice and the entrepreneur then faces an uneasy task of correctly reflecting its state in his tax declaration. One of the problematic areas is the correct specification of a paved area of a plot, in relation to its use within the business activity.

It is not only a technical issue, but it also has an effect on the height of the tax liability. This is due to the fact that if a paved area of a plot is used for business or in connection with it, the tax rate, in case of enterprising in the industry, construction, transport, energy, farming excepting primary agricultural production and within other areas of business, is CZK 5/m2, for primary agricultural production and forestry and water management it is CZK 1/ m2. If the area were not used for business or in connection with it, it would be taxed with a rate of CZK 0.20/ m2, as a built-up area and courtyard or other structures.

With the most recent amendment in operation since 2016, some other structures, which are structures according to the Construction Act, have a vertical supporting structure but are not a taxable structure, were added to the term “paved area”. These are the structures of pools and tanks. In practice, questions arose of how to tax for example the area of a swimming pool built at a family house, part of which an entrepreneur uses for business (he has his office located there, for example). The Financial Administration said to this issue that a paved area of a plot used in connection with business is understood to be a paved area on a plot, on which business is not carried out, but the given area cannot be used otherwise than in connection with this business (for example a parking lot of a company, which is intended for employees or clients). With respect to the above, the swimming pool mentioned in the example should be taxed as “other areas” or “built-up areas and courtyard”, depending on how the respective plot is entered in the land register.

Another problematic issue, which may arise in practice in connection with the taxation of paved areas, are parking lots at the nowadays plentiful shopping centres. According to the Financial Administration, it is necessary to base the taxation of these areas on their purpose and the regime of their use. If the parking lot serves the public without being limited to certain persons/users (such as for example supplier, employees etc.), they should be assessed as public parking lots in keeping with article 12, paragraph 6 of the Road Act, that is as an area intended by construction and location for the standing of road motor vehicles. The same optics should be used for assessing paved areas and roads at petrol stations, that is roads and parking areas intended for the public. In keeping with their assessment, these areas should be subject to exemption according to article 4, paragraph 1, letter o) of the Real Estate Tax Act. According to this letter, plots covered by a structure according to the Construction Act, which is a highway, a road, a local road, a public purpose road, are exempted, if they are used for public transportation in keeping with the final building approval decision or the final building approval permission from a special construction authority.

Be careful, though, about similar paved areas of plots, which are not accessible to the public and serve for example as a storage area or road at a shopping centre or petrol station. In keeping with the interpretation of the tax administration, these should be taxed as a paved area serving for business purposes with a corresponding tax rate.