Czech Chamber of Deputies abolishes property acquisition tax

Czech Republic
On 8 July 2020, the Czech Chamber of Deputies approved a governmental proposal to abolish the 4% tax on real estate acquisitions. At the same time, the Chamber voted to maintain tax deductions for new mortgages. 

Below are the key aspects of the bill, which is now awaiting approval by the Senate.

Real property acquisition tax

Currently, Czech law provides for a specific tax of 4% levied on the purchaser of real estate which is acquired through an asset deal and calculated based on the purchase price. Abolishing this is one of measures put forward by the state to stimulate the Czech real estate market during the COVID-19 crisis.

This new measure will be applied retrospectively to real estate asset transfers that have been registered in the Czech Cadastral Register since 1 December 2019. If the real estate acquisition tax has already been paid, it will be possible to claim the tax back. 

Income tax from the proceeds of the sale of real estate

Under Czech tax law, income tax is payable on gains from the sale of real estate. Currently a seller is not liable to pay income tax on a transaction if they have owned the property for at least five years and the bill proposes to extend that period to ten years. This will be applied to real estate transactions from 1 January 2021. The aim of this regulation is to reduce the number of speculative transactions in the real estate market. 

A similar income tax exemption applies in respect of properties used by their owners for residential purposes, and which have been owned for a period of more than two years; this exemption is unaffected by the bill. 

New cap on tax deductions for mortgages

Currently tax deductions of loan interest up to a maximum of CZK 300,000 per annum are afforded to individuals in respect of residential mortgages. The bill reduces this cap to CZK 150,000 in respect of mortgages taken after 1 January 2022; however, the new cap will not apply to the refinancing of loans taken out before this date.

This summary is based on the version of the bill that has been approved by the Chamber of Deputies. For the bill to come into force, it needs to be approved by the Senate and signed by the President. CMS will report on any changes to this bill that occur during the legislative process.

For more information on this bill, Czech real estate law and Czech economic incentives, contact your regular CMS advisor or local CMS experts.