DIRECT HOLDING OF REAL ESTATE
This section shows the most important tax implications of direct holding of real estate located in the Czech Republic. Firstly, the impacts for resident and non-resident individuals are explained, thereafter the impact for resident and non-resident companies.
Resident individuals
Personal income tax
Income derived from real estate such as rental income is subject to individual income tax and is taxed in the annual tax return together with other types of income.
The income of individuals is taxed at a progressive tax rate of 15% and 23%. The rate of 15% applies to the tax base up to 48 times the average annual wage (i.e. in 2023 up to CZK 1,935,552). The rate of 23% applies to the tax base above this limit.
Deductibility of costs
The individuals may opt whether they deduct the expenses actually incurred or the expenses set at 30% of gross revenues as lump sum costs, but no more than CZK 600,000.
Tax depreciation, interest, maintenance and operational costs (expenses incurred to generate, assure and maintain the taxable income) can be claimed as actual expenses.
Buildings of hotels, stores and office buildings are depreciated for tax purposes for 50 years. Other buildings are depreciated for tax purpose for 30 years. Plots of land are not depreciated for tax purposes. The taxpayers may elect to depreciate assets using the straight-line or the accelerated depreciation method.
Losses – carry back/forward
Rental losses can be offset against other income except employment income.
Generally, tax losses can be carried forward for five subsequent periods. It is also possible to claim tax losses two years back with cumulative limit of CZK 30 million.
Value added tax
Rental income is subject to Czech VAT if the rented property is located in the Czech Republic.
Generally, income from the rent of real estate is exempt from VAT, excluding the following cases:
- short-term rent of real estate (lasting up to 48 hours);
- provision of accommodation services;
- rental of premises and parking places for vehicles;
- rental of safe deposit boxes; or
- rent of fixed equipment.
However, the lessor can opt for a VAT-able supply of the property (in case of rent to another VAT taxpayer for VAT purposes). The applicable tax rate is 21%. This option is not applicable in case of rent of real estate properties serving mainly for residential purposes.
Non-resident individuals
The income generated by the real estate located in the Czech Republic constitutes Czech source income.
Non-resident individuals are treated in the same way as resident individuals unless they are resident of the state outside the EU or EEA. In such a case the Czech individuals (lessees) have to secure the tax of 10% if certain conditions are met.
Resident companies
Corporate income tax
Business income including also rental income and capital gains are subject to 19% corporate income tax.
Deductibility of costs
Generally, expenses such as tax depreciation, interest, maintenance and operational costs (expenses incurred to generate, assure and maintain the taxable income) are deductible from rental income if general and special legal conditions are met.
Buildings of hotels, stores and office buildings are depreciated for tax purposes for 50 years. Other buildings are depreciated for tax purpose for 30 years. Plot of lands are not depreciated for tax purposes. The taxpayers may elect to depreciate assets using the straight-line or the accelerated depreciation method.
Anti-tax avoidance directive
The anti-tax avoidance directive (ATAD) has included the general anti-avoidance rules into the Czech tax legislation in its minimalistic version.
Losses – carry back/forward
Rental losses can be offset against other generated income.
Generally, the tax losses can be carried forward for five subsequent periods. It is also possible to claim tax losses two years back with cumulative limit of CZK 30 million.
Value added tax
Rental income is subject to Czech VAT if the rented property is located in the Czech Republic.
Generally, income from the rent of real estate is exempt from VAT, excluding the following cases:
- short-term rent of real estate (lasting up to 48 hours);
- provision of accommodation services;
- rental of premises and parking places for vehicles;
- rental of safe deposit boxes;
- rent of fixed equipment.
However, the lessor can opt for a VAT-able supply of the property (in case of rent to another VAT taxpayer for VAT purposes). The applicable tax rate is 21%. This option is not applicable in case of rent of real estate properties serving mainly for residential purposes.
Non-resident companies
The income generated by the real estate located in the Czech Republic constitutes Czech source income.
Non-residents companies are treated in the same way as resident companies unless they are resident of the state outside the EU or EEA.
INDIRECT HOLDING OF REAL ESTATE
This section shows the most important tax implications of indirect holding of real estate (shares). Firstly, the impacts for resident and non-resident companies are explained; thereafter the impact for resident and non-resident companies.
Resident individuals
Personal income tax
Dividends are subject to 15% withholding tax rate.
Deductibility of costs
As distribution of dividends is qualified as capital income, no costs are deductible.
Non-resident individuals
Non-resident individuals are treated in the same way as resident individuals unless the rate is reduced under the applicable tax treaty.
In case of residents outside the European union or European Economic Area or residents of countries that have not entered a double tax treaty or treaty on exchange of information with the Czech Republic, 35% withholding tax applies.
Resident companies
Corporate income tax
The corporation that directly generates rental income is subject to corporate income tax of 19%.
Dividends paid to the shareholders are subject to 15% withholding tax rate. Under the EU Parent – Subsidiarity Directive, dividends paid by the Czech company to a parent company (as defined in the Directive) are exempted from withholding tax if the parent company maintains a holding of at least 10 % of the distributing company for an uninterrupted period of at least 12 months. The holding period may be fulfilled subsequent to the date of distribution of the dividend.
Anti-tax avoidance directive
The anti-tax avoidance directive (ATAD) has included the general anti-avoidance rules into the Czech tax legislation in its minimalistic version.
Non-resident companies
Non-resident companies are treated in the same way as resident companies unless the rate is reduced under the applicable tax treaty. Under the EU Parent – Subsidiarity Directive, dividends paid by the Czech company to an EU, Swiss, Norway, Iceland or Lichtenstein parent company (as defined in the Czech tax law) are exempted from withholding tax if the parent company maintains a holding of at least 10 % of the distributing company for an uninterrupted period of at least 12 months. The holding period may be fulfilled subsequent to the date of distribution of the dividend.
In case of residents outside the European union or European Economic Area or residents of countries that have not entered a double tax treaty or treaty on exchange of information with the Czech Republic 35% withholding tax applies.
