Key Tax Changes Impacting the Czech Commercial Real Estate Sector in 2024
In an interview with TPA Czech Republic, CIJ EUROPE discussed key tax changes impacting the real estate sector.
The Czech commercial real estate sector has experienced several notable tax changes this year, reshaping investor strategies and operational processes. Real estate tax rates have risen by nearly 80%, marking the first significant increase in over a decade. This adjustment reflects inflation and other contributing factors, with further growth anticipated due to the inflation coefficient, although for 2025, the coefficient remains at 1.00, unchanged from the previous period. Starting in 2024, the corporate income tax rate increased from 19% to 21%, affecting not only real estate investors but also deferred tax calculations and reported investment results. From January 1, 2025, the exemption on income from share sales will be capped at 40 million CZK annually, with gains exceeding this threshold subject to taxation. To mitigate retroactive effects, taxpayers can revalue shares to their market value as of December 31, 2024, ensuring only post-2024 gains are taxed. In a significant shift, Czech companies can now maintain accounting records in a functional currency such as euros, US dollars, or British pounds. This provides flexibility for businesses with international operations, reducing the impact of exchange rate differences on financial results. However, VAT records remain in Czech crowns, requiring robust accounting software to manage dual-currency operations effectively.
Municipalities are increasingly leveraging local coefficients to adjust real estate taxes within their jurisdictions. These coefficients, ranging from 0.5 to 5.0, allow for differentiated tax rates across residential and commercial areas. For example, logistics parks may see higher coefficients compared to residential zones. While real estate taxes are often passed on to tenants, the implications for tenant budgets make it crucial for investors to provide advance estimates.
The transition to functional currency accounting has been a practical challenge but a beneficial shift for many businesses. Companies now align their accounting currency with their economic environment, minimizing exchange rate discrepancies. TPA reports successful transitions among its clients, with their teams providing critical support in converting balances and ensuring compliance with national regulations.
Several VAT changes are slated for 2025. Taxable land now includes areas designated for construction in municipal plans or undergoing preparatory work. The period for claiming VAT exemption on property supplies will reduce from 5 years to 2 years, and only the first sale will be taxable. Properties with over 50% of floor area designated for social housing will qualify. Optional VAT taxation is introduced for non-residential leases involving EU VAT-registered entities.
The tax changes in 2024 and upcoming reforms in 2025 mark a transformative period for the Czech commercial real estate sector. From significant increases in real estate taxes to functional currency accounting and evolving VAT regulations, businesses must adapt to maintain compliance and optimize financial performance. These changes underscore the importance of proactive planning and expert guidance to navigate the evolving landscape effectively.
