CHANGES IN THE REAL ESTATE TRANSFER TAX LEGISLATION

At least once during life a man acquires or sells immovable property in the form of land, apartment, house or commercial property.

As a part of the real estate transfer one gets in the touch with tax office which substitutes the state within levy of the taxes.

In connection with acquiring the real estate, client usually encounters these two main taxes:
- tax connected to the ownership of the real estate property, i.e. real estate tax
- tax affecting the subject in the case of a transfer of the ownership of the real estate, i.e. real estate transfer tax

The process of the real estate taxation is interfered with in several circumstances, such as the value of the land plot, building or apartment, and the tax base depends on the acreage of the property, coefficient of the usage and coefficient determined by the municipality where the property stands.

A substantial change in the case of real estate transfer tax will occur at the end of the year 2016.

Before the year 1993, real estate transfer tax was paid in the form of a notarial fee. After 1993 the real estate transfer tax was incorporated into the Czech legal system. The taxpayer of the real estate transfer tax was the transferor. Regulation imposed a statutory guarantee of the transferee for the settlement of the tax by transferor.

This set up was very rare in the wider European context. The main reason for such a set up was to facilitate revenue collection since the idea of the lawmakers was that it´s the transferor who received funds for settlement of the real estate transfer tax. Such a regulated adjustment also had negative impact on the relationship of the transferor and transferee.

The transferee usually settled the purchase price including the real estate transfer tax but in the legal relation to the tax office the transferee was still considered as guarantor of the real estate transfer tax. What often happened is that the transferee paid double the real estate transfer tax, once as a part of the purchase price, and secondly as a payment to the tax office as the settlement of the real estate transfer tax from the position of guarantor of the payment of the real estate transfer tax on behalf of the transferor.

The change was proposed during 2013 when the legislative provision No. 340/2013 Toll. was adopted by the Senate. Unfortunately, it was an immaterial alternation of the renaming of the real estate transfer tax. The tax was renamed, but the taxpayer was still the transferor of the assets and the transferee remained in the position of the security. The main change was the possibility of a mutual agreement determined by the taxpayer.

The Senate prepared the amendment to legislative provision No. 340/2013 Toll. (No. 254/2016 Toll.), to finalize the proposed changes:

- the transferee takes over the role of the taxpayer
- the obligation of the transferee as a guarantor is discharged
- the person who disposes of the assets always becomes the taxpayer
- the change becomes effective with as of November 1st 2016

Negative consequences of these changes in the legislation might be that the purchase price of the immovable property will remain unchanged and won´t be reduced accordingly even though it will be the transferee who will be the taxpayer.