Voluntary taxation of rents has been significantly reduced
With the onset of the new year, landlords who do not currently own production halls or warehouses should check how their property is registered in the land register. If the building is registered as a family or apartment house, the continuation of the lease with tax will be impossible or at least limited. The absence of taxation means a major impact on the possibility of applying a deduction related not only to repairs or technical improvements, but also the acquisition of real estate itself.
From 1 January 2021, it is not possible to subject to tax the lease of a building that is registered in the real estate register as a family house, regardless of how the house is used. From this year, in the case of a family house, the landlord must also exempt the lease without the right to deduction even to a payer who has offices in this house, small production or leases it to another payer providing accommodation services in the house. The same applies to renting an apartment (living space). "If the subject of the lease is a living space which should be located in a building with a descriptive or registration number, which is an apartment, then the lease of such living space (apartment) will be exempt from tax from 1 January 2021 in all circumstances without the right to deduct tax, "according to the Directorate-General for Finance, published in the second half of December.
An important group that will be affected by this change are landlords of apartment buildings. These are often made up of apartments, offices and a shop on the ground floor. It will not be possible to tax the lease of the building as a whole, in which at least 60% of the leased floor space consists of living space. The insidiousness of the connection to the living space lies in its definition, according to which it is a set of rooms which, with their construction and technical layout and equipment, meet the requirements for permanent living and are intended for this purpose. The living space is therefore determined by the construction and technical layout, not the purpose of use. Therefore, the floor area formed by the living space also includes a company headquarters, which is in the space originally approved as an apartment. At the same time, the land register registers as an apartment building, buildings consisting of more than half of the living space, therefore without re-approval it will not be practically possible to get the lease of the apartment building as a whole into the voluntary taxation regime. When renting part of the premises, such as the ground floor, which serves as a shop and has been newly approved for this purpose, voluntary taxation will be able to be applied to the payer.
Payers who have been placed under the exemption regime without the right to a deduction by changing their lease from 1 January must also take into account the adjustment of the deduction for real estate acquired before the amendment came into force.
- Example: In 2018, a payer bought an apartment building from another payer in the transfer tax regime, in which more than 60% of the floor area is living space. The house is registered in the land register as an apartment building. The payer immediately started leasing it in its entirety to another VAT payer, Prague rentals s.r.o., which then sublets it to the final tenants. The lessor claimed the full deduction from the payer during the purchase. As this is real estate, the deduction is subject to adjustment within 10 years. For apartment building owners, this means that with the current wording of the law in force in the future, from 2021, it will always return 1/10 of the originally applied deduction in the tax return for December, most recently in 2027. In total, it will return 70% of the deduction. If the investment was 15 million crowns and 21% VAT on it amounted to a total of 3,150,000 crowns, the owner will lose an amount exceeding 2.2 million crowns.
If you are in the situation of landlords who voluntarily taxed the lease last year and whose property may have something to do with housing according to the land register, I or my colleagues Petr Linx and Igor Pantůček from our VAT team will be happy to verify the taxation possibilities in 2021.