The extensive amendment to the VAT Act published in December last year brought a number of major changes effective from 1 January 2025. However, the news related to immovable property was approved with a postponed effective date of 1 July 2025, presumably in order to give entrepreneurs in the development sector sufficient time to prepare for them. In this article, we will focus on the most significant changes.
At the same time, if the first supply of a new building takes place after the 2-year period has expired (e.g. if the owner decides to rent out the property after completion), such supply will also be exempt.
Autor: Denisa Krocová
New concept of taxation of new buildings
The most significant change is undoubtedly the new concept of taxation of new buildings, whereby from 1 July only the first delivery of a new building made within 2 years primarily from the date of approval will be subject to VAT. Any further pre-sales (even if they occur within the 2-year period) will be exempt from VAT. Under the current arrangement, all supplies occurring within the much longer 5-year period must be taxed.At the same time, if the first supply of a new building takes place after the 2-year period has expired (e.g. if the owner decides to rent out the property after completion), such supply will also be exempt.
The option of voluntary taxation remains
The option of so-called voluntary taxation remains, whereby the taxpayer may decide to charge VAT on the supply of the property, often in order to preserve the related right to deduct. If the purchaser is a taxable person or, now, a person registered for tax in another EU Member State, he or she must consent to this voluntary taxation. At the same time, even the rental of premises used for the economic activity of the tenant will now be subject to voluntary VAT for a person registered for tax in the EU, even without his consent.New definition of "substantial alteration" of a building
The definition of a substantial alteration of a completed building has also been amended, which may trigger compulsory taxation of the supply of an older property again. The definition of a substantial alteration will be met if the purpose of the construction work is to change the use or the conditions of occupation of the building (usually a reconstruction, extension, addition or substantial repair) and, at the same time, the cost of the alteration incurred by the person who will then supply the property exceeds 30% of the taxable amount of the consideration for the subsequent supply of the building. If these conditions are met, the first subsequent supply of the property in question will be subject to VAT. It should be borne in mind that the substantial alteration itself need not be completed at the time of supply. However, the obligation to tax the supply of immovable property after substantial alteration ends again after the expiry of 2 years from its completion, which is usually the moment of approval. The determination of the price for the supply of the property after the substantial change may then affect whether the sale of the property is subject to VAT or remains exempt.A more precise definition of building land
The definition of building land, the supply of which is always subject to the 21% VAT rate in the context of the taxpayer's economic activity, has also been updated. In this context, specific administrative acts that make land a building land for VAT purposes have been introduced directly into the law. Building land will be land on which a building fixed to the ground can be placed on the basis of spatial planning documentation issued by a municipality, the delimitation of a built-up area or a decision of a building authority. Furthermore, construction work such as deforestation, site preparation, bringing in utilities, paving an access road, etc., the purpose of which is the future location of the building, may also make the land a building plot. The only exceptions will be where it is apparent from objective circumstances that the land, although formally developable, cannot be developed with a building firmly attached to the ground or is highly unlikely to be developed.New rule for classification of a building as a detached or semi-detached house
The current or, in the case of buildings under construction, future registration of the use in the Register of Territorial Identification of Addresses and Immovable Property (RÚIAN) will now be decisive for the designation of a building as a dwelling or a family house. The reference to the Building Act is thus abolished.VAT on sales to employees
Finally, we would like to remind you that with effect from 1 January 2025 there is a change in the case where a VAT payer sells a property to his employee. The employee is now considered to be a so-called connected person for VAT purposes when supplying immovable property. Therefore, VAT must now be paid on the so-called normal price if the consideration for the property is less than its market value.Autor: Denisa Krocová