Thursday, 28 August 2025
Amendments to the Czech VAT Act (No. 461/2024 Coll.) introduce significant updates to the treatment of real estate transactions. While some changes took effect on January 1, 2025, the remaining provisions—particularly those affecting real estate—will apply starting July 1, 2025. The most notable changes include a revised definition of building land, a shorter VAT exemption period for completed buildings, adjustments to VAT rules for social housing, and a new framework for assessing substantial changes in real estate.
Refined Definition of Building Land
From July 1, building land will remain subject to VAT, but its classification will be more narrowly defined. The new criteria limit recognition of land as building land to cases supported by spatial planning documents, official zoning boundaries, or construction permits issued under the Building Act. Conversely, plots located in built-up areas will no longer be classified as building land if construction is clearly unfeasible or highly unlikely on the site.
Shortened VAT Exemption Period for Completed Buildings
The VAT exemption period for transfers of completed buildings is being reduced from five years to 23 calendar months. This countdown begins the month after the occupancy permit takes effect—either after initial construction or after a substantial reconstruction. Additionally, if a reconstruction clearly qualifies as a substantial change, the 23-month test period may begin before the occupancy permit is issued.
Sellers must assess whether a reconstruction constitutes a substantial change. If it does, and the sale occurs within the 23-month test period, VAT must be applied to the transaction.
Revised Rules for Social Housing VAT Rate
The reduced 12% VAT rate will continue to apply only to the supply of buildings classified as social housing. To qualify, single-family homes and apartment buildings must now be registered in the official territorial and property register. The existing 350 m² maximum floor area for family homes remains unchanged. However, in apartment buildings, the presence of larger units (above 120 m²) will not disqualify the building from the reduced rate, provided that apartments below this threshold make up more than half of the building’s total floor area.
Definition of Substantial Change in Real Estate
A substantial change triggers VAT liability if a property is sold within 23 months of the change. This applies when a reconstruction alters the use or living conditions of a property and when the seller’s costs exceed 30% of the property’s sale price. Determining whether a change meets this threshold is only necessary when the property is sold.
If the reconstruction qualifies and the sale occurs within the specified period, VAT must be applied to the transaction, in line with the amended rules.
Source: Ilona Semerádová, bnt attorneys in CEE
