The Ministry of Finance tabled a new Immovables Acquisition Tax Bill (the “Bill”) at the beginning of December 2012. The Bill sets out new regulations, terms and expressions, and includes the definition of an immovable (the term “real estate” will be abandoned) introduced by the new Civil Code.
In addition, the Bill originally proposed the introduction of tax on the transfer of shareholdings or changes of control in companies owning immovables and tax on the contribution of immovables to the capital of corporations under the new Corporations Act. Another substantial feature of the Bill is that the party liable for paying transfer tax will change. The Bill, which is designed to replace the current legislation on real estate transfer tax, should be enacted before and take effect on 1 January 2014.
Under the new legislation, the seller will no longer be required to pay tax on a real estate transfer if the transfer is based on a contract. Instead, the purchaser (transferee) will be the liable party. Where a building that becomes a part of a land lot is acquired, it is the acquirer (transferee) who will be liable. Moreover, the purchaser’s statutory duty to pay the tax if the seller fails to do so (this placed a financial burden on the purchaser even though it had the right to claim any resulting damages from the seller) is to be abolished, which is expected to facilitate and make more efficient tax collection. Although the final agreement is entirely up to the parties, the purchase price for real estate is expected to be reduced by the real estate transfer tax, which amounts to 4% as of the beginning of 2013. Expert Reports
In an attempt to reduce administrative and financial burdens, the duty to have an expert report (ascertained price) completed under the Evaluation Act for standard real estate such as family homes, recreational facilities or garages is to be dropped entirely. To calculate the acquisition value (from which the tax base is calculated), the price agreed in the contract will no longer be compared to the ascertained price (as per the expert report) but to the benchmark tax value, which will be primarily based on the approximate value. The method for determining the approximate value will be set forth in a decree to be issued by the Ministry of Finance and will be based on prices for similar real estate at the particular location, as well as on a comparison of key features of the real estate within a particular period of time. The Ministry plans to make a tax calculator available for the purposes of calculating the approximate value.
The taxpayer will be free to choose whether to apply the approximate value or the ascertained price (as per the expert report) to calculate the benchmark tax value. The benchmark tax value equals 75% of the ascertained price or the approximate value. In other cases, the tax base is to be based on a comparison of the price agreed in the contract and the ascertained price. The tax base for the tax on immovables can be reduced by the expert’s fee and the costs incurred and duly documented by the taxpayer for the expert report, provided that the expert report is submitted with the tax return. New taxes
Initially, the Bill expanded the circumstances in which the new tax duty was to apply. The most substantial changes included a tax on contributions of immovables to corporations (currently commercial companies and cooperatives) and a tax on the transfer of shareholdings in business corporations and, where applicable, any change in control of an entity owning immovables. The reason for the expansion is that the Ministry attempted to reduce tax avoidance, especially on share deals. The Ministry expected the expansion to yield about CZK
10 – 16 billion worth of additional tax revenue every year.
Currently, to avoid paying real estate tax a person simply needs to establish a company (typically a limited liability company), contribute the real estate to its registered capital, sell a portion of his or her shareholding (less than 100%), and hold the remaining portion for at least five years after the real state has been contributed. The Bill therefore proposes taxing transactions involving a change in control of a corporation owning any immovable (i.e. the controlling entity changes or there is a new controlling entity in a corporation that has not had any control before).
However, political and practical objections alike were raised and the Ministry withdrew its plans. Hence, it seems share deals will continue to be tax exempt. However, the proposed taxation of a contribution of an immovable to a business corporation is still on the table. At least, for the time being. In evaluating a contribution in kind to a business corporation, the tax base is to be determined by an evaluation of the immovable based on the company’s articles or from the price for the immovable as determined by an expert.