Read on to learn more about the new rules on the VAT treatment of real property that have been enshrined in law and will take effect on 1 July 2025.
Parts of amendment No. 461/2024 to the VAT Act came into force already on 1 January 2025, but some of the changes which concern real property in particular will only take effect on 1 July 2025. This article familiarizes you with the most important ones.
Improved definition of building land
Both before and after the amendment, delivering a building site qualifies as a taxable service / supply.
The circle of administrative acts which turn an “ordinary” land plot into a building site has been narrowed.
A building site is a land plot on which one may erect a structure that is permanently affixed to the ground pursuant to the municipality’s land-use planning, or because it is part of a prospective development area, or based on a permit issued by the Building Office under the Building Act.
On the other hand, certain land plots within the prospective development area may be excluded from the definition of building land if it becomes obvious that the placement of a building on such land plot is impossible or extremely improbable.
Changes affecting the tax exemption of completed buildings: shortening of the holding period and a taxation principle whereby only the first transfer upon completion (or upon substantial modification) is subject to tax
Until now, there existed a five-year holding period during which the transfer of a completed building always qualified as a taxable supply from the vantage point of the VAT Act. This holding period, during which VAT must be added to the price of the transferred real property, has now been shortened from five years to 23 calendar months; it begins with the calendar month immediately following the calendar month in which the use/occupancy permit attains final force. Such permit will be issued once the construction of the building has been completed (first delivery after completion of a building) or after the refurbishment project has been completed (if the refurbishment qualifies as a “substantial modification, see below – first delivery after completion of the refurbishment).
In the future, the holding period for the delivery / transfer of real property may even begin before the Building Office issues a use permit after refurbishment – namely, as of the moment in which the reconstruction works have progressed to a point where they meet the criteria of a substantial modification of the real property.
It is upon the seller of a property whose refurbishment is in progress to review whether those criteria have been satisfied. If so, they must apply VAT when selling the property.
VAT rate and social housing definition
Going forward, the reduced VAT rate of 12% shall only apply to the supply of social housing. The definition of what counts as social housing has now been changed.
As of July, the decisive source of information to determine whether a property may be sold at the reduced VAT rate is (for single homes and apartment buildings) the entry in RÚIAN (the “Land Surveying Registry of territorial identification, addresses and real estate”).
The upper floor size limit for single homes (family houses) remains unchanged at 350 sq.m., but for apartment blocks with social housing, it will newly be possible to add multiple large apartments (with more than 120 sq.m. floor space) alongside small apartments of up to 120 sq.m., as long as the condition is satisfied that the floor space of the small apartments account for more than 50% of the total floor space within the building.
Changed definition of “substantial modification”
If a building is substantially modified, its subsequent transfer becomes subject to VAT as a taxable performance.
In the future, changes to a building will qualify as “substantial modification” if they serve the purpose of a change of use or of a change of the living conditions inside the building, provided further that the expenses on the part of the seller toward such modification amount to more than 30% of the sales value.
The seller will only perform the test whether a given refurbishment project qualifies as a substantial modification upon selling the property. If the above-mentioned criteria of a substantial modification have been fulfilled and if the sale occurs within the holding period of 23 months, then the seller shall add value-added tax to the price for supply of the real property.
Source:
Act No. 235/2004 Coll.
Act No. 461/2024 Coll.