Czech Republic: Pursuant to Sec. 4 (1) of the Income Tax Act, income from property sales is tax-exempt, subject to the fulfillment of certain statutory criteria.
Pursuant to Sec. 4 (1) of the Income Tax Act, income from property sales is tax-exempt, subject to the fulfillment of certain statutory criteria.
In order to determine whether income from property sales is exempt from personal income tax, one must check whether the holding time criterion has been satisfied, which in turn differs depending on whether the seller had their place of residence in the real property in question or not.
Tax-exempt are sales of family homes and the pertaining land plot, or of apartment units (including no non-residential premises other than a garage, basement or storage room) and the pertaining land plot, if the seller had their residence in this property for at least two years immediately preceding the sale. If the seller had its place of residence installed in the sold property for less than two years immediately preceding the sale, then the income will be tax-exempt only if the thus attained income is used to satisfy the seller’s own housing needs. If the above conditions are not met, then the income from selling the property may be tax-exempt if more than five years have passed between acquiring the ownership title and divesting the property.
In connection with the above conditions, we would like to mention judgment 45 Af 31/2013 of 17 March 2015 by the Prague Regional Court. In the case at hand, the conditions for the tax exemption had not been met (in that the seller failed to use the income gained from the sale to satisfy his own housing needs within the statutory period), which led to a conflict over whether the duty to pay tax arises for the assessment period in which the income was attained, or for the assessment period in which the said statutory period has lapsed (whereas the answer to this question is relevant for determining whether the criteria for the tax exemption have been met). According to the Regional Court, the income tax obligation in such a case arises for that assessment period in which the income was attained (i.e., in which the seller received the proceeds from the sale). In most cases, this will entail the need to file a supplementary tax return, and to pay tax arrears and penalties.
Income from property sales which does not satisfy the requirements for a tax exemption is subject to income tax as “other income” within the meaning of Sec. 10 of the Income Tax Act.
For completeness’ sake, we note in closing that as of 2015, following an amendment to the Income Tax Act, personal income taxpayers who attain tax-exempt income in excess of CZK 5 million must report this fact to the tax authorities (finance office) by the date for filing the income tax return for that period in which they attained such income (Sec. 38v of the Income Tax Act). However, this obligation does not apply to tax-exempt income from the sale of real property within the meaning of Sec. 4 (1) (a), (b), and (u) of the Income Tax Act.
Source: Income Tax Act (Act No. 586/1992 Coll.) Judgment 45 Af 31/2013 of the Prague Regional Court, www.financnisprava.cz