Planned changes in the field of VAT for immovable property

Registration in the Land Register

For the purpose of determining a residential building or family house the GFD is currently convinced that the decisive factor is the state indicated in the Land Register. The registration in the Land Register should be decisive even if it does not correspond to the actual state, as there is a possibility to submit a request for a change in the registration of the manner of utilizing the building. This legal interpretation is perceived as very controversial. The definition of a residential building or family house is going to be modified in connection with the Amendment and it remains to be seen whether the GFD will allow considering residential buildings or family houses in certain cases in the logic of construction regulations. For completeness, it should be noted that the qualification of buildings as a residential or family house has an impact, for example, on the application of the correct VAT rate or the possibility of voluntary application of VAT for rent.

Substantial change to completed immovable property

Following the judgment of the Court of Justice of the European Union in Case C-308/16 Kozuba Premium Selection sp. z o.o. the tax administration proposes a change to the limit for a substantial change to a building from the current 50% to 30% of the determined price of the immovable property. The discussed substantial change to a building affects the period for exemption from VAT in subsequent sales of the immovable property. Currently, there is a discussion mainly about the moment of effectiveness of this change.

Change of purpose of use of immovable property

The GFD deviates from the current interpretation where a change of purpose of use is considered a substantial change solely based on administrative action without related construction works. The new period for VAT exemption will only be triggered by the occupancy permit decision associated with the physical reconstruction of the immovable property if it corresponds to the definition of a substantial change.

Transfer of land with a building intended for demolition

In the Information, the GFD presents a relatively extensive interpretation of the taxation of transfers of developed land that is intended to be replaced by a new building. Unfortunately, in certain situations, the GFD's interpretation, in our opinion, exceeds the boundaries set by the Court of Justice of the European Union. The positive aspect is that the GFD now rejects the automatic taxation of transfers of land with functional buildings.

Functional unit

The GFD raises the issue of the priority of the principle of principal and ancillary supplies over the principle of a functional unit. This question arises from the judgment of the Supreme Administrative Court No. 7 Afs 374/2021 - 36 Domy Kolín s.r.o., which implies that it is necessary to first consider whether the transaction in question constitutes a single supply (from the perspective of principal and ancillary supplies) and only then, in the case of multiple supplies, apply the principle of a functional unit. This is crucial not only for determining the correct VAT rate but also for the proper application of VAT in the supply of immovable property.

Floor area

The GFD confirms in the Information that the method of calculating the floor area for residential buildings and family houses is different from that of residential spaces or individual apartments. The Information specifies in detail what is included and what is not included in the floor area in each case.

If you have any questions regarding this issue, do not hesitate to contact our experts.

Authors:

Eliška Švecová, Tax Senior
Petr Drahoš, Senior Tax Manager