VAT on rental of residential properties

Dear readers,

We would like to draw your attention to a change in VAT on the rental of flats and houses from 2021.

Rental of real estate, with a few exceptions (for instance rental of parking spaces), is VAT exempt without the entitlement to deduct VAT from transactions on input.

If you are registered for VAT, you can decide that output VAT will apply when renting real estate to another VAT payer for economic activities. In this way, you give yourself the possibility to deduct VAT from received transactions.

With effect from 1st January 2021 however, some exceptions were set, where this won’t be possible anymore.

This applies to rental of property for permanent residence, so mainly to apartments and houses.

From 2021 the owner of the property is therefore obliged to always exempt their rental from VAT, without the right to deduct VAT from input transactions. 

At the same time, they must adjust deduction of output VAT. This adjustment is carried out 10 years from the year the property intended for housing was acquired.

Let’s give an example to illustrate this.

A VAT payer bought a flat from a developer in 2020 for 11.5 million Czech crowns.

They rented the flat to another VAT payer with VAT, which allowed them to use the entitlement to deduct output VAT of 1.5 million Czech crowns in 2020.

Starting from 2021 they will have to in total carry out adjustment of VAT deduction 9 times, at a rate of one tenth of the applied entitlement.  In other words, from 2021 to 2029 they will always return 150 thousand Czech crowns to the state budged in December.

If the above-mentioned situation affects you, please do not hesitate to contact us.

Your WTS Alfery team.