Under the provisions of the Statutory Measure of the Senate No.
340/2013 Coll. on Real Estate Transfer Tax (the "RE
Transfer Tax Act"), the transferor is obliged to pay
the real estate transfer tax (the "RE Transfer
Tax") when ownership title to real estate is acquired
by purchase or exchange, unless the transferor and the transferee
stipulate otherwise in the purchase or exchange agreement. If the
transferor does not fulfil its obligation to pay the RE Transfer
Tax, the RE Transfer Tax Act establishes the statutory guarantee
consisting in the duty of the transferee to do so.
However, the Czech Parliament recently passed an amendment to
the RE Transfer Tax Act, under which the obligation to pay the RE
Transfer Tax passes from the transferor to the transferee.
According to the Czech government, which is the petitioner of
the amendment to the RE Transfer Tax Act, the amendment seeks to
reduce the administrative burden connected with collection of the
RE Transfer Tax. Tax collection and its administration might
sometimes be difficult for the financial authorities, as the RE
Transfer Tax Act allows the transferor and the transferee to
stipulate in the transfer or exchange agreement who will pay the RE
Transfer Tax. To tackle these issues, the government sought
explicit determination of the taxpayer and sought to repeal the
statutory guarantee consisting in the transferee's obligation
to pay the RE Transfer Tax, instead of the transferor in case the
RE Transfer Tax was not paid. The current 4 % RE Transfer Tax
rate was, however, not influenced by the amendment.
According to the government, the above-mentioned change should
in particular (i) make the RE Transfer Tax Act more
straightforward; (ii) ease the administrative burden connected with
RE Transfer Tax collection; and (iii) mitigate the transaction
risks of the transferees in case the transferors do not pay the tax
(if the amount corresponding to the tax is not wired to the
financial authority directly from the escrow, which is often
established due to these reasons).
Motivation of the contracting parties was also a factor when
proposing this amendment. The motivation of the owner of the real
estate (the transferee) to pay the tax is much higher than that of
the transferor, who no longer has anything to do with the property,
and who might be difficult to reach and force to meet his
The amendment will take effect on the first day of the third
month after its publication in the Collection of Laws, presumably
on 1 November 2016.
It can be expected that the market will react to these changes
and that real estate prices will be affected. Despite the stimulus
of very low interest rates, it is believed that prices will almost
certainly decrease due to the substantial increase in buyers'
expenses. As the RE Transfer Tax calculation is based on the value
of the transferred property, it is expected that the amount of tax
collected will decrease accordingly as a result of the price
The change of taxpayer is not the only change introduced by the
amendment of the RE Transfer Tax Act. For example, the acquisition
of ownership by the municipalities was freed from the tax
obligation, the new buildings and flat unit taxation concept was
changed, the tax obligation on extension of building rights was
broadened, changes and other transformations of legal entities were
exempted from tax, and the taxation concept for the acquisition of
utility networks was changed.
It will take some time to evaluate to what extent the lawmaker
was successful and the new consequences that the amendment to the
RE Transfer Tax Act will bring about.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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