Although amendments to the Czech VAT Act came into force on January 1, 2025, certain provisions relating to real estate have been postponed until July 1, 2025. This article provides a detailed overview of what has changed and how these updates may affect the application of VAT on the sale or lease of real estate, as well as their potential impact on your business.
What Changed in the Real Estate Sector from July 1, 2025
As of July 1, 2025, amendments to Act No. 235/2004 Coll., on Value Added Tax (zákon o dani z přidané hodnoty, DPH), introduced by Act No. 461/2024 Coll., have taken effect. These changes relate to the taxation rules for real estate (nemovitosti) and are based on the implementation of a ruling by the Court of Justice of the European Union.
The key reform is the abolition of the previous five-year period (the “five-year test”) for VAT exemption on the sale of real estate. It has been replaced with a new threshold of 23 months. VAT now applies only to the first transfer of a property (první dodání nemovitosti) following the completion of construction, provided that it occurs within 23 months from the month of completion.
If the sale takes place later, the property is exempt from VAT. However, if both parties to the transaction are registered VAT payers (plátci DPH), they may still agree to apply VAT. This option has been preserved in the law.
A property is considered completed on the date when the first occupancy permit (první kolaudační rozhodnutí) becomes effective, or from the date it meets the conditions for permanent use (trvalé užívání) in cases where no occupancy permit is required.
Caution with Major Renovations — They May Trigger VAT on Real Estate
When determining whether a real estate transaction is subject to VAT (DPH), it is important to take into account the so-called substantial alteration of a building (podstatná změna stavby). The law now explicitly states that the first transfer of ownership after such an alteration is treated as the first supply of a completed property (první dodání dokončené nemovitosti), which is subject to VAT. In other words, if a building undergoes a significant renovation, the first subsequent transfer to a new owner will be considered a first supply and taxed with VAT.
Under the new provisions, a substantial alteration includes, in particular, extensions (přístavby), additional floors (nástavby), major reconstructions (větší rekonstrukce), or a change of use (změna způsobu využití) — for example, converting office space into residential apartments and vice versa.
The law also sets a financial threshold: if the cost of the works exceeds 30% of the property’s sale price, VAT must be applied upon its sale.
New Definition of a Building Plot
The revised Section 55a of Act No. 235/2004 Coll., on Value Added Tax (zákon o DPH), establishes what qualifies as a taxable building plot (stavební pozemek). The definition has been clarified specifically for VAT (DPH) purposes and continues to focus on the intended use and context of the land.
A plot of land is recognized as a building plot if:
- It can, according to territorial planning documentation (územně plánovací dokumentace), the designation of a built-up area (vymezení zastavěného území), or a decision by the building authority (stavební úřad) under the Building Act (stavební zákon), be used for the construction of a building firmly connected to the land (stavba pevně spojená se zemí);
— exception: if it is clear that such a building cannot be constructed on the plot or if this is highly unlikely. - Construction or similar works are being, or have been, carried out on the plot or in its immediate vicinity for the purpose of subsequently placing a building firmly connected to the land.
A building firmly connected to the land does not include minor structures of insignificant value — those that do not affect the ordinary use of the land (for example, temporary constructions or small auxiliary structures).
Plots that are not classified as building plots, as well as plots that do not form a functional whole with a building firmly connected to the land, are exempt from VAT. Determining whether a plot qualifies as a building plot is therefore crucial for assessing the possibility of applying a VAT exemption.
Changes to the Definitions of Residential Buildings and Social Housing
Amendments to Act No. 235/2004 Coll., on Value Added Tax (zákon o DPH), also refine the definitions of residential buildings (stavby pro bydlení) and social housing (sociální bydlení) for the purpose of applying the appropriate VAT (DPH) rate. These changes are aimed at eliminating previous inconsistencies in the interpretation of the rules in practice.
From now on, the main sources of data for determining the correct VAT rate are the Register of Territorial Identification, Addresses and Real Estate (Registr územní identifikace, adres a nemovitostí — RÚIAN), as well as construction and project documentation. The previous primary reliance on the provisions of the Building Act (stavební zákon) has lost its priority.
For social housing, one of the key criteria for determining the applicable VAT rate is the correct calculation of total floor area. Facilities such as hospices (hospice), children’s homes (dětské domovy), and shelters (azylové domy) are automatically classified as social housing.
For all other buildings classified as social housing, the condition is that more than 50% of their total floor area must consist of residential units intended for social housing purposes. The new calculation method for floor area is set by Decree No. 163/2025 Coll., issued by the Ministry of Finance (Ministerstvo financí) in June 2025 and effective as of July 1, 2025.
If this subject is relevant to your business, we recommend consulting VAT specialists to assess the specific implications of these changes for your operations.
In addition, methodological guidelines from the General Financial Directorate (Generální finanční ředitelství) are expected to be published for several provisions of the amendment. The document is currently being prepared and will provide further clarifications. Once it is released, we will inform you of the key takeaways.
Conclusion
The changes to real estate taxation that came into effect on July 1, 2025, cover a broad range of issues — from the time limits for applying VAT on property sales to the definition of building plots, significant reconstructions, and criteria for social housing. These amendments may have a substantial impact on transaction costs, tax liabilities, and planning strategies for both developers and private property owners.
If you have questions or would like to understand how the new rules may affect your specific situation, contact DoMyTax for tax consultancy in the Czech Republic. Our specialists will help you navigate the details of the legislation, find the most efficient solutions, and ensure full compliance with your tax obligations.
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