Questions and answers in connection with coronavirus no. 13
The state contributes to business rents
On 4th May 2020, the government passed the intention of the Ministry of Industry and Trade to contribute, in the form of a subsidy program, to entrepreneurs who have been affected by restrictive preventative government measures, towards payment of rent for business facilities.
Entrepreneurs whose business activities have been affected by coronavirus can receive from the government a contribution towards rent which they have to pay between 1st April and 30th June. The approved intention takes into account that the state will contribute to entrepreneurs affected in connection with coronavirus a sum amounting to 50 % of the originally agreed monthly rent under the assumption that the landlord will provide a discount of 30 % from the total rent. The tenant will thus pay the remaining 20 %.
This is the special COVID Nájemné (COVID – Rent) subsidy program. The amount of support per beneficiary would be limited, in accordance with effective European regulations, to a maximum of 20 million Czech crowns.
An amendment to the lease agreement, in which the landlord obliges itself to a discount amounting to 30 % of the monthly rent, has to be part of the request for the state contribution. The applicant will also have to prove, with a bank statement, for instance, the amount of rent which had been paid prior to the coronavirus crisis.
The relief will be related to all firms whose operations had been halted due to the government measures and had to pay commercial rent. This will concern both businesses which remained entirely closed due to government measures and those which sold through a dispensary window or e-shop.
Abolition of real property transfer tax and changes in natural person income tax
The government passed the proposal of an Act by which the legal measure of the Senate No. 340/2013 Coll., on real property transfer tax, is abolished.
The legal amendment runs in rather a complicated manner, for even in 2020 this tax does not have to be paid by the acquirer, although real property transfer tax will be entirely abolished as of 1st January 2021.
The new legal amendment will also free from real property transfer tax transactions in which the transfer was entered in the Land Register as of December 2019, or acquisition of rights of ownership occurred as of December 2019 if the given real property is not recorded in the Land Register.
In 2020, acquirers (this is especially relevant for individuals) will be able to choose whether they wish to pay real property transfer tax voluntarily. This can be advantageous in situations for individuals with respect to individual income tax provisions, see below herein.
Due to the connection with income tax, payers of real property transfer tax are given the possibility to reverse the cessation of tax obligation by explicitly informing the tax administrator that the obligation should not cease to exist. This communication is in substance made within the deadline for filing a tax return or, more precisely, within 30 days from the day after the declaration of the amendment in the Collection of Laws should this date occur later.
Abolition of the deduction of interest on credits provided for housing needs.
The Act amendment proposal contains an abolition of provision Section 15 para. 3 and 4 of the Income Tax Act, which enables deduction of interest from credits taken out for the acquisition of housing needs.
The proposed Act will nevertheless concern taxpayers who close their credit agreements as of 2021. For old credit relationships provided prior to this date (including the refinancing thereof), the legal amendment used until now will apply, i.e., such taxpayers will continue to be able to apply a tax base deduction pursuant to the current Section 15 paras. 3 and 4 of the Income Tax Act.
Special regime has been proposed for those taxpayers who have not utilized the possibility to apply real property transfer tax in 2020. As stated above, it will be up to the taxpayers to choose whether they incur a tax obligation for real property transfer or not. Their decision, however, influences the possibility to deduct from the tax base interest paid in the 2020 and subsequent tax periods from credits taken out for the acquisition of housing needs. If this real property transfer tax obligation ceases for the taxpayer, he/she will not be able to apply a deduction for acquisition of real property pursuant to Section 15 para. 3 and 4 of the Income Tax Act. If it does not cease, the taxpayer will proceed according to the current regime.
Extension of the deadline for exemption of income from sale of property
In connection with the abolition of real property transfer tax, a proposal has likewise been made to extend the deadline for the time test among incomes from sales of real property acquired for reasons other than personal housing use – from the current 5 to 10 years (15 years in the original Act wording).
The proposed extension of the time test will not affect exemption of income from the sale of real property in which the seller is domiciled or when a taxpayer sells such a piece of real property and purchases another piece of real property in which he/she will live, e.g. due to gaining employment in another place or due to the necessity of a larger house or flat for an expanding family (current Section 4 para. 1 letter a) of the Income Tax Act). Further, it will also not affect real property acquired prior to the day this Act takes effect.
A special regime will be proposed for those taxpayers who utilize in 2020 the possibility to pay real property transfer tax. As stated above, it will be up to the taxpayers to choose whether real property transfer tax liability will arise for them or not. However, their decision will influence conditions for exemption of income from possible future sale of the real property, i.e. whether the 5 year time test or the new extended test (10 or 15 years) will be applied. If this real property transfer tax obligation expires, the extended time test will already be applied to the given real property. If it does not cease, the taxpayer will proceed according to the current regime.