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Law and Taxes

What is "property" or "immovable thing" ?

The new Civil Code Act No. 89/2012 Coll. (hereinafter referred to as NOZ – an abbreviation widely used in Czech and corresponding to the Czech term "Nový občanský zákoník" – New Civil Code) has brought new determination of immovable things. The term "property" is replaced by the term "immovable thing" and immovable things are now defined in § 498 of NOZ.
As immovable things are always classified pieces of land, buildings on a piece of land forming a part of this concrete piece of land (this provision, however, is always to be examined in a concrete case as there are many exceptions), underground buildings with an independent  purpose specification and property rights to them (e.g. metro), furthermore things (buildings) that cannot be transferred from one place to another without breaking their nature (e.g. utilities, temporary buildings, roads, highways), units (apartments or non-residential premises and co-ownership share in a building and in a piece of land) as well as property rights declared by law (e.g. the right to build) and buildings under Act No. 40/1964 Coll., Civil Code valid until 31 December 2013, that have not become a part of the piece of land in compliance with the transitional provisions of NOZ.

What agreements are necessary in case of purchasing a property?

A Reservation Contract is a contract on the basis of which the seller reserves the relevant property including its accessories for the buyer. On its basis the buyer pays the reservation fee, which is subsequently included as the advance payment of the purchase price. In the contract, the subject of the future transfer (flat unit/chamber/cellar/parking or garage places/pieces of land in mutual ownership and especially preliminary areas) are specified exactly, furthermore here are plot numbers of pieces of land on which the house is to be built. The contract determines business terms.

A Future Purchase Contract describes rights and duties of both the contractual parties in more detail. On the side of the future seller here is above all the obligation to make the Declaration of the Owner and to finish the building within the stipulated period so that the Final Inspection Approval can be issued by this deadline. The future buyer is especially liable to settle the purchase price according to the determined payment calendar.

The Purchase Contract (The Unit Ownership Transfer Agreement) is a contract by which the ownership is transferred from the buyer to the seller and which is – as the only of the contracts mentioned above – registered at the relevant Land Registry. It contains not only the specification of the unit according to the Declaration of the Owner, but also the amount of ownership shares. Furthermore all the rights, duties and obligations being transferred to the buyer, such as Easement Agreements or Facility Management Contracts, are stated here. The Purchase Contract is submitted to the Land Registry in the appropriate number of copies, depending on the number of participants, together with the proposal of entry. If the buyer funds the property via a mortgage or another type of credit, the Security Agreement is also registered at the Land Registry.

What is the property tax?

The property tax consists of two partial taxes – the buildings tax and the land tax. Both the taxes have a different way of taxation. The duty to pay these taxes arises from the ownership or user relationship to the property and its payment is required irrespective of the revenues of the owner. The amount of the tax is calculated by the relevant tax office, its calculation is based on several factors, such as the area of the property, the built-up area, the location of the property etc. The property tax on a three-roomed flat in Prague fluctuates around CZK 1.000,- a year.

Who pays the real estate transfer tax on selling a property and what is its rate?

The payer of the real estate transfer tax on selling a property is the seller (transferor), the buyer (acquirer) is in this case a guarantor. The real estate transfer tax is regulated by the Law of the Czech National Council No. 357/1992 Coll. The rate of the real estate transfer tax is 3% of the tax base. The first paid transfer of ownership is exempt from the real estate transfer tax.

What is a proposal to deposit?

A proposal to deposit is generally understood as a proposal to start the procedure of the registration of ownership rights, lien, right corresponding to easement or right of first refusal, submitted to the Real Estate Cadastre, or a proposal to delete such right. The procedure for the authorization of the deposit is started on the day of the delivery of the written proposal of the procedure´s participants (or some of them) to the Land Registry and it usually lasts several weeks or even longer. However, the legal effects of the deposit come into being retrospectively as of the day of the submission of the proposal to deposit to the relevant Land Registry. Nowadays this act is commonly considered to be decisive for the settlement of the purchase price (and also for drawing a mortgage).

A deposit is understood as the registration of a deposit or a deletion of a deposit of property rights to properties in the Real Estate Cadastre in cases stated by law. The procedure is started by the delivery of the proposal to deposit to the relevant Land Registry. During this procedure the Land Registry examines whether the conditions for the permission of the deposit are met. If the Land Registry finds out that the proposal to deposit has certain imperfections, it informs the submitter and determines reasonable time to remove them. As soon as it comes to a conclusion that the conditions are met, it decides to allow the deposit and subsequently makes it. If it finds out that the conditions are not met, the proposal to deposit is rejected.

What VAT rate applies to flats, houses and land?

The 15% rate applies to apartments of up to 120 m2, whereas the 21% rate is applicable to apartments exceeding 120 m2. As regards houses (in the sense of single-family detached homes), there are both rates too – 15% for houses of up to 350 m2 and 21% for larger ones.

Newly – from 1 January 2014 on – the VAT applies to a transfer of pieces of land unless this transfer is exempt from tax. In a simplified way it can be stated that such exemption occurs only in case of a transfer of a vacant piece of land without a building permit or without a construction consent for a building notified. However, in view of the complicated nature of the exemption issue it is always necessary to assess the taxation on transferring a piece of land individually – in relation to a particular transfer case.

What forms of ownership exist in the Czech Republic?

Private ownership

1) Sole ownership – the property is owned by a single person who is entitled to exercise the rights of ownership.

2) Mutual ownership – the property is owned by more persons. In this case the rights of ownership are exercised by mutual owners. The ownership share is a key term here. This share, expressed as a fraction or a percentage, represents the rate of the co-owner´s participation in rights and duties. However, it is constituted as a so-called ideal share, i.e. a share that does not correspond to a certain real part of the property. With respect to mutual ownership it is important to mention that in case of the sale of a co-owner´s share, other co-owners have the right of first refusal to this share. A co-owner is entitled to be offered the share under the terms proposed by a third party. If a co-owner meets these terms, there is a priority right to buy the ownership share of the other co-owner over the third party. If the co-owners do not agree otherwise (mostly in cases when there are more bidders for the released share), all the other co-owners can buy out the released share in proportion to their shares.

3) Joint property of spouses – the property is owned by spouses. As opposed to mutual ownership, there is no share determined – i.e. an ideal share neither. In case of joint property of spouses, this share is specified only as of the day of the termination of the marriage and the settlement of joint property and the shares of both the spouses are assumed to be identical.

Cooperative ownership

In contrast to private ownership, the property is owned by a legal entity – a cooperative – that is stated in the Real Estate Cadastre as the owner of the property. In case of purchasing a property that is a part of the cooperative, the buyer becomes a mutual co-owner of this cooperative property. The size of the share is determined similarly to the case of blocks of flats in private ownership. The transfer of the real estate is carried out by the transfer of the share between the seller and the buyer. This change is not registered in the Real Estate Cadastre and the approval of the bodies of the cooperative is required neither.

What are the rules of acquiring property in the Czech Republic in case of foreigners?

Since 1 May 2009 both the citizens of the European Union member states and the foreigners from the countries of the former Commonwealth of Independent States (which came into being after the Soviet Union had ceased to exist) have been allowed to acquire and transfer properties with no limits in the Czech Republic. At the Land Registry it is no more necessary to prove residency, to submit the European Union Identification Card or to conclude a contract as a legal entity.

What is the purpose of Expert Evidence?

Expert Evidence is a professional document, elaborated by an expert in the given field, which serves for determining the price of the given property. In practice this document is needed especially if the buyer asks for a mortgage and the property is to be subject to pledge or if the real estate transfer tax is to be calculated (if the sale price is lower).

What is an ownership title?

As an ownership title is generally understood a document on the basis of which a person acquired the ownership of the property, e.g. a Purchase Contract, Transfer Contract, Heritage Contract, Deed of Gift etc. These documents are deposited in the Real Estate Cadastre.

What is a Property Sheet and where to get it?

The extract of the Real Estate Cadastre (the extract of a Property Sheet, “list vlastnictví”, often abbreviated as “LV”, in Czech) is a public document, which certifies the state recorded in the Real Estate Cadastre as of the moment of its issuance. It is marked by the number of the Property Sheet and as a public document it has to feature the date, a round stamp of the Land Registry with the national emblem, the name and signature of the executive of the Land Registry and a stamp or a clause of the settlement of the administrative fee. It is arranged either as a Property Sheet with properties or as a Property Sheet with flats and non-residential premises in the ownership of persons. A Property Sheet gives evidence of the ownership of the relevant property or land, e.g. of pledges, executions, easements, seals etc. The document can be obtained in return for payment at the relevant Land Registry or at the Czechpoint places (post offices, municipalities, local authorities etc.).

What is the Declaration of the Owner?

The Declaration of the Owner of the Building is a unilateral legal act of the owner, by which a building is divided into units (i.e. flats and non-residential premises).The Declaration of the Owner describes the building and the land on which it is situated, delimits the units inside the house and specifies the common parts of the building, regulates the rights to the plots and rights and obligations related to the building, states the rules of co-owners´ contributions to the administration of the house and the rules of the administration of the common parts of the house, including the person of the administrator. By the registration of this Declaration in the Real Estate Cadastre, the existing owner of the house becomes the owner of each unit. The Declaration of the Owner of the Building is a basic prerequisite for the transfer of the ownership of the individual units inside the building. The Declaration of the Owner of the Units under Construction delimits the units under construction which will be built inside the object on the basis of a building permit. After the final inspection the units under construction transform into finished units by the deposit of a legally effective final inspection approval at the Land Registry.

What is notarial custody?

The notarial custody serves for depositing testaments, securities, deeds and also money with the aim of their being handed over to other persons/parties. In connection with property transfer, contracts and means, the payment of which is stipulated in the Purchase Contract or in the Agreement on Custody, are usually deposited with the notary.

What is an Easement Agreement?

Easements restrict the owner of the property for the benefit of another person. The owner is obliged to allow something, to abstain from something or to do something. The right corresponding to the easement comes into existence by the deposit of the concrete Easement Agreement in the Real Estate Cadastre at the relevant Land Registry and it is always written on the relevant Property Sheet. Easements with which the property is encumbered are always stated in the Purchase Contract and they are usually related to the system of technologic networks, which are a part of the residence. Easements come into being also in situations in which the owners utilize equipment that is not in their mutual ownership, e.g. a house boiler room. The right of passage etc. can be handled similarly too.

How to proceed in case of financing via a mortgage?

A mortgage is a long-term credit, whose repayment including interests is guaranteed by a lien on the property for the benefit of the mortgage bank. The property being acquired is as a rule the subject of pledge. However, the credit can also be guaranteed by a different property which does not have to be in the ownership of the applicant.

How are the documents related to energy deliveries transferred to the new owner of the property?

The transfer from the original owner to the new one is to be carried out at the Customer Centre of the concrete energy provider (such as PRE, ČEZ, RWE, Pražská plynárenská etc.). The transfer is – as a rule – made by filling in a form, a written approval of the original owner is usually required too.

What is the difference between a flat unit, accommodation unit and non-residential unit and what VAT rate applies to these units and to pieces of land?

A flat is understood as a room or a set of rooms, which are – in compliance with the ruling by the Building Office – intended for living. Unless a flat including accessories exceeds the area of 120 m2, the VAT rate of 15% applies, for a larger flat 21%.

Accommodation units are specific units (especially suites and studios), which do not have a character of a standard flat because of e.g. a lower amount of sunshine, higher noise or on the grounds of the functional determination of the piece of land according to the zoning plan. As regards the legal aspect, accommodation units are non-residential units. However, otherwise they comply with all the parameters of living and they contain a bathroom and a kitchen part, same as flats. The VAT rate of 21% applies to accommodation units. A substantial circumstance on buying an accommodation unit by a VAT payer is the possibility to deduct the 21-percent VAT, which results in the decrease in the paid purchase price by 21%.

A non-residential unit is a room or a set of rooms, which are – in compliance with the ruling by the Building Office – intended for other purposes than for living (e.g. office, studio, garage place or shop). The accessories of a flat, non-residential premises or a common part of a house are not non-residential premises. A 21-percent VAT applies to non-residential unit.

There is no VAT in case of a piece of land.

The total price of a property is usually stated to make it simpler. However, in reality is such a price usually composed of several properties with various VAT rates (e.g.: a flat unit of up to 120 m2 with a 15-percent VAT, a garage place – if it is a part of a non-residential unit – with a 21-percent VAT, a piece of land with a 0-percent VAT).

What is the Building Certificate or the Certificate of the Authorized Inspector?

The certificate issued by an authorized inspector is a document, the submission of which to the Building Office has the same legal force as the Building Permit issued by the Building Office. Such a certificate can be issued only by an authorized inspector, i.e. an individual appointed by the Minister of the Regional Development of the Czech Republic.

How is the takeover of the unit carried out?

The takeover of the unit is usually carried out after the fulfilment of two basic conditions: a full settlement of the purchase price by the buyer and at the same time the submission of the proposal of entry to the Land Registry. The takeover of the unit is a formal act during which the buyer thoroughly monitors the state of the property which is the subject of the transfer and the opening balances of utilities (hydrometer and electricity meter) and possible defects not preventing the unit from being used are written in a protocol. The buyer is also acquainted with the operation of the house and with the rules to which he/she accedes on the basis of the Facility Management Contract.

What is a Homeowner Association and how does it come into being?

A Homeowner Association comes into being automatically with the entry of the ownership of first two flat or non-residential units different from the original owner. The original owner has to organize - within 60 days from the Homeowner Association´s coming into being - a meeting of owners, where the Committee is elected and the Statutes and facility management budget are approved. The Homeowner Association is a legal entity registered in the Commercial Registry, which is – via the elected Committee – entitled to exercise rights and commit in all the cases related to the management, operation and repairs of the common parts of the house, or possibly to carry out activities related to operating technical equipment in the house which serve other subjects too.

What is making an entry?

An entry is understood as the entry or deletion of ownership or other substantive rights related to properties in the Cadastre in cases stipulated by law. The procedure is started by delivering the proposal of entry to the relevant Cadastre Office. Within this procedure the Land Registry examines whether the terms of approving the entry are met. Should the Land Registry find that the proposal of entry has certain imperfections, it informs the submitter of the proposal and determines an appropriate period to remove them. As soon as it comes to a conclusion that the terms are met, it rules that the entry is approved and subsequently it makes the entry. In case it finds that the terms are not met, it rejects the proposal of entry. 

What is coming into force?

Coming into force is a formal act, by which a ruling (such as zoning or a Building Permit) becomes obligatory and unchangeable. Coming into force usually occurs after 15 days after delivering the ruling to the procedure participants unless they exercise their right of appeal within this period. In some cases a ruling comes into force immediately after being issued. A ruling without coming into force is not effective.

What is a Survey Sketch (a Geometric Plan)?

A Survey Sketch (a Geometric Plan) serves to depict a new state of allotment in the relevant pieces of land. It has to be transferred (updated) to the relevant Land Registry. The Survey Sketch is always made exclusively by an authorized surveyor and features a relevant surveyor´s stamp. Subsequently it is submitted to the relevant Cadastre, where it is first verified and then incorporated.

What is a Final Inspection Approval?

A finished building, or its part which can be used separately, which required the Building Permit, can be used only on the basis of a Final Inspection Approval, which results from the final inspection procedure. The final inspection procedure is opened by a written proposal by the builder and it is executed at the Building Office which issued the Building Permit. In the course of the final inspection procedure the Building Office examines especially whether the building has been made in compliance with the building documentation and whether the terms stipulated in the zoning and in the Building Permit have been met. Should the Building Office find imperfections related to the building within the framework of the final inspection procedure which prevent the building from being used, it determines a deadline for the builder to remove them. Within this period the final inspection procedure is interrupted. The building can be used only in compliance with the purpose determined in the Final Inspection Approval and possible changes in the usage are permissible only after a prior notice given to the Building Office, which will make decision on them or order a new final inspection procedure. In contrast to the Final Inspection Approval used formerly, the current Final Inspection Approval comes into force automatically. Its distribution is carried out via a data box.

What is a Building Permit?

Construction work and alterations and maintenance of buildings can be carried out solely on the basis of a Building Permit, with the exception of minor buildings, building modifications etc., in which case it is enough to inform the Building Office. The Building Permit is a ruling issued by the relevant Building Office in the building procedure. It contains obligatory terms concerning the execution and usage of the building, including objections by the procedure participants. The building procedure is opened on the request of the builder, including the specified documentation. This ruling has a time-limited validity and it is valid, as a rule, within two years after coming into force unless the Building Office determines a longer period.

What is zoning?

Zoning comes into being as the result of the decision-making by authorities, mostly Building Offices, concerning a concrete measure, which has to be carried out in the given territory, or concerning a particular usage of the plot for the purpose suggested (e.g. a decision on the use of a territory, a decision on a protected area or a protection zone, a decision on the positioning of a building, a decision on a building ban etc.). The zoning procedure is started on the basis of the proposal by a procedure participant or of the suggestion by an administrative body and the zoning is obligatory not only for the existing proposer and other procedure participants, but also for their legal successors.

What is a lien and a Security Agreement?

A lien comes into being on the basis of a written agreement. A Security Agreement has to include the description of the pledge and of the receivable, which is secured by the pledge. Both the pledge and the receivable have to be specified clearly (i.e. the day and reason of the receivable´s coming into being, its subject and monetary amount, payment terms, interest rate and late interest rate). The agreement is concluded by the pledgee (as a rule a bank providing the mortgage) and the pledgor (the owner of the object in pledge, as a rule the debtor, but it can also be a different person). The Security Agreement is usually submitted to the relevant Land Registry before the Purchase Contract, but the incorporation at the Cadastre can be executed independently too. The lien is, after the incorporation by the Land Registry, marked in the relevant Property Sheet.  

What is mortgage?

A mortgage is a long-term credit, whose repayment including interests is guaranteed by a lien on the property for the benefit of the mortgage bank, including a property under construction. Formerly this credit was provided only for investing in properties – e.g. in case of their building, purchasing, reconstructing, acquiring a building plot, settlement of financial means related to a property (settlement of legacy, joint property of spouses etc.). Nowadays mortgages are no more purpose-limited and banks provide them for funding almost anything. The guarantee of the credit is assured by a lien on the property for the benefit of the mortgage bank. The property being acquired is as a rule the subject of pledge. However, the credit can also be guaranteed by a different property which does not have to be in the ownership of the applicant.

What is the difference between “entry” and “record” at the Land Registry?

In connection with purchasing a property, these two types of proceedings take place most often at the Land Registry:

  • Entry

  • Record

Who submits a Proposal of Entry at the Land Registry and how:

Any of the parties, in case of purchasing a new property from a developer it is mostly the developer itself (a service for a client). As a rule, the submission is carried out in person at the filing office of the Land Registry, but it is also possible to do it electronically or by mail.

How the parties are informed of the course of the proceedings:

  • Individuals – by registered letter or through a paid service “Monitoring of Changes” (service provided by the Land Registry)

  • Legal entities (companies) – to their data box 

What is an ENTRY:

Through an entry – on the basis of a written proposal submitted to the Land Registry – the creation, modification, limitation or recognition of the existence or non-existence of rights are entered. The most frequent property-related entries are:

  • Right of ownership

  • Lien

  • Right of construction

  • Easement

Examples of what is entered through an entry:

  • Purchase Agreements

  • Security Agreements (also called Pledge Agreements)

  • Deletion of Lien

  • Declaration of Owner

  • Geometric Plan

  • Occupancy Permit

  • Easement Contracts

What are the processing fees of the Land Registry:

  • CZK 1.000,-

Course of proceedings

Submission of a Proposal of Entry (in writing, through a required form with mandatory attachments).

The Land Registry accepts the Proposal of Entry, which is followed by sealing. The relevant Land Registry informs the owner of the property of the sealing and a twenty-day period begins, during which the proceedings do not take place (period determined for potential expression of parties, appeals against the proceedings, objections etc.). The entry proceedings follow in stages processed, depending on the course of the proceedings – Submission for Processing, Decision to Permit the Entry, Entry Making, Entry Memorandum, or the Land Registry – if the Proposal of Entry has legal defects that do not prevent from making the entry – invites the parties to remove them and determines a reasonable period for such removal. The proposer is allowed to withdraw the Proposal of Entry. However, the entry proceedings are stopped only if this act is approved by all the entry proceedings parties.

After the deadline, the Land Registry issues a Decision to Permit the Entry or a Decision to Dismiss the Entry and informs the parties of this. The legal effects of permitting the entry come into being retrospectively as of the moment at which the Proposal of Entry reached the relevant Land Registry.

How do entry proceedings take place in case of a property in relation to which more Proposals of Entries are submitted?

Generally, the entry proceedings related to the same property are always processed sequentially, not simultaneously, i.e. the entry proceedings with a later date of submission are handled only after finishing the previous proceedings. In contrast to the previous way valid until the end of 2013 – when e.g. the deletion of a lien encumbering the property being sold in the Real Estate Cadastre was carried out through a record –, nowadays these proceedings take place through an entry and if they precede the entry of the Purchase Agreement, they may influence in time the entry of the client´s right of ownership related to the property being purchased. In such a case, the entry of the right of ownership runs only after making the deletion through the entry of a previously-submitted Proposal of Lien Deletion.

If more submissions are recorded with respect to one property at a particular moment, the Land Registry processes them sequentially according to their order, i.e. the day or possibly the time of the submission of the Proposal of Entry. In such a case, the Land Registry usually interrupts the proceedings, i.e. it interrupts the period of decision until it decides on the previous proceedings. 

What is a RECORD:

A record is an entry to the Real Estate Cadastre in cases in which the owner is the state, region or municipality and if there is no change of the owner but only the registration of government departments and public organizations managing the property. Deleting a lien fell under this type of proceedings until 31 December 2013 too. Since 1 January 2014 entry proceedings have been carried out in case of deleting a lien.

What is the difference between Real Estate Acquisition Tax and Real Estate Tax?

Real Estate Acquisition Tax is a property tax which has been part of the Czech tax system since 1. 1. 2014, implemented through Senate Regulation no. 340/2013 and it replaces the previous Real Estate Transfer Tax.

The purchaser must pay this tax.

The tax payer is required to submit a tax return form by the end of the third calendar month following the calendar year in which the transfer of ownership was registered in the Land Register.

The tax payer is required to submit and pay Real Estate Acquisition Tax through a deposit of 4 % of the agreed purchase price. This deposit is payable by the final day of the deadline determined for submitting the tax return. If the tax is higher than the deposit, the difference between the tax and the deposit is payable within 30 days of receiving the demand for payment. New-build apartments are exempt from this tax if more than 50 % of the total area of the new building comprises apartments. Nevertheless, a tax return must still be submitted.

Real Estate Tax is also a property tax. This tax is charged each year to the owner of the property. The full value of this tax is received by the municipality, while tax administration is secured by tax offices (finanční úřad).

The property owner must pay this tax.

The tax is applied to real estate (land, buildings, apartments) located within the territory of the Czech Republic and recorded in the Land Register.

The tax period comprises the calendar year and the tax payer is required to submit a tax return to the appropriate authority by 31 January for the tax period (i.e. when paying property tax for 2018, the tax return must be submitted by 31 January 2018). The applicable period for tax calculation is 1 January of the year in question. If the tax return has been submitted in a previous year and there has been no change since that time, a tax return does not need to be submitted. The tax is paid regardless of the tax payer’s income. Revenue from the tax goes to the towns and municipalities for the district in which the taxed property is located.



Who provides facility management in case of new buildings?

A necessary part of a due functioning of a residence consists in facility management (regular checks, maintenance of equipment, cleaning, garden work etc.). Facility management is executed by a specialized company, with which the original owner concluded the Facility Management Contract and to which every owner accedes on the basis of a relevant stipulation in the Purchase Contract or by signing the Purchase Contract. After the establishment of the Homeowner Association this contract can be terminated based on the agreement of the owners.



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