How to Calculate Apartment Rental Tax in the Czech Republic
Learn how to calculate apartment rental tax in the Czech Republic, from deductible activities & tax discounts to different tax regimes.
Czech Real Estate & Apartment Rental Taxes
The so-called Apartment Rental Tax in the Czech Republic entails tax obligations for owners of income-generating real estate. Rental tax is part of personal income tax, and property lessors will pay this every year on March 31.
However, taxing Czech real estate income has its own rules which differ from reporting personal income. In this guide, we’ll share who has to pay real estate income tax in the Czech Republic, and how to calculate it. We’ll also cover deductible expenses, and help you find which tax regime is best for you.
What is the law on apartment & real estate rental taxes?
If renting any real estate over a longer period of time without providing services, the obligation to pay taxes arises. These “services” include things such as housekeeping, catering and similar, which fall under accommodation services and are taxed differently. If there are no accommodation services, then renting out the property is subject to rental tax.
Difference between a landlord and an entrepreneur
In the Czech Republic, you are a landlord if you have full-time employment. This is according to Section 9 of the Income Tax Act, and means you pay only the rental tax each year. As full-time employers cover social and health insurance requirements, you are only responsible for income generated from the rented property. Note: If there is more than one owner of the property, only one person must pay the rental tax.
You are an entrepreneur if you have a Czech trade license (Živnostenský list). This is according to Section 7 of the Income Tax Act. It states entrepreneurs must pay rental tax on top of their business income. Entrepreneurs are also responsible for their own contributions to social and health insurance each month. Because of this, entrepreneurs technically pay more in taxes than full-time employees.
Neither landlords nor entrepreneurs are entitled to state pension increases, or to sickness benefits from rental income.
Who has to pay rental tax in the Czech Republic?
You do not pay tax if you earn less than CZK 6,000 annually from your business, rental or other income-generating activities.
This is because you are not obligated to file a tax return, and therefore not paying any tax. The limit increases to CZK 15,000 if you have zero income. If you exceed either of these amounts, you will not have to pay taxes.
Those earning above CZK 6,000 have two reporting methods. Filers must either report actual income in tax records, or declare a simpler flat tax.
Options to claim real estate rental expenses
A natural person or persons may file with actual expenses or at a 30% flat tax rate. Let’s compare actual expenses versus the flat tax with practical examples of each.
1 - Actual expenses
Claiming actual expenses entails the recordkeeping of all tangible assets or real estate. It also involves any costs for repairs, which you are able to claim as deductible expenses.
This means not only is consistent accounting important. You also must be able to document expenses up to 3 years back to the Czech Financial Office. In case of tax loss, it’s 8 years retroactively.
Tax deductible expenses include:
- Property tax.
- Any costs for repairs and maintenance of the property.
- Costs of furnishing the apartment.
- Real estate insurance.
- Mortgage interest (for the purchase of an apartment).
- Any real estate agency fees.
- Flat-rate costs for a personal vehicle (4,000 – 5,000 CZK / month).
- Property depreciation.
Along with deductibles, you then calculate income tax by adding up all rental income to your account over the year. Subtract from the total the deductibles above, and then claim any additional tax discounts you are eligible for.
Tax relief includes:
- The standard tax discount for taxpayers (in 2022, this amounts to CZK 30,840)
- Any spousal discount.
- Disability pension discount.
- Student discount.
- ZTP/P discount for disabled persons.
- Tax benefits for children.
- Relief for kindergarten fees.
Then, your income tax percentage depends on if the rental income is higher than four times the average wage. If you exceed this amount, you pay 23% income tax. Those below this pay 15% income tax.
Actual expenses calculation example
For a practical example of claiming actual expenses, say you rent a flat for CZK 18,000 per month. This rental amounts to 12 months x CZK 18,000 = CZK 216,000.
In addition, maintaining the property accrued costs for mortgage insurance, property tax and maintenance. Together, these came to CZK 60,000 total for the year, and you also claimed a personal vehicle at CZK 4,000 per month.
Expenses are thus CZK 4,000 x 12 months added to 60,000 = CZK 108,000. With this amount, you also claim the basic taxpayer discount of 30,840, bringing the total to CZK 77,160.
Now, as this total does not exceed four times the average monthly wage, your income rental tax bracket is 15%. This means you pay 15% on 77,160 = CZK 11,574 apartment rental tax.
What if my expenses exceed my profits?
Expenses on property, equipment, reconstruction & insurance can easily exceed profits, especially with new properties. In fact, often the initial investment and renting out for the first year commonly exceeds lessor’ profits. When this happens, the lessor does not pay any apartment rental tax.
2 - Fixed expenses
The other tax calculation method greatly simplifies reporting by applying a 30% flat-rate tax. Claiming fixed expenses comes with both advantages and disadvantages, however.
For one, you will not need to submit detailed records to the Czech Financial Office every year. This means less recordkeeping and significantly less time on paperwork. On the other hand, there is a chance you will pay several times more in tax.
Under the fixed-expenses tax regime, the amount of tax is 30% of annual profit (maximum of CZK 600,000 per year).
It’s important to note that when claiming fixed expenses, taxpayers cannot apply other discounts (such as a car). Thus, if you have significant real expenses over the year (reconstruction, for example), the flat-rate regime may not be advantageous.
Always consider consultation with a professional tax advisor to find the best tax regime for you.
Fixed expenses calculation example
Take for example a flat that generates CZK 18,000 per month.
That’s 12 months x 18,000 = CZK 216,000. You then pay 30% of this 216,000 profit, which amounts to 64,800 CZK you pay in tax.
It’s also important to note that all income from rental properties is taxed together. This means that lessors must apply the fixed tax to all of their properties. They cannot claim fixed expenses on one apartment, and then claim actual expenses on another.
In addition to this, when taxpayers choose their tax regime, they cannot change it in the future. This is another reason why it’s best to seek professional tax advice to calculate the best tax regime for you.
How to file a Czech tax return
Employees must also state income from dependent activities (employment). This requires employer confirmation of taxable income from the dependent activity, and any withheld tax advances or benefits.
Taxpayers then fill out the rental tax basis (line 39, appendix 2), listing here any rental income and expenses for the year.
Apartment rental tax advice & services
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