In both Slovakia and the Czech Republic, the sale of a building is exempt from VAT once more than five years have passed from its first use or occupancy permit; within that period the sale is taxed. Leasing is generally exempt, but a taxable person can often opt to tax a sale or lease to another taxable person. The rules share an EU core but differ in national detail.
When is a sale of real estate exempt from VAT?
Both countries implement the EU VAT Directive, so the logic is similar: newly built property is taxed, older property is exempt, and the dividing line is a time test. In Slovakia the rule sits in Section 38 of the VAT Act; in the Czech Republic in Sections 56 and 56a.
The supply of a building is exempt once the time test has elapsed. In practice the exemption matters between VAT payers, since a non-taxable seller does not deal with VAT at all. For the cross-border invoicing questions that often accompany property and related services, see our guide on how to invoice abroad from a VAT perspective.
How does the time test work?
In Slovakia, the supply of a building is exempt if more than five years have passed from its first occupancy permit (first kolaudácia); within five years the sale is taxed. In the Czech Republic, the five-year period runs from the first occupancy permit or the start of first use, with a shorter three-year test for property acquired up to the end of 2012.
Example: a hall first approved for use in 2019 and sold in 2026 is exempt in both countries, because more than five years have passed. Sold in 2022, it would have been a new building within five years and the sale would have been taxed. A major reconstruction can trigger a new approval that restarts the clock, so it must be checked.
How is the sale of land treated?
In both countries, the supply of a building plot is taxed, while the supply of other land that is not a building plot (for example agricultural land) is exempt. What counts as a building plot is assessed mainly by whether the land is designated for construction under zoning or a permit.
Where a plot is sold together with a building, the land under the building is generally assessed with it. Because classification drives the whole outcome, borderline plots deserve careful review before the deal is signed.
What is the option to tax and when does it pay off?
When a supply is exempt after the time test, a taxable person can choose to tax it instead, typically where the buyer is another VAT payer. The advantage is avoiding a costly adjustment, or clawback, of VAT previously deducted on the acquisition or improvement of the property.
In both countries, if the buyer is a taxable person, such an opted-to-tax supply falls under the reverse-charge regime – Slovakia applies it under Section 69, the Czech Republic under Section 92d. The buyer self-assesses the VAT and usually deducts it at the same time. The option therefore pays off mainly where an exemption would otherwise force an expensive input-VAT adjustment.
Is leasing real estate exempt from VAT?
Yes. In both countries the lease of real estate is generally exempt without the right to deduct input VAT. Certain supplies are always taxed, however, including:
- accommodation services and short-term letting,
- letting of parking spaces for vehicles,
- letting of permanently installed machinery and equipment,
- letting of safe-deposit boxes.
For a plain lease of flats, offices or halls, the supply is normally exempt, which also means the landlord cannot deduct input VAT relating to that property. Corrective and proforma invoicing often arises in lease relationships; our overview of proforma, final and corrective invoices explains the mechanics.
When can a lease be taxed by choice?
A taxable person leasing to another taxable person for the purposes of that person’s economic activity can choose to tax the lease, which unlocks input-VAT deduction – for example on the construction or renovation of the leased building.
There is a key limit in both countries: a lease of residential property – flats, family houses and apartments used for housing – cannot be taxed by choice and stays exempt. For commercial space the option is common and often advantageous where the tenant is a VAT payer entitled to deduct.
What to watch out for with input VAT
An exempt sale or lease generally means no right to deduct input VAT on that property. If you deducted VAT on acquiring or improving the property and later sell or lease it as exempt, you may have to adjust the deducted tax.
For capital assets, deducted VAT is monitored over several years and the adjustment can be significant. Choosing between exemption and the option to tax is therefore a strategic decision in both countries – worth calculating both ways, taking the other party’s status into account, before you sign.
Selling or leasing a property and unsure whether to apply the exemption or opt to tax? We will calculate both options and propose the most tax-efficient solution for Slovakia or the Czech Republic.
FAQ
From what date does the time test run?
In Slovakia it runs from the building’s first occupancy permit; in the Czech Republic from the first occupancy permit or the start of first use, with a three-year test for property acquired up to the end of 2012. If more than the test period has passed, the sale is exempt; within it, the sale is taxed. A major reconstruction may restart the clock.
Can I opt to tax the lease of a flat?
No. In both countries a lease of residential property – flats, family houses and apartments used for housing – cannot be taxed by choice and remains exempt. The option to tax applies only to other, mainly commercial, property leased to a tenant who is a VAT payer using it for economic activity.
Why would I tax a property sale that could be exempt?
The usual reason is protecting previously deducted input VAT. An exempt sale can trigger an obligation to repay part of the VAT deducted on acquiring or improving the property. Opting to tax a sale to a VAT-payer buyer avoids that adjustment, and the supply then typically falls under the reverse-charge regime.