Information on the application of VAT on real estate

24.7.2015

The General Tax Directorate prepared a holiday gift for taxpayers in the form of comprehensive information on the application of VAT on real estate after 1.1.2015. Of this 20 page long document, we would like to point out the following:

 

Residential buildings

The information registered in the land registry plays the major role in the assessment, even if the actual state doesn’t correspond with the registered state. If the property is registered as a family house, even though it is a recreation facility, the information recorded in the land registry is crucial for determining the tax.

 

Floor space for social housing

The information deals, in detail, with the calculation of floor space, which has an impact on the determination of tax rates for each particular type of residential real estate. In addition, it shows on examples, what is not counted into the floor space of the living area for social housing.

 

Functional unit

The land that forms a functional unit with the building is taxed as the building itself. This applies not only for the land located under the building, but also for the land that serves for using the building (neighbouring land with its own plot number with a garage or some other land where there is a utility construction connection, an access road or a garden of a family house is located). The decisive factor is the functionality of the unit. When, from the above mentioned, only a garden will be sold without selling the family house at the same time, then the sale of the garden will not be subject to the same tax regime as the house.

The functional unit may also consist of a land that is not directly adjoining – e.g. a garden across the road, which has an economic relation to the house (wood for heating of the house is stored there or there is a garage for parking of the homeowner’s car).

The taxation or exemption will not depend on whether the property is situated on the plot (as the interpretation of the previous GTD information), but on whether these plots constitute a functional unit with the property with effect from 1.1.2015.

 

Tax exemption of a land with a building

The VAT Act specifies, as one of the conditions for tax exemption on the sale of land, that there is no construction connected to the ground with a solid foundation. The information also allows for the existence of small constructions on the sold land, that don’t prevent the tax exemption. But these must, however, be constructions that are not of decisive importance for the sale of the land (e.g. a bench fixed with concrete, a brick fence, a well, retaining walls against landslide, meadow with electricity connection to be used for mowing with an electric mower).

The delivery of a plot (without a building permit or notification) that has not been built up and the utility construction reaches only to its border is not subject to tax exemption according to the current legislation.




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