Blog

Do you know the difference between accommodation services and lease from the VAT perspective? If not, please pay attention to this article that brings selected information about tax consideration of the services from the VAT perspective.

Accommodation Services Versus Lease

Correct consideration of what service you provide has significant VAT implications. Extreme situations may exist in the real life where it can be rather complicated to distinguish accommodation from a lease. For this reason, an unambiguous specification should be based on a legal consideration in such cases.

Nobody is likely to be surprised by the fact that provision of hotel or boarding house accommodation is an accommodation service. However, accommodation provided through platforms such as Airbnb is also an accommodation service (refer for example to Judgment No. Af 20/2020-28 of the Municipal Court in Prague). We have already addressed this topic in one of our previous articles.

The CJEU have previously also commented on the difference between accommodation services and lease, and defined lease as a rather passive activity depending only on the passage of time without generating any substantial added value; refer for example to Judgment No. C-326/99. According to the CJEU, lease involves a transfer of the right to use a property as if the tenant were the owner. All attributes and circumstances of the particular supply have to always be taken into account.

Accommodation Services V. Long-term Lease from the VAT Perspective

While long-term lease of an immovable asset (taking more than consecutive 48 hours) is a supply exempt from VAT (without an entitlement to a tax deduction), and provision of an accommodation service (under the production classification CZ-CPA 55) is subject to VAT. We also draw attention to the fact that a short-term lease (less than 48 hours) is also a supply subject to VAT.

If you are not a VAT payer, you will not become one as a result of providing a long-term lease under law (unless you report other supplies). An exemption from the mandatory VAT registration applies to taxable persons who only perform VAT-exempt supplies without an entitlement to a tax deduction (such supplies are included in their turnover, but those persons are not obliged to register for the VAT purposes).

If you are not a VAT payer, the above-mentioned exemption from the VAT registration does not apply to you in relation to the provision of accommodation services. Once your turnover exceeds CZK 2,000,000, you are obliged to file a registration application, and you become a VAT payer from the first date of the second month following the month when the turnover threshold was exceeded.

Pay Attention to Services Received from Abroad

When you are not a VAT payer and you receive a service from a foreign company acting as an accommodation agent (such as Booking), you become an “identified person” and, as a result, you are obliged to locally report tax. However, you are not entitled to a tax deduction.

Information of the General Financial Directorate

In early March, the General Financial Directorate issued an Update on tax consideration of obligations of accommodation service providers. The Update’s text is available here.

In addition to VAT implications, the Update also contains information about implications for individual income tax and property tax.

If you need more information about this topic, please feel free to contact us. We will be happy to provide a consultation of your specific situation.

Michaela Kozminská                                       Tomáš Brůček 
kozminska@edmutilitas.cz                              brucek@edmutilitas.cz