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We informed you about a planned comprehensive amendment to the VAT Act, which is expected to come into force on 1 January 2025, in one of our previous articles (here). Today’s article explores changes in the building industry to a greater detail.

We also want to point out that an updated text of the amendment was published. Compared to the original wording, several modifications were made, for example in relation to the building industry. Effect of some of the changes in this area has been moved to 1 July 2025.

Fixed Assets Developed Internally

The existing wording of the VAT Act contains the concept of so-called “fixed assets developed internally”, which are defined as fixed assets produced, built or otherwise created by the taxpayer within their economic activities; technical improvements are recognised as separate fixed assets developed internally.

If the taxpayer uses such assets for supplies eligible for deduction to a partial extent, the taxpayer is obliged to carry out so-called “self-delivery” in the taxation period when those assets are brought into a condition fit for use. In that taxation period, the taxpayer pays VAT on the relevant level of the tax base and, at the same time, they claim deduction at a partial level. The taxpayer is authorised to claim tax deduction at full from taxable supplies received prior to the assets’ being brought into a condition fit for use.

The above is a short summary of the way the concept worked so far. The proposed amendment is deleting this concept. The taxpayer will newly reduce the entitlement to tax deduction as soon as at the moment of applying it. Where assets are being acquired over a longer period of time, the taxpayer will be required to make the coefficient (proportionate/ reducing) up to the coefficient effective in the year when the assets are brought into a condition fit for use.

Exemption of an Immovable Item’s Supply from VAT

Under the current wording of the VAT Act, supply of a selected immovable item is VAT exempt after the expiry of five years from the issue of the first occupancy permit decision or an occupancy permit decision after a substantial change in the immovable item (among others). The amendment cancels the five-year time test. Under the originally proposed amendment, only the first supply of a completed selected immovable item performed by the end of the second year after the completion, or after a substantial change, as the case may be, was taxed. Under the newly published text in Section 56, only the first supply of a completed selected immovable item performed by the end of the 23rd calendar month immediately following the calendar month, in which the selected immovable item is considered completed (or after a substantial change had been made, as the case may be), will be subject to tax.

The substantial change in a structure that triggers the new time test is now defined by the Information of the General Financial Directorate. This Information, among others, defines the substantial change as a construction modification, which requires an occupancy permit or notification and, in addition to this, the financial value thereof exceeds 50% of the identified price or reference value determined prior to performing the construction modifications. From 2025, the substantial change will be defined directly in the VAT Act as a change in a completed selected immovable item, the purpose of which is to change the use or occupancy conditions provided that the immovable item’s price will be increased by more than 30 % from the price before the construction work’s commencement (among others).

Additional Changes in the Amendment

The amendment to the VAT Act will bring along changes in definitions of structures for housing purposes and for social housing purposes. The existing wording of the VAT Act refers to the Construction Act in defining the above-mentioned structures. The law was supposed to refer to details held in the Real Estate Register effective from 2025. The newly proposed text refers to the Territorial Identification Register.

The amended VAT Act will contain a separate provision defining conditions for VAT exemption in supplying land. In this context, the definition of a building lot will change for the VAT purposes. The building plot will newly be a piece of land, on which a construction firmly fixed to the ground can be erected on the basis of regional planning documentation issued by a municipality, demarcation of a built-up area or a building authority’s permission. The building plot will be, among others, newly defined with reference to the regional planning documentation issued by a municipality.

The provision defining the entitlement to VAT deduction upon registration will also change. Under the current VAT Act, tax deduction can be exercised from received taxable supplies that became part of fixed assets five years before the taxable person became the taxpayer. The law requires, in addition to the taxpayer being obliged to register such assets as part of business property as of the date when they became the taxpayer, that fixed assets be brought into a condition fir for use within 12 months prior to the date when the relevant party becomes a taxpayer. It will newly be possible to also apply for tax deduction in case that fixed assets are brought into a condition fit for use only after the taxable person becomes a VAT payer.

The above is a non-exhaustive summary of primary information. We are monitoring the legislative process and will keep you posted about any progress. If you have any questions regarding the above-provided summary or want to receive more information, please feel free to contact us. We will be happy to help you.

Michaela Kozminská
kozminska@clarksonhyde.cz