As a follow-up to our previous entry, we hereby introduce the most important changes regarding real-estate law in October-December 2018.
Increase of VAT regarding newly built flats
During the year 2015, the number of people who bought flats has increased substantially. In order to help the sale-and-purchase of newly built flats, the Government has decided to decrease the applicable VAT for these flats from 27% to 5%. The lower VAT was in effect for a definite term between 2016 and 2019.
In practice this means that for flats that were built or sold after 31st December 2015, but before 31st December 2019 and their price has also been fully paid, the lower VAT of 5% applies. On the other hand, any flats transferred or built after 1st January 2020 will be subject to VAT 27%.
According to the VAT Act, a flat is considered to be newly built if: The flat is one of a multi-flat edifice in which the actual (usable) floor area of any flats does not exceed 150 m2, or any single-flat edifice (i.e.: detached house) the actual floor area of which does not exceed 300 m2 and
§ the property has not yet been brought into use,
§ the property has been brought into use, but the issuance of the administrative authorization or the certificate and the sale-and-purchase are less than two years apart.
According to the above it is apparent that the VAT Act subjects the newly built state of an edifice to the date of first usage.
It is also a crucial matter whether the parties have agreed upon a net- or gross amount in the sale-and-purchase contract.
§ The amount agreed upon shall be considered net amount if the „+ VAT” is present after the indication of the amount. In this case the full amount agreed upon shall be transferred to the seller, and the increased VAT shall be paid for by the buyer. This arrangement is preferable by the seller.
§ In the event that the parties have agreed on a gross amount, the price of the edifice is a fixed amount, the VAT of which shall be calculated „from top to bottom”. As a result of this, the seller loses some of the purchase price and is only able to register a lower amount as profit. This arrangement is preferable by the buyer.
The amendment of the VAT Act does not specify any transitional provisions for the higher VAT applicable from 1stJanuary 2020, thus the provisions of s1 of Art 84 are applicable: „For calculating the amount of tax to be paid, the tax rate of the time of performance shall be applicable.” As mentioned above, this means that for any flats built or sold after the 1st January 2020, the VAT 27% shall be paid to the state as VAT.
According to s1 of Art 59 of the VAT Act: „In the event of the sales of products or services, if prior to the performance any benefits offsetting the remuneration (hereinafter: advance payment) are provided, the due tax shall be calculated: at the time of credit provision or receipt in case of cash or non-cash means of payment, or at the time of acquisition in any other cases.” This, together with ss(b) s2 Art 84 means, that the tax rate of the time of the advance payment shall be applied. If for example the down payment is payed before the deadline, it shall be accounted with the lower (5%) VAT.
The expected effect of the changes on the market
Experts in real-estate expect that the passing of the lower VAT will slow down the rate of building new edifices and the renewal of older ones. Because of the increasing real-estate prices, the peaking of the sales of flats is expected at the end of 2019, and a decrease is expected from 2020. The return of the higher (27%) VAT shall have an effect on both supply and demand.