I am selling an apartment in Czechia that I bought in 2021 or later. When can I sell it without paying income tax?

You bought an apartment in Brno in 2022 and want to sell it. Czechia may tax the income from the sale because the apartment is located in its territory, and the Czech Income Taxes Act (Act No. 586/1992 Sb.) governs the matter. For properties acquired from 2021 onwards, the rules are stricter than for properties acquired earlier and also differ from Slovak law.

A 10-year period from acquisition

The basic holding-period test is as follows:

The following quotation is reproduced in its original language:

Od daně se osvobozuje […] příjem z prodeje nemovitých věcí nebo z vypořádání spoluvlastnictví k nemovitým věcem neosvobozený podle písmene a), přesáhne-li doba mezi nabytím vlastnického práva k těmto nemovitým věcem a jejich prodejem nebo vypořádáním spoluvlastnictví k nim dobu 10 let […]

§ 4 ods. 1 písm. b) zákona č. 586/1992 Sb.

The 10-year period was introduced by Act No. 386/2020 Sb. for properties acquired on or after 1. 1. 2021. Under its transitional provision, properties acquired earlier remain subject to the previous wording, which required 5 years. The period runs from the acquisition of ownership. When purchasing a property, you become its owner upon registration in the cadastre (Section 1105 of the Czech Civil Code, Act No. 89/2012 Sb.), with effect from the moment the cadastral office received the application (Section 10 of the Czech Cadastral Act, Act No. 256/2013 Sb.).

The exemption does not apply to an apartment that forms part of business assets or did so during the last 10 years before the sale. Nor does it apply to income from a future sale effected within 10 years of acquisition, even if the purchase agreement is signed later (Section 4(1), letter b), points 1 and 2). You should therefore obtain tax advice before signing an agreement to enter into a future purchase agreement before the period expires.

An earlier tax-free sale based on residence or housing needs

Income from the sale of an apartment unit whose non-residential premises are limited to a garage, cellar or storage room is also exempt if you resided there for at least 2 years immediately before the sale (Section 4(1), letter a)). For an apartment held as spouses’ community property, it is sufficient for one spouse to meet the conditions, provided the apartment does not form, and has not formed, part of either spouse’s business assets. Here too, the exemption is unavailable for an apartment forming part of business assets or within 2 years after its removal from those assets, and for a future sale effected within 2 years of acquisition.

If you resided there for a shorter period or the 10-year period has not elapsed, the income is exempt if you use the proceeds to meet your own housing needs. This includes, in particular, purchasing or building an apartment or house, maintaining or altering it, and repaying a loan used to finance it (Section 4b(1) of Act No. 586/1992 Sb.). The money must be used by the end of the tax period following the year in which you received it. You also meet the condition if you spent a corresponding amount before the sale, but no earlier than the preceding tax period (Section 4b(2)). You must notify the tax authority of receipt of the money by the tax return filing deadline (Section 4b(3)). If you fail to meet the condition, the income is taxed in the following tax period (Section 4b(4)).

If you do not meet the exemption conditions

The income from the sale then constitutes other income (Section 10(1)). Tax is charged on the difference between the income and substantiated expenses, particularly the price at which you acquired the apartment and expenditure on capital improvements. If expenses exceed income, the difference is disregarded (Section 10(4) and (5)).

Even exempt income exceeding 5 000 000 Kč must be reported to the tax authority by the tax return filing deadline (Section 38v(1) of Act No. 586/1992 Sb.). This obligation does not apply to income for which the tax authority can obtain information from registers identified on its official notice board (Section 38v(3)). Anyone who fails to notify within the deadline pays a penalty of 0,1 % of the unreported income if they comply without a request from the authority, 10 % if they comply only within an additional period following such a request, and 15 % if they fail to comply even then (Section 38w(1)).

If you are a Slovak tax resident

The Convention between the Slovak Republic and the Czech Republic for the Avoidance of Double Taxation (Notice No. 238/2003 Z. z.) allows Czechia to tax gains from the disposal of immovable property located there (Article 13(1)). Czech law treats this income received by a non-resident as income from Czech sources (Section 22(1), letter d)). Slovakia, as the state of residence, allows its tax to be reduced by the tax paid in Czechia (Article 22(1), letter a) of the Convention). Slovak law has its own exemption conditions, discussed in the question when do I not have to pay tax on a property sale. The outcome may therefore differ between the two countries. Check how both sets of rules apply to your case with a tax adviser.

We take the timing of the sale into account when preparing the reservation and purchase agreements and safeguard the purchase price through escrow held by a lawyer, which we administer under the Czech Legal Profession Act for transfers in Czechia. We do not file your tax return. We recommend checking the tax treatment of the sale with a tax adviser.