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Latest twist in the VAT on Czech new builds saga

The Czech VAT on new build saga continues with a new twist.

There's now a new move t leave the rate at its current 5% for another year.

First, a quick re-cap: the Czech authorities are under EU pressure to move the VAT rate on new builds to the country's higher rate of 19%. But the Czech Republic has asked for an stay of execution as it were - before it implements the rise.

For this to happen, the EU must grant what's known as a derogation. It still hasn't done so - and if it fails to do so before January 1, 2008, it's likely the status quo will remain for another year and Czech VAT on new builds will stay at 5%.

For more details on what this may mean, see our blog
For more details on the current state of play, see this forum post

If the EU does grant the derogation before the end of the year, however, the Czech government will put the VAT rate up to 9% on all new builds from the start of next year.

The new twist is that the Czech opposition, the Social Democrats (CSSD), are pressing for the 5% rate to remain whatever the EU decision.

The party has submitted the proposal to the Chamber of Deputies in the form of an amended VAT law.

The CSSD believes the price of many goods affected by the rise to 9% (and food and medicines are included as well as housing) will hit people on lower incomes groups.

However, the Prague Daily Monitor reports Civic Democrats (ODS) tax expert Michal Doktor as saying that the CSSD proposal runs against the practice of all advanced European countries where both VAT rates are getting closer to each other.

The Social Democrats want the Chamber to consider the proposal fast and get it approved at the first reading. This course of action can be vetoed if at least two deputies clubs or fifty deputies are against it.

The proposal, if approved, would come into force as of Jan 1, 2008.

So, now we have the following possibilities:

1 The EU grants the higher VAT exemption before the January 1, 2008 deadline and the Czech government puts up its VAT rate to 9% (still lower than its maximum 19%), probably until 2010 when it will have to impose the higher rate.
2 The EU fails to make a decision on the exemption in time for the January 1 deadline and the Czech government leaves the current 5% rate as it is for another year.
3 The EU grants the higher VAT exemption before the January 1, 2008 deadline and the Czech government adopts the Social Democrats proposal, drops the rise to 9% and leaves the rate at 5% for all new properties.

What's the likely outcome?

At this stage, it's pretty much impossible to make a call.

We'll keep the situation monitored.

POSTED BY ROBIN BOWMAN ON FRI 26TH OCTOBER AT 10:40 GMT

TAGS: czech vat Property, Czech Property Tax, Czech Property