Hello,

I am buying some units in Prague, which are supposed to be finished at the end of 2010. They are below 120 m2 (so they are in category named "social" apartments, for which current VAT rate is 9%).

In Czech Republic Market profile PDF I saw information that starting 2010 there will be another VAT increase related to ALL (that means also 'social') apartments in Czech Republic, from current 9 % to 19 %.

I tried to google to confirm this information but I have not found anything like that.
I also spoke with several brokers in Czech Republic and they said no such increase is planned for 2010.

PS, could you please check and correct if there was a mistake in your report?

Cheers,
Marek

It is not possible to say whether or not there will be a VAT increase in 2010 at the moment and nor will it probably be until around Q4 2009 I suspect, as this was the case with the last VAT increase. However, I believe it is true to say that the Czech Republic will need to get EU consent to extend the exclusion of social housing from the higher rate of VAT beyond 2009. But to say that the 'VAT will rise in 2010' I would say is speculating, but there does seem to be a lot of market sentiment behind this.

I have taken this on board and bought an apartment with Q3 completion to hopefully avoid this problem and I would say I'd need to be getting a pretty good deal to consider a 2010 completion.

Thanks Andy for the response, this is very appreciated!

Guys, any other thoughts/info regarding this issue?

There are two things that need to be clarified regarding the VAT issue:

1. The reduced rate will apply until 31 December 2010

Here’s what the European Commission directive states:
‘The Czech Republic may, from 1 January 2008 until 31 December 2010, continue to
apply a reduced rate of not less than 5 % to the supply of construction work for
residential housing not provided as part of a social policy, excluding building
materials.'

2. The EU will have to approve the further extension of a lower rate, but the decision hasn’t been made yet.

The latest info form the EC says that the EC will review the existing legislation on reduced VAT rate this year.

We apologise for any confusion caused by the market profile. We will change it accordingly.

Anna

Anna, are you saying that the information contained in the Czech profile (Feb 2008) regarding the VAT situation is wrong:

'We expect to see another surge in the market when developers try to beat the deadline for the next VAT increase on January 1, 2010, when the 9% rate raises to 19%'

If what you are saying is this case PS should update the profile again for this significant error.

It would be better to assume that the rate 'will' increase in 2010 than not, and build it into your cashflow forecasts if youre buying a CZ property.
The previous VAT rate rise 'might' not have happened, but it did, and at the exact time everybody predicted it would.

I agree, but when in 2010 makes a big difference.

Is it likely to be Jan 2010 as the market profile suggests, or Dec 2010 as Anna's last post suggests.

Hi Anna,

thank you for the responce. Just to clarify in more details what I need to know:

- In 2007, there were 2 valid VAT rates in Czech Republic (CR) :

reduced VAT rate : 5% (all flats were there)
full VAT rate : 19% (other goods were there)

EU commision indeed extended exception at the end of 2007, so CR could continue to use this reduced VAT rate (5%) from January 2008 to December 2010 for all new flats.

But as far as I know (but I am not sure, I was just told), CR decided not to accept this extension.

Instead, CR decided to do following, effective from January 2008
1. To increase reduced VAT rate from 5% to 9% (full VAT rate remains at 19%)
and
2. To define so called "social housing" where all apartments less then 120 m2 belongs.

3. Then, effective January 2008, new rule was introduced, that all flats less then 120 m2 ("social housing") will continue to have only 9% rate (reduced rate) and all flats more then 120m2 (normal flats) have already 19% rate.

Basically why I started this tread is to understand, if there is an already approved date when "social housing" flats will also have 19% VAT, or is it maybe that those exceptions/extensions will have no affect at all on "social housing" flats and they will remain in lower VAT rate for another years to come?

Cheers,
Marek

Hi Marek,

Currently, we only know that the Czech government is allowed to apply the reduced VAT rate in construction sector only for social housing (apartments up to 120 sqm and family homes up to 350 sqm) and only until 31 December 2010.

Further extension of a lower rate has to be approved by the EU, which means that if the EU will not give the prolongation, the Czech government have to increase the rate to 19%.

Anna

Thank you Anna,

now it is much more clear to me, your answer is very appreciated!

Cheers,
Marek