Hard surfaces – land or building? As of January 2012, we will know how to assess the tax on them

8. september 2011

From 1 January 2012, the amendment of Act No. 338/1992 Coll., on real estate tax comes into force, which should chiefly eliminate the ambiguities in interpreting the taxation of land with flat structures (i.e. hard surfaces on the land).

To date there were a lot doubts in this area, among other things, for the reason that even the case law concerning "hard areas" was often unclear and contradictory. The taxpayer thus has to make a difficult decision as to whether the given area should be entered on the tax return as a building or as land. In the past, emphasis was placed mainly on whether this is a separate item of property, or if it is only a way of using the land and so cannot be a separate item. The last ruling, which again "rippled the waters around the hard surfaces", placed emphasis on the way in which the given "building" is used and its function, and increased confusion in this area.

The response to the high levels of uncertainty over interpretation is the above-mentioned amendment, which was passed on 21 June this year. This introduces the definition of hard surfaces and stipulates the tax rate for these "buildings". As of January 2012, hard surfaces will have a special status in legislation; they shall not be subject to real estate tax, abut shall be taxed as hard surfaces on the land.

How then does the amended Act stated above define a hard surface? This is a plot of land or part of a plot, which is registered in the Land Register as other areas or built-up areas and courtyards. At the same time, such a plot has a structure, according to the Building Act, namely the hard surface, but no vertical bearing structures.

The tax rates in the case of other plots (Section 6 (2) of the Real Estate Tax Act) are given in the following table:

Type of land / purpose	Tax in CZK /m²
Hard surfaces on the land / entrepreneurial activities – large-scale farming, forestry and water management	1.00
Hard surfaces on the land / entrepreneurial activities – industry, building industry, transport, power engineering, other agricultural production, other entrepreneurial activities	5.00
Building plots	2.00
Other areas	0.20
Built-up areas and courtyards	0.20

In the case of the entrepreneurial entities, the tax burden shall be reduced substantially because as compared with the building rates, the hard surface rates are half.

Because of the fact that hard surfaces are excluded from building tax, it will not be possible to apply the higher tax coefficient of 1.5, which may only be set by the municipality for buildings.

The payers of real estate tax on buildings affected by these problems should submit a real estate tax return by 31 January 2012, in which they take into account the definition of hard surfaces in the Real Estate Tax Act.

We will gladly help you with the preparation and submission of the tax return, and with the question of whether the given structure is flat or not. Our company is involved with this issue in the long-term and is monitoring its development in detail.

Additional information on this topic is available from:

Ing. Jaroslava Hanková

Senior Tax Consultant