DPH u prodeje (ne)stavebních pozemků

VAT on the sale of (non-)building land

The Supreme Administrative Court, in its recent judgment No. 4 Afs 64/2023-44 (HERE), considered the tax exemption for the supply of undeveloped land.

The taxpayer claimed VAT exemption on the sale of land because he did not consider the land to be construction land. In particular, he argued that there was no (i) subjective intention to construct a specific building on the land and (ii) necessary administrative action.

The SAC held that the existence of a subjective intention to construct a specific (clearly specified) building on the land is not decisive for the application of VAT exemption. On the contrary, it confirmed that the Regional Court had correctly defined two conditions which, if met, would qualify the land as a building land that is subject to VAT:

1. A building is to be constructed on the land in question which is firmly connected to the ground. The judgment, referring to the case law of the CJEU, concludes that the intention of the parties to the contract is central. However, relatively general evidence, in particular the expert valuation of the land (in conjunction with the final sale price) and the fact that the purchasers claimed a VAT deduction, was sufficient for the courts to satisfy this condition. The courts also supported their conclusion by reference to the fact that the taxpayer had requested planning information on the buildability of the land before the sale.
2. The land in question was subject to building works or administrative acts for the purpose of constructing such a building. The Supreme Administrative Court confirmed that the administrative act was the zoning plan itself (which was not disputed by the taxpayer).

In practice, when selling land, we often encounter borderline cases where the conditions for (non-)application of VAT are not entirely clear. In addition to the question of the actual usability of specific plots of land for future construction, there may be problematic issues such as existing buildings or their contemplated demolition, or the extent of the so-called functional unit used for the operation of a specific building.

Incorrect exemption poses a significant risk to the seller, while incorrect application of VAT deduction poses a risk to the buyer. We therefore recommend that you pay close attention not only to the proper documentation of the land being transferred and its condition, but also to other measures that can minimise these risks.

As we have already informed you (HERE), the forthcoming amendment to the VAT Act from 2025 should amend the rules for VAT exemption of land supply, however, the current version does not eliminate the above mentioned areas of dispute.  

We will be happy to discuss specific situations with you. If you have any questions, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

David Kužela

Lenka Doležalová