What taxes does an individual pay when renting out real estate in the Czech Republic?

Renting out real estate is the most common passive income for individuals in the Czech Republic. However, there is a distinction between renting out real estate and providing accommodation services. Read about the differences between these two situations, including practical examples.

The main advantage of renting out real estate is the regular, stable income that landlords typically receive. However, each landlord should consider whether his case is classic rental income taxed under Section 9 of the tax return, or whether it is already accommodation services that are considered self-employment and, accordingly, taxed under Section 7 of the tax return. The tax regime is different in both cases. Self-employment income situations necessitate additional health and social insurance costs, and the provision of accommodation services requires a business license.

Whether you need help with a specific aspect of tax calculation or want to completely outsource your accounting, seeking professional assistance can save you time, reduce stress, and ensure compliance with tax laws. You can contact us for help in calculating real estate rental tax and all payment obligations, and also completely outsource your accounting to us.

How can you determine the type of income from rental property?

There are two types of income from rental housing: long-term rentals, which cater to the tenant’s housing needs, and short-term rentals, which are typically associated with vacations. Another indicator of the type of income is what other services are associated with the rental property. In the case of rental housing, the landlord usually provides only the necessary services: energy and water supply, garbage collection, radio and television license fees, and so on.

In the case of accommodation services, the landlord often includes additional services, such as cleaning the rental unit, changing bed linens, or providing breakfast or other meals.

Another difference between rentals and accommodation services is who provides routine maintenance and minor repairs to the rental property. In the case of a long-term lease, the tenant does this himself, while in the provision of accommodation services, the landlord himself carries out all maintenance and repair work.

It is therefore clear that the provision of accommodation through online platforms such as Airbnb is an accommodation service, i.e., an individual labor activity. The individual providing such services is required by law to have a license to provide accommodation services.

How do you pay tax on short-term rental of real estate in the Czech Republic if you are self-employed (accommodation services)?

When taxing income from accommodation services in the Czech Republic, the general rules set out in Article 7 of the Income Tax Act apply. The tax base is calculated as income minus expenses, and either the actual expenses incurred to obtain, provide, and maintain income or expenses at a flat rate set as a percentage of income can be applied.

For instance, if a third party handles the cleaning, the cost of furnishing the rented premises, repairs, electricity, water, etc. are examples of actual expenses. Property depreciation, which, in simple terms, represents the distribution of the purchase price over a specified period (usually 30 years), can also be a significant expense. The distribution may be even or unequal, depending on the tax depreciation method chosen by the taxpayer.

One-time living expenses can be 40% or 60%, depending on whether the taxpayer has a business license. If the taxpayer lacks a business license, despite being legally required to obtain one, a flat rate of 40% applies, and if he possesses one, the rate increases to 60%. Although flat-rate expenses are stated as a percentage of income, they are not unlimited. For expenses at a flat rate of 40%, the absolute amount cannot exceed CZK 800,000, and for expenses at a flat rate of 60%, the absolute amount cannot exceed CZK 1,200,000.

Income from self-employment is subject to social and health insurance, i.e., an individual pays for additional social and health insurance from the tax base, the amount of which depends on whether self-employment is the main or secondary type of activity. In addition, an individual entrepreneur is required to maintain accounting or tax records if he claims actual expenses, provided that he must have tax documents for all actual expenses. If he claims expenses at a fixed rate, it is sufficient to keep a record of the income and debts incurred as a result of self-employment.

As of January 1, 2024, an individual receiving income from self-employment is not required to register for income tax, but the obligation to notify the Health Insurance and Welfare Administration of the start of self-employment remains. You must notify the relevant insurance company within eight days of commencing self-employment. The competent social security office must receive this report by the 8th day of the calendar month following the start of the business activity.

By obtaining a license from the trade licensing department using a single registration form, you can fulfill the obligation to report the start of independent labor activity.

What is the Czech Republic’s tax on classic income from long-term rental real estate?

Section 9 of the Income Tax Law governs the taxation of rental income. You should calculate the taxable amount in the same manner as self-employment income: either we apply the actual expenses incurred to obtain, provide for, and maintain the income, or we apply the expenses at a flat rate.

In addition to the aforementioned expenses, actual expenses may also include commissions paid to the real estate agent for brokering the lease, property insurance, property taxes, and interest on the rental property’s mortgage. You can claim depreciation, just like in the case of self-employment. When claiming actual expenses, you must always have a receipt for each individual expense.

Flat rate expenses amount to 30% of rental income, and the maximum flat rate expense is CZK 600,000.

Rental income is not subject to social security or health insurance, and you do not need to have a license to rent out your property.

Obligation to file a tax return

At the end of the tax period, i.e., the calendar year, the taxpayer is required to submit a personal income tax return to the appropriate tax authority. Anyone whose annual taxable income, not subject to withholding tax, exceeds CZK 50,000 or who has tax losses must submit the declaration. A taxpayer with earned income who does not simultaneously work for two employers who would pay advance tax for him is required to file a return if his taxable income following § 7-10 of the Income Tax Act exceeds CZK 20,000. Let’s give examples.

Example 1

Mr. Novak leases the house to Mr. Horak and his family, who are reliable and always pay their rent on time. The monthly rent is CZK 50,000, plus water and utilities. Mr. Novak claims flat rate expenses because he had no expenses in 2023 and cannot depreciate the apartment because he received it as a gift from his parents. In the example, we assume that all of Mr. Novak’s income does not exceed the threshold for taxation at the higher rate of 23% and does not apply tax deductions.

Example 2

Mr. Novak provides accommodation services through the Airbnb online platform and is a licensed accommodation provider. Self-employment is an additional activity related to the main job. His total self-employment income for 2023 is CZK 600,000. Mr. Novak claims flat-rate expenses because he had no expenses related to the apartment in 2023, and he cannot depreciate the apartment because he received it as a gift from his parents.

In the example, we assume that all of Mr. Novak’s income does not exceed the threshold for taxation at the higher rate of 23% and does not apply tax deductions.

In the case of self-employment, the total “tax” burden is CZK 87,240. The tax burden for the same amount of rental income is CZK 63,000.

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