Among the documents for discussion at a sitting in the Chamber of Deputies is currently document no. 206 which contains planned suggested amendments, besides else to the area of value added tax. In this article we present some of the changes.

Since the planned amendment is quite extensive, we have prepared a series of three articles. This one will tell you about the discussed changes to taxation of lease purchase taxation, remuneration of executive directors, and renting of immovable property. The next articles will focus on changes to the area of vouchers, summarizing invoices, corrections of the tax base, bad debt, repairs of immovable property, or the place of the chargeable event in cases of so called electronic services.

It is not yet clear, when the amendment will enter into force. Its effect shall be changed from 1 January 2019 by an amendment to the first day of the calendar month following after the day of the changes’ publication in the Collection of Laws. No specific date is known at this point.

Delivery of goods - lease purchase

With respect to the judicature of the Court of Justice of the European Union, there is a plan to amend the part relating to lease purchases.  Newly after the amendment takes force, lease purchases would be considered delivery and transfer of goods to be used on the basis of a contract, if there is such contract and on the day of its signing it is clear that the right of ownership will be transferred onto the user of the goods.  The original provision contained a condition that the goods must be transferred. Newly, the definition will include such deliveries for which the contract does not directly state that it will be transferred, but the future transfer of goods is obvious from the contract. The amended provision will concern for example situations where the contractual relationship of two business partners presents an option for a purchase and where from the very beginning of the relationship it is obvious that the purchase will happen - for example when the purchasing price is at its minimum value in relation to the renting price for a time period of use. 

Is the executive director subject to taxation?

Based on the current version of the law, executive directors of limited liability companies are not considered to be subject to taxation. Remuneration for the role of executive director is taxed as income from employment which has an influence on the access of VAT.

The proposed amendment could lead to the income of executive directors becoming subject to value added tax. This is how legislators are reacting to the judicature of the Supreme Administrative Court which - in a specific case - ruled, that the executive director is subject to tax and his or her activity conducted as a performance of their position is economic activity.  Thus, upon surpassing the turnover decisive for origination of taxability their remuneration for the activity conducted for the company should be subject to this tax. 

We recommend increased attention when it comes to this change and its reading, because a situation could arise that once the amendment comes into force, the immediate remuneration should either be subject to VAT, or be counted towards the turnover decisive for taxability. It would definitely be good to find out, whether the potential adoption of this amendment would call for changes of the contract, which governs remuneration for this positions, with regards to the question whether this change includes value added tax. In this respect, it is advisable to prevent any misunderstandings regarding the amount of remuneration for the executive director.

From the point of view of income tax of natural persons, the executive director will be viewed in the same way as before. Income of the executive director shall continue to be taxable according to Section 6 of the Act on income tax, in other words as income from employment.

Renting of immovable property

Several changes are proposed to renting of immovable property. These concern the definition of immovable property, the date of the chargeable event for services directly relating to renting, or exemption from tax.

Broadening the definition of immovable property

According to the Value Added Tax Act, renting means not only rental, lease, sublease, tenure, and tenancy and according to the amendment it should also include lien, duration, or termination of the material burden of the immovable property, in cases where the characteristics of renting of immovable property are observed.

Date of the chargeable event: services directly relating to renting

This provision will concern situations in which the immovable property is being rented together with other services included in the contract such as: cleaning, receptionists, or security.

The current legislation sees the date of the chargeable event relating to these services to be the date of the actual payment, or the date of the issuance of the invoice. The new amendment suggests, that the date of the chargeable event be the day when the real price for these services was ascertained and in relation to renting accepted. However, this new provision will not be applicable to payments for which the chargeable event is decided by readings of meters, or by the day when actual and real consumption is ascertained. Thus, in cases of water and heat supply and similar payments there will be no change.

Taxation / exemption from tax of renting of immovable property

Right now, renting of immovable property is exempt from value added tax, without deductibility. This exemption has one exception: if the renting is happening between taxpayers and the rented property is used for purposes of economic activity of the lessee, the taxpayer can decide that the renting should be subject to VAT.

With this amendment coming into force in 2021 this exception shall be limited. The exemption with deductibility will have to be applied always (regardless of the above said) in cases of renting of:

1. a family home,
2. accommodation,
3. a unit which does not include non-residential spaces other than garage, basement, or a storeroom.
4. buildings in which at least 60% of floor space of the building or its part (if the part is rented) is residential,
5. a plot, part of which is a family home, residential space, or a building according to d), with which this plot is rented,
6. rights of a building, part of which is a family home or a building according to d), witch which the right is rented.

Conclusion

In the second article on this topic we will present some proposed changes to the area of value added tax such as: planned changes to the taxation of vouchers or summarizing invoices,  The aim of this article is not to state all the changes in their entirety.  The changes to the area of value added tax which are currently under consideration are quite complicated and cannot be fully presented within one article. Therefore, should you have any follow-up questions about these topics and their practical applications, do not hesitate to contact us.