The acquisition of ownership title to real estate subject to a finance lease by its user is, according to the Ordinance on Real Estate Acquisition Tax, exempt from this tax. However, the Ordinance does not define finance leases in any way and, in this regard, the Income Taxes Act is referred to. As the definition had changed over time (namely between 2014 and 2015), it was not fully clear what wording is effective in assessing the exemption.
In a recent ruling, the Supreme Administrative Court has confirmed that the wording of the Income Taxes Act applicable on the date of the transfer of the ownership title to the real estate, ie the date of purchasing the real estate, is effective in assessing the definition of a finance lease. The date of concluding the lease contract has no effect on assessing the tax treatment for the purposes of the real estate acquisition tax, even though the Income Taxes Act makes it possible to refer back to the original wording of the act for the purposes of the tax deductibility of lease payments.
Therefore, if the real estate subject to a finance lease was purchased in 2014, it is possible to apply the exemption provided the conditions stipulated by the then definition of a finance lease are met, ie the owner left the real estate to the user for use in exchange for consideration and, in concluding the contract, it was agreed that following the agreed period, the owner will transfer the title to it to the user, without any restrictions as to the duration of the lease contract or purchase price (the duration is merely decisive in determining the tax deductibility of lease payments for income tax purposes).
Different conditions since 2015
In contrast, since 1 January 2015, the conditions applicable to the definition of a finance lease have been extended in the Income Taxes Act, among others, to include the introduction of minimum duration (ie, at least 30 years for the majority of apartments, building and structures, and 50 years for administrative buildings, large department stores, hotels etc). Therefore, for the purposes of applying an exemption from real estate transfer tax, the purchase of real estate subject to a finance lease implemented after 1 January 2015 will only have to meet the new extended definition of a finance lease, regardless of when the finance lease contract was concluded.
The article is part of dReport – May 2019, Tax news; Grants and investment Incentives.