The  coordinating committee of the Chamber of tax advisers of the Czech Republic and the General financial directorate has clarified the VAT treatment of planning contracts under the new Czech Building Act.

A public-law contract is not automatically outside the scope of VAT

According to the General Financial Directorate, municipalities, municipal districts and regions generally do not act in their capacity as public authorities when performing their obligations under a planning contract. The mere classification of a planning contract as a public-law contract is therefore not sufficient to exclude it from the scope of VAT.

The decisive factor is whether there is a direct link between the municipality’s performance and the consideration paid by the investor. That is, whether the payment constitutes genuine consideration for a specific service. Each contract must therefore be assessed individually based on its actual substance.

The General Financial Directorate also rejected any distinction between consideration paid for steps aimed at amending spatial planning documentation and consideration paid for the municipality’s other obligations. Where a service is supplied for consideration, both types of performance may be subject to VAT.

When VAT becomes chargeable

The tax point depends on whether the arrangement involves:

• a single supply or
• a genuinely continuous or recurring supply.

The mere fact that the price is divided into several instalments does not in itself mean that the arrangement constitutes a series of partial supplies. The contract should therefore clearly specify the scope of the obligations, when they are deemed to have been fulfilled and the periods to which the individual payments relate.

Input VAT deduction by the investor

The investor may deduct input VAT only to the extent that the supply received is used for the purposes of its economic activity. The right to deduct VAT is therefore not automatic and may vary depending on the nature of the municipality’s specific obligations.

Recommendation: Municipalities and investors should review both existing and proposed planning contracts, focusing in particular on the structure of the consideration, invoicing arrangements, the tax point and entitlement to input VAT deduction. The harmonised approach applies from the date on which the minutes of the Coordinating Committee meeting were published, irrespective of the date on which the relevant contract was concluded.

Are you dealing with VAT implications of a planning contract or do you need to review its tax treatment? Please do not hesitate to contact us. We will be pleased to assist you.

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