Last week, the Municipal Court in Prague ruled that short-term rental via Airbnb platforms falls under accommodation services and should be taxed as a business activity. Yesterday, Hospodářské noviny wrote about the court’s decision. According to HN, the decision can significantly affect the owners of thousands of apartments who provide accommodation in them through the Airbnb and Booking.com platforms.
“This decision could completely dismantle the Airbnb business model,” HN tax advisor and partner of EK Partners Lukáš Eisenwort quoted him as saying.
According to HN, the Prague City Court was dealing with the case of the plaintiff, represented by lawyer Petra Nováková, who last March objected to the fact that the financial administration had assessed her business tax for 2017 and had to file a corrective tax return. This was income from short-term leases of real estate through the Airbnb platform. According to the Municipal Court in Prague, this is not a so-called “discontinuous business activity”, which the applicant considered to be a lease, but a “business activity in accommodation services”, HN wrote.
“It may still end up in the Supreme Administrative Court, the plaintiff may still file a cassation complaint. However, I consider the verdict to be convincing,” said tax adviser Tomáš Hajdušek.
According to HN, the verdict will hit the most those who rent more flats at once. For landlords, this will have a major impact, for example, in the payment of social and health insurance. They are exempt from this in the case of a classic lease. There may also be a change in the payment of VAT for them. Those who rent more real estate in the short term will feel it the most, the paper noted.
According to information from HN, the judgment is also based on the ruling of the Constitutional Court, which says what an apartment is rented and what it is used for and how it differs from accommodation. Accommodation has a major difference from renting that it provides certain services. According to the court, the services also include, for example, the provision of toilet paper, soap, towels or bed linen.
The court’s decision could have the greatest impact on those who rent more housing units in the short term. The biggest negative impact would be that many of them would start to be subject to value added tax. “In the case of leases, the landlord is exempt from VAT. In the case of providing accommodation services, it is already different. If the rental income exceeds one million crowns a year, the accommodation providers will become VAT payers and must pay 15 percent of their income to the state,” Eisenwort advised the daily. Smaller landlords, who provide Airbnb, for example, with one apartment purchased on a mortgage, should not be too affected by the change in classification.
A court ruling could return the Czech Airbnb market to an initial state where people rented their properties when they went on vacation. According to Michal Koutný from the Czech Association of Landlords and Private Landlords, market conditions may also level off, HN wrote.
According to the Czech Statistical Office, 1.16 million foreign tourists stayed in the Czech Republic via the Airbnb platform in 2018. 115,000 Czechs used it on domestic trips. Most people used short-term accommodation in Prague, which is estimated to use around 11,500 flats for these purposes. However, after last year’s covid-19 epidemic, the number of these flats decreased. Platforms such as Airbnb face not only criticism in the Czech Republic for various reasons, the most common arguments of Prague critics are the negative impact on the availability of housing in the metropolis and the fact that permanent residents often complain about the behavior of apartment guests.
Source: Hospodářské noviny and CTK
