Impact of Coronavirus on Landlords
Like other taxpayers, landlords are currently exposed to various economic pressures. On one hand, they have to cover the expenses related to their property, but on the other hand they often do not receive rent from tenants who have had to restrict their operations because of the government measures against the coronavirus. What should landlords keep in mind in this situation?
Available Relief
The two liberalization packages approved by the government in connection with the spread of coronavirus provide some tax relief and, in the case of self-employed persons, relief from health and social security payments. This relief can at least partially help landlords to withstand the current difficult situation. We have written about these measures in our previous posts, for example here and here. Landlords can therefore postpone the 2019 income tax until 1 July 2020, they do not have to pay the June income tax advance payment and, if they are self-employed, they do not have to pay social and health insurance advance payments until August.
However, it should be noted that if a landlord who is a natural person does not have any income besides rental income, he/she does not fall into the category of a self-employed individual (sole proprietor) and is considered to be a person without taxable income for the purpose of health insurance. Persons without taxable income are not subject to the relief from the advance payments referred to above and are therefore obliged to pay health insurance of at least CZK 1,971 per month. However, if insurance premiums are paid late for the period from March to the end of August 2020, there will be no penalties on such late payment until 21 September 2020. The relief from late payment penalties only applies to late payment of premiums for the period from March to August 2020 and also applies to health insurance payments that are paid by the employer. No relief in the area of social insurance is currently proposed for employers.
VAT
It should also be reiterated that certain obligations are not (or only marginally) affected by the tax relief. VAT can serve as an example. Taxpayers must discharge their day-to-day tax obligations by filing tax returns in the standard manner. If, as a result of the coronavirus situation, a landlord who is a VAT-payer decides to accommodate tenants and extend the due date for their rent, for example, the landlord must still pay VAT by the statutory deadlines, i.e. mostly according to the payment schedule. Later payment by the tenants does not affect the landlord’s obligation to pay VAT. Also, in the case of a temporary or permanent reduction of rent, landlords should keep in mind that the relief granted to tenants must be adequately reflected in the payment schedule or invoices. These rules must be kept in mind by leasing companies as well. Taxpayers would have to apply for any delays in the payment of VAT or remission of late payment individually, as we explained in greater detail in one of our previous posts.
Long-Term Lease vs. Short-Term Lease
A decline in the short-term rental market goes hand in hand with the significant reduction in tourism. There are reports in the media that landlords are compensating for this situation by offering apartments for long-term lease. In this context, it is necessary to realize the fundamental difference between short- and long-term leases. Short-term rent is generally considered to be accommodation services and income therefrom is taxed as income generated from self-employment operations. Such income is subject to social security and health insurance contributions. In the current situation, this makes it possible to benefit from the postponement of the obligation to pay the respective advances for the months of March to August 2020, while at the same time taking advantage of the reduction in insurance payments as part of the 2020 clearance. In contrast, long-term rental income is taxed as income from rent, which is not subject to social security and health insurance contributions; however, if the landlord – natural person – does not have income other than income from rent he/she is not considered to be a self-employed person and is not eligible for any health insurance relief.
Therefore, in the present situation, landlords who are natural persons should consider their next steps so as to make the most effective use of the relief and other assistance available to them before discontinuing their business of providing accommodation services. This, in general, of course, applies to all taxpayers, as it is becoming increasingly difficult to get oriented in the relief available from the government. We are ready to help everyone with planning their next steps.