OFF-MARKET OPPORTUNITY: STRATEGIC SALE OF A MULTI-UNIT RESIDENTIAL APARTMENT BUILDING IN PRAGUE JUST BEFORE OCCUPANCY PERMIT

Do you own a renovated apartment building in Prague and are considering selling it, but feel unsure about the right tax timing?

In recent weeks, an increasing number of property owners and investors have approached me with questions regarding VAT changes when selling real estate, particularly in connection with the planned legislative amendment that significantly shortens the time test for tax exemption starting from July 2025. In my daily practice as a private real estate specialist in Prague, I address these matters very frequently, because it is precisely the interplay of tax regulations, construction law, and transaction timing that determines the owner's ultimate profit.

I would like to share a specific case study from an off-market offer of an apartment building in Prague's wider city centre. In this case, success relied not only on in-depth market knowledge, but above all on the precise timing of the sale relative to the occupancy permit, which can literally save the seller millions of crowns.

WHO THIS ARTICLE IS FOR

This analysis is intended primarily for owners and investors who:

• own an apartment, residential, or multi-unit rental building in Prague and have carried out extensive structural renovations
• are approaching construction completion and face the decision of exactly when to submit the application for an occupancy permit
• have held the property for more than 5 years and want to legally and safely make use of the VAT exemption
• are planning a strategic sale and seeking a discreet route to vetted buyers without public advertising on real estate portals.

CASE STUDY: APARTMENT BUILDING IN PRAGUE'S WIDER CITY CENTRE

The investor had owned an apartment building in Prague's wider city centre for more than 5 years. They therefore met the baseline time test for VAT exemption on sale under Section 56 of the Czech VAT Act. From a legislative perspective, this was originally considered the transfer of an existing building with no obligation to pay VAT, provided no new taxable event occurred.

However, the owner carried out an extensive, comprehensive refurbishment of the building, which included:

• complete replacement of utilities and all technical installations
• substantial floor plan reconfigurations throughout the entire property
• subdivision of the building into individual residential units
• a significant increase in construction quality and finishing standards.

Construction works reached a stage where the building was just prior to final occupancy approval as a multi-unit residential building, fully prepared for sale to a future owner.

THE CRITICAL TURNING POINT: WHEN TO SELL FOR A VAT-EXEMPT TRANSFER?

At this point, a fundamental strategic question arose: when exactly should the transaction be legally concluded so that the sale remains exempt from VAT liability?

In this scenario, obtaining an occupancy permit is not merely a formal administrative clearance to use the building; it represents a decisive milestone from a tax law perspective. Under Section 56(1) and (2) of the VAT Act, the supply of real estate (a building or unit) within 5 years of its initial occupancy permit or substantial alteration is treated as a taxable transaction.

In practice, this creates two entirely distinct legal regimes:

01SALE BEFORE OCCUPANCY APPROVAL IS COMPLETE

Until the occupancy decision becomes legally effective, the transaction is still treated as the sale of the original building from a tax perspective. Because the original structure was owned by the investor for more than 5 years, the sale is not subject to VAT.

02SALE AFTER OCCUPANCY APPROVAL

As soon as the newly altered units with modified floor plans receive an occupancy permit, it is deemed a substantial alteration of the structure. This administrative act triggers an entirely new 5-year period (or 23 months under the amendment taking effect from July 2025), during which any sale is subject to VAT.

THE IMPACT ON THE INVESTOR AND THE BUYER IN FIGURES

Structuring the timeline correctly delivered substantial financial benefits to both parties:

Impact on the investor (seller):

• By selling just prior to the occupancy permit, the investor saves up to CZK 24 million in VAT.
• The entire timeline must be substantiated with precise contractual documentation, where the execution of the purchase contract must unambiguously precede the legal force of the occupancy decision.
• From the standpoint of the VAT Act, the sale remains completely transparent and legally sound, because the object of the transfer is the original structure without a newly registered occupancy permit.

Impact on the buyer:

• If the buyer acquires the property for long-term holding (residential or commercial leasing), VAT represents a cost that cannot be recovered through an input tax deduction, as they are either not a VAT payer or do not qualify for a full deduction. Purchasing a VAT-exempt property is therefore significantly more cost-effective for them.
• If the buyer is a commercial entity and a registered VAT payer, they may in certain situations prefer a taxable sale with an input tax deduction. In such cases, detailed financial calculations and mutual agreement between the contracting parties are decisive.

"In high-value real estate transactions, success does not depend solely on the asking price, but primarily on precise timing and the deal's tax structure. A difference of just a few weeks around the occupancy permit can save an owner tens of millions of crowns."

Maria Kopřivová

ARE YOU CONSIDERING SELLING YOUR APARTMENT BUILDING IN PRAGUE?

This specific case clearly demonstrates the immense impact that an in-depth understanding of tax regulations and strategic transaction timing can have.

If you own an apartment or residential rental building in Prague and are looking for a discreet, efficient route to sell with maximum focus on tax optimisation, I would be delighted to assist you. I specialise in off-market transactions, connecting owners directly with vetted investors, family offices, and investment funds, completely bypassing public real estate portals and ensuring a secure process from start to finish.

Simply fill out the short form below this article or call me directly. Together, we will review the specifics of your building and design a secure, profitable strategy.