As of August this year, Airbnb operators will become subject to more stringent checks and audits by the fiscal authorities. This article takes a closer look at the tax rules applying to those who rent out their apartments through Airbnb.
Home sharing is in ever greater demand. In the Czech Republic, the transaction volume of Airbnb has grown to CZK 2.2bn, with 710,000 people using the service in 2016 alone. Not only in Prague but also in other cities and in the regions, tourism is an important source of revenue. At the same time, services within the sharing economy ought to be governed by clear and equal rules that allow for a reasonable degree of regulation.
At the beginning of August 2018, the revenue service went official with the fact that it avails of the data which allows it to identify those who rent out their homes through Airbnb and to review their reported income as per their tax returns. Where differences are found, these "landlords" will be served calls for the back payment of taxes plus interest.
As early as last year, the Czech revenue services made it clear that it considers the kind of short-term rental offered through Airbnb to constitute lodging / accommodation services (as opposed to lease relationships). This has fundamental impact on the way in which these services will be assessed from the point of view of taxation.
Specifically, the revenue from these activities is subject to personal income tax pursuant to Sec. 7 of the Income Tax Act, given that it qualifies as income from operations as a self-employed person. This fact gives rise to an obligation for entrepreneurs (under Sec. 39 of the Income Tax Act) to register for this tax with the finance office within 15 days from the day on which they begin to draw an income from accommodation services. They also must file an annual tax return within the statutory deadlines.
VAT – Services rendered
The provision of accommodation services to guests for consideration by a tax subject (entrepreneur) on a commercial basis with a domestic address as the place of performance qualifies as taxable services and supplies. Entrepreneurs (unless they are already VAT payers) must monitor their transaction volume: as soon as their revenues exceed CZK 1,000,000 over a period of 12 consecutive months, they must register for VAT (within 15 days from the end of the month in which the threshold was exceeded).
VAT - Services purchased
Given that the homesharing entrepreneur is also the recipient of services which they purchase from the intermediary (in this case, the web service of Airbnb) – and for which they pay, in the form of a service fee for use of the online platform – and given that Airbnb is not domiciled in the Czech Republic, the entrepreneur must moreover report VAT also on services purchased.
Unless they are already a VAT payer, they become what is known as an "identified person" who must, pursuant to Sec. 6h of the Czech VAT Act (Act No. 235/2004 Coll.), register with the finance office, file tax returns, and declare tax on the services received (i.e., the service fee).
Rules and regulations
Prague, the capital city of the Czech Republic, but also other larger cities in the country have been calling for the creation of a set of rules and regulations governing accommodation services which are provided through internet platforms. The main argument is that the intermediaries who broker these short-term stays for tourists have so far been unable to successfully resolve the associated negative externalities by themselves, and don't take responsibility for the problems which naturally arise in connection with this type of accommodation - from disturbing the peace of neighbors to the failure to pay local visitor's taxes, to the evasion of tax duties associated with this type of business.
One regulation is already on its way and, if passed, will have consequences for Airbnb landlords: an amendment to the Act on Visitors' Fees proposed by the finance ministry which raises the fee per person and night from CZK 15 to CZK 21 and later (after 2020) to CZK 50.
Another proposal as to how to regulate this type of accommodation services that is currently being discussed is to limit the right to rent out one's dwelling to a certain number of days each year. In this regard, Prague is taking a page from the playbook of metropolises abroad: London already has such a limit (of 90 days per year). A similar limit in Berlin and Amsterdam is somewhat stricter – 60 days. The idea is that apartments will then not be rented out throughout the entire year, and thus don't interfere with the prices for long-term leases.
Another regulatory idea that has been floated in the Czech Republic and is being hotly debated also takes its inspiration from Berlin, where a blanket prohibition on the rental of entire apartments is in place (and is being enforced by stiff penalties).
One could certainly conceive of a number of further regulatory measures, though their impact is contentious to say the least. As far as we know, there exists as of yet no comprehensive database in the Czech Republic that would allow for a correct assessment of all economic aspects of this sector, and if history has taught us anything it is this: heavy-handed regulatory measures in the economy usually produce effects opposite to those intended.
General Financial Directorate - Memorandum No. 90076/17/7100-20116-050701 on the revenue service's understanding of the obligations associated with the provision of short-term accommodation (Airbnb)
Ministry for Regional Development, Foreign Relations department: On the regulation of Airbnb – experiences and options, August 2017