In its decision, the Municipal Court stated that short-term rentals do not represent a relationship between the accommodation provider and the interested party the purpose of which is ensuring accommodation needs “in the whole complex of meeting human needs both at their material and mental level”, but the mere satisfaction of accommodation needs and thus this relationship is not equivalent to rental by its nature, but to the provision of accommodation services.
The court´s conclusion is based primarily on a constant nature of the activity undertaken for the purpose of profit generation, short-term nature of the rentals, basic requirements of the platforms like Airbnb for the accommodation providers consisting of the provision of “services” expected by the guests (e.g. providing toilet paper, soap, towel, bed linens for each bed, etc.) as well as regular cleaning guaranteed by the landlord. The Municipal Court also stated that the potential absence of these additional services itself does not have to be the decisive aspect and even the so-called “bare rental” can also be regarded as the provision of accommodation services in the case of a short-term rental.
Tax impacts of the decision
Regarding the income tax, the impact of the decision should be relatively limited as the change in the tax approach should not have an effect on the deductibility of demonstrably incurred expenses related to this income. In case that the landlord claims lump sum expenses, the classification of income as an income from self-employment activity may be under certain circumstances even more favourable as it allows to claim a lump sum up to 40% (or even up to 60% in the case of a proper trade licence) compared to 30% that can be applied in the case of rental income.
Contrary to rental income, business income was subject to solidary tax until the end of 2020, and thus it may be expected that reverse reassessment of income for the period before 2021 can lead to an additional tax assessment for taxpayers with higher income.
However, potential arrears can be expected in the case of social security and health insurance, because, while rental income is not the subject of insurance premiums, income from the provision of accommodation services as business income is subject to insurance. Therefore, there is a risk of retroactive assessment which could result in additional penalties.
With its ruling, the Municipal Court put all entities that use the Airbnb platform and treat the income generated as exempt from value added tax (as rental income) in a difficult position. According to the opinion of the Municipal Court, such an entity, without exception, provides accommodation services. Since the Airbnb platform is run by an entity that is not based in the Czech Republic, there is a risk that the person using this platform to provide accommodation services will become a taxable person. In practice, this may mean that the landlord will have an immediate obligation to pay value added tax in respect of the services provided by Airbnb platform (in this case, the obligation to register is not conditioned by reaching the statutory limit of CZK 1,000,000; but it arises immediately). In case that the landlord used Airbnb services in the past, this tax will have to be paid retroactively and there is also a sanction risk. When the turnover reaches CZK 1,000,000, there is even an obligation to apply VAT on the accommodation services themselves.
In its ruling, the court actually upheld the opinion of the Tax Administration declared in the Information on the tax assessment of obligations of accommodation service providers (Airbnb etc.). We will see whether and how the situation will be handled by the Supreme Administrative Court.
The whole wording of ruling ref. no. 6 Af 20/2020-28 is available at the webpage of the Czech Ministry of Justice.
28th April 2021
16th July 2021