Czech Republic: Vacation rentals via online marketplace held business activity, not property lease

Short-term leases via online marketplace for lodging satisfy criteria of a business activity

Vacation rentals via online marketplace held business activity

The municipal court in Prague held that the provision of short-term leases via an online marketplace for lodging, primarily homestays for vacation rentals, satisfied the criteria of a business activity for tax purposes.

Accordingly, income from this activity was to be included in a separate tax base as income from an independent activity—rather than income from lease transactions. 

KPMG observation

The decision may have implications for other areas of taxation (such as value added tax (VAT)) or social security and health insurance because unlike income from leases, income from an independent activity is liable for such insurance premiums.

Summary

The tax authority for Prague directed an individual taxpayer to file an income tax return on the grounds that income from a lease contract generated by the taxpayer for the 2017 tax period was to have been included in a separate tax base for the taxation of income from an independent activity.  The individual taxpayer, however, did not agree with the tax authority’s position, and included this income in a separate tax base for the taxation of income from leases. The taxpayer asserted that the lease only involved the provision of a “bare” lease, without any ancillary services.

The tax authority countered that the substance of accommodation services made via an online marketplace consisted of the provision of short-term accommodations and included services such as the provision of soap, towels, bedlinen, etc., which satisfied the criteria of an entrepreneurial or business activity. The tax authority further asserted that since the individual received payments once every two days (on average), the lease could not have been long-term but rather involved the provision of accommodation services even if no ancillary services were rendered.

The municipal court (Prague) agreed with the tax authority and dismissed the action on this matter (6 Af 20/2020-28).

KPMG observation

Tax professionals believe that the court’s decision may be applied in situations concerning similar short-term leases—whether or not offered via other internet portals.

Read a September 2021 report prepared by the KPMG member firm in the Czech Republic

 

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