New Year, New Taxes

02. 01. 2014

New Year, New Taxes


A new real estate tax entered into effect on 1 January. Conceived primarily as a means to buttress budget revenue, the tax is expected to net EUR 400m per year, double what is currently collected with the four levies it replaces.


The proceeds will be split in half between the national budget and municipalities, except for the first three years in which municipalities will only get the amount equal to what they collected in corresponding fees in 2012.

 

The tax will be levied on the generalised market value of real estate as calculated in the real estate registry.

 

For residential properties, the base will be reduced to 80% of the generalised market value in 2014 and to 90% in 2015. The full amount will be paid from then on.

 

Residential real estate in which the persons liable reside or rent them out will be taxed at 0.15%, and the remaining residential properties at 0.5%.

 

A surcharge of 0.25 percentage points will be imposed on residential units whose value exceeds EUR 500,000.

 

Welfare recipients will be eligible for a 50% break and the disabled in wheelchairs for a 30% break.

 

The act introduces a possibility of lien on real estate in case the owner can not pay the tax.

 

 

Commercial real estate will be taxed at a 0.75% rate, energy facilities at 0.4% and public buildings at 0.5%. Farm outbuildings will be taxed at a 0.3% rate, farmland at 0.15% and forests at 0.07%.

 

Sacral buildings, monuments, barren land, protected forests and forest reserves will be tax exempted, as will diplomatic representations and the property of international organisations and EU institutions.

 

Illegal buildings will be liable to triple the relevant tax rate.

 

The relevant act faces several Constitutional Court challenges, mostly on grounds that the property values are inconsistent and that the tax is unfair and disproportional to individuals' economic standing.

 

But there are several other shortcomings that critics have been pointing out.

 

For one, a lot of the tax will come from buildings owned by the state and municipalities, which means the money will merely be transferred from one budget line item to the next.

 

Additionally, there are many specific situations yet to be addressed, including how to treat properties with multiple owners in which only some of the owners reside.

 

According to current instructions, portions of such properties would be subject to different levies, which risks complicating the tax collection.

 

Businesses meanwhile fear that their competitiveness will be eroded.

 

One of the principal levies that the tax replaces, the fee for the use of building land, was arbitrarily determined by municipalities, some of which decided to forfeit the fee altogether in order to attract businesses.

 

The government claims the tax burden on most properties would not increase much, but the extra EUR 200m will have to come from somewhere.

 

As with any tax, the first loopholes are already starting to emerge.

 

Media reports suggest a huge increase in the final days of 2013 of people registering their permanent residence at second homes in order to avoid the higher tax rate.

 

Moreover, the tax could largely bypass owners of expensive old townhouses in city centres which enjoy heritage protection and are tax exempted.

 

Such cases have gained a lot of media traction and helped fan the popular discontent with the new tax.

 

These shortcomings and the loopholes have indeed forced the government to plan legislative changes even before the tax entered into effect.

 

The relevant bill is to be unveiled in the first weeks of the year. The government also plans changes to the general evaluation so that specific features of a property could be taken into account and individual appraisal made.

 

One effect of the tax that will have broader implications not just for individual taxpayers but for the entire economy is its impact on the stagnant real estate market.

 

Realtors expect an uptick in supply as people decide to lease or sell empty apartments and older people opt for smaller apartments due to the higher tax burden.

 

Nevertheless, excessive supply risks further depressing prices, which are already at their lowest level since systematic price tracking began in 2007 and are projected to have already dropped 15% on average in 2012.

 

Source: SloveniaTimes

 

New Year, New Taxes