You might think…

“If I sign a lease and pay income tax, I’m all set.”
Not always. When renting out commercial premises, the outcome depends not only on the rental amount but also on how you record the income, whether you can claim expenses, and whether you rent as a private individual, entrepreneur, or company. The differences can amount to tens of thousands in taxes – in either direction.

Clients often ask me…

“Can I apply lump-sum expenses for warehouse rental?”
“Do I have to record rental income as part of my business?”
“What about VAT if I rent to a VAT-registered company?”

The truth is, taxation of commercial rental income has several regimes – and choosing the wrong one can lead to higher taxes or even penalties for incorrect tax returns.

What the law says

According to the Income Tax Act (§ 9), income from renting movable or immovable property is taxed in a separate tax base, provided it’s not business income (§ 7).

• Non-business rental: Taxed under § 9, you can apply lump-sum expenses (30%, max CZK 600,000) or actual expenses.

• Business rental: Taxed under § 7 if the rental is part of a business activity – requires bookkeeping or tax records.

• VAT: Rental of commercial premises is generally exempt from VAT without entitlement to deduction, but you may opt to tax it (advantageous for VAT-registered landlords renting to VAT-registered tenants).

Common mistakes and risks

• Incorrect classification of income – reported under the wrong section in the tax return.

• Not using deductions or lump-sums – unnecessarily higher tax base.

• Overlooking VAT options – disadvantageous for both parties.

• Mixed use of premises – e.g., part rented out, part used for own business without clear cost allocation.

Correct procedure – step by step

1. Determine the correct tax regime – § 9 (non-business) or § 7 (business).

2. Choose expense method – lump-sum or actual expenses.

3. Assess VAT treatment – whether to opt in voluntarily.

4. Review the lease agreement – it should state the intended use, taxes, and service charges.

5. Keep proper records – contracts, invoices, proof of payment.

Example from practice

A landlord rented an office to a VAT-registered tenant but did not opt to tax the rental. As a result, they could not deduct VAT from a CZK 180,000 renovation. After switching the VAT treatment, they saved significantly on taxes and charges.

Why to avoid “DIY” tax solutions

An incorrectly filed tax return can mean back taxes, penalties, and interest. A properly set lease and tax regime saves money and avoids stress during audits.

Lawyer’s recommendation – checklist

✅ Set the rental regime at the start
✅ Assess VAT implications
✅ Use all available deductions and lump-sums
✅ Make sure your lease is tax-safe and legally sound

FAQ

Can I use lump-sum expenses for commercial rental?
Yes, if it’s income under § 9 of the Income Tax Act.

Do I need a trade licence to rent out an office?
No, unless the rental is part of your business.

When is it worth taxing the rental with VAT?
If you are a VAT-registered landlord and your tenant is also VAT-registered – especially if you have high related expenses.