Investing in real estate in 2026: Tax optimization and comparison of the effectiveness of purchasing as a company or an individual Investing in real estate in 2026: Tax optimization and comparison of the effectiveness of purchasing as a company or an individual

The year 2026 presents real estate investors in the Czech Republic with challenges in the form of a stabilized tax regime, stricter financing conditions, and new energy efficiency obligations. To maximize returns, it is crucial to understand the differences between purchasing as an individual versus through a Czech limited liability company (s.r.o.). In this article, you will learn what you need to know about tax optimization for investment properties and how to prepare for the legislative environment affecting profitability under Czech law.

Quick Summary

• Progressive Taxation of Rental Income: In 2026, the basic tax rate of 15% remains in effect in the Czech Republic. A 23% rate applies to the portion of the tax base exceeding 36 times the average wage (the limit is set by government decree, approximately 1.7–1.8 million CZK annually).
• Time Test for Individual Exemptions: Properties acquired after January 1, 2021, must be held for at least 10 years to qualify for income tax exemption upon sale under Section 4 of the Czech Income Tax Act. This significantly alters investment horizons and exit planning compared to the previous five-year rule.
• Stricter Conditions for Investment Mortgages: Banks, under the supervision of the Czech National Bank (CNB), continue to apply strict rules for LTV and income indicators. For investment properties, this often means a requirement for higher equity, typically ranging between 20–30%.
• Difference in Tax Burden Between Individuals and s.r.o.: Structuring a property purchase is not merely an administrative choice but a decision with long-term financial consequences. While individuals can benefit from the "time test" exemption, a Czech s.r.o. offers more efficient expense claims and asset protection.

Tax Regime for Investment Income in 2026

When deciding to purchase an investment property, you cannot ignore the fact that tax liability represents one of the most significant costs. Many investors focus primarily on rent and property appreciation, but tax strategy plays a vital role. Correct setup can save you hundreds of thousands of crowns during the holding period.

For 2026, progressive income taxation for individuals applies in the Czech Republic, which also affects rental profits from investment properties under Section 9 of the Income Tax Act. The basic tax rate is 15%, while the higher 23% rate applies only to the portion of the annual tax base exceeding 36 times the average wage. For 2026, this threshold will be set by government decree; it is estimated to exceed 1.7 million CZK. Above this limit, any additional amount is taxed at the 23% rate according to Section 16a of the Income Tax Act.

Tax optimization must always be carried out strictly within the limits of Czech law. It is a legal process of utilizing statutory options to reduce tax liability, requiring detailed knowledge of regulations. Our Prague-based attorneys at ARROWS deal with tax law daily and can help you legitimately structure your tax obligations. If you need advice on tax optimization for your investment, contact us at office@arws.cz.

Comparison of Purchasing as an Individual vs. a Limited Liability Company (s.r.o.)

The decision of whether to buy property in your own name or through a Czech limited liability company (s.r.o.) is a key strategic step. This choice fundamentally affects the tax burden, personal liability, financing options, and the long-term profitability of the entire investment.

Purchasing Property as an Individual

When purchasing property as an individual, the administrative process is significantly simpler, as you are not required to maintain double-entry bookkeeping. If you do not include the property in your business assets, you only maintain tax records or apply a percentage of expenses under Section 9 of the Income Tax Act. Furthermore, banks in the Czech Republic often offer more favorable mortgage terms to individuals, with maturities of up to 30 years.

The main advantage for an individual lies in the possibility of income tax exemption on the sale of the property after meeting the "time test." For properties acquired after January 1, 2021, this period is 10 years from acquisition under Section 4, Paragraph 1, Letter b) of the Income Tax Act. If you buy a property as an individual in 2026 and hold it for at least ten years, the income from a sale in 2036 will be entirely exempt from income tax.

On the other hand, rental income is subject to progressive taxation, which can be disadvantageous for higher earners. If your total tax base exceeds the limit for the 23% rate, the tax burden increases. There is also a risk if you include the property in business assets to claim depreciation, as the time test for exemption then only begins from the moment the property is removed from business assets.

Purchasing Property through a Limited Liability Company (s.r.o.)

Buying property through an s.r.o. is a standard solution for investors building larger portfolios in the Czech Republic. The primary advantage is limited liability, where risks associated with the property are separated from your personal assets.

A significant benefit of an s.r.o. is the ability to fully utilize tax depreciation without losing the possibility of a future tax-exempt sale of company shares. Properties are standardly depreciated over 30 years under Czech law, which effectively reduces the tax base and thus the corporation's tax liability.

Profit taxation for an s.r.o. occurs at the corporate income tax rate, which is 21% according to Section 21 of the Income Tax Act. Profit is not taxed progressively here, but if you wish to pay it out to yourself as an individual, the dividend is subject to a 15% withholding tax. This results in economic double taxation, which is compensated for by the possibility of reinvesting within the company without taxation at the shareholder level.

A fundamental difference arises upon sale: an s.r.o. does not benefit from the 10-year exemption when selling the property itself. However, there is the option to sell the business share (ownership interest) in the company; the income from such a sale is exempt for an individual after only 5 years of holding the share.

MicroFAQ – Choosing between an individual and an s.r.o. (LLC)

1. Is it really worth setting up an s.r.o. when it is more administratively demanding?
Yes, if you are building a larger portfolio or planning to reinvest profits. You will save on social and health contributions and protect your personal assets. You should mandatorily consult with a tax advisor, such as our Czech legal team at ARROWS law firm.

2. What if I am not sure whether to buy as an individual or through an s.r.o.?
For one or two smaller properties intended for long-term holding and subsequent tax-free sale, acting as an individual is often more advantageous. For larger projects, an s.r.o. is preferred. Contact us at office@arws.cz for a consultation.

3. Can I later transfer a property from an individual to an s.r.o.?
Yes, but it is tax-inefficient. A contribution or sale is treated as a transfer of ownership, taxes are paid, and depreciation starts anew; therefore, it is best to make the right decision at the very beginning under Czech law.

Tax exemptions on the sale of real estate in the Czech Republic

If you acquired the property after January 1, 2021, you must own it for at least 10 years to be exempt from income tax on its sale, provided it was not part of business assets. For properties acquired before this date, the original five-year period still applies according to the transitional provisions of the Czech Income Tax Act.

The law offers exceptions to the ten-year test, the first of which is an exemption based on residency. If you reside in the property for at least two years immediately preceding the sale, the income from the sale is exempt under Section 4(1)(a) of the Income Tax Act.

The second path is the so-called satisfaction of one's own housing needs, where you sell a property and use the proceeds to obtain your own housing. The condition is that you reinvest the funds by the end of the following calendar year after the year you received the money, or you already reinvested them in the preceding year according to Section 4b of the Income Tax Act.

A crucial condition is the obligation to notify the Czech tax authority of the acquisition of funds from the sale if you wish to use the exemption for housing needs. Our attorneys in Prague regularly handle these procedural matters to ensure clients do not lose their claim to the exemption by missing a deadline.

Tax depreciation and how to work with it

Tax depreciation is a key optimization tool, and for real estate in the Czech Republic, it is applied over 30 years according to Section 30 of the Income Tax Act. The method of use varies depending on the form of ownership.

Difference between an individual and an s.r.o.

An individual can only apply depreciation if the property is included in business assets or if they keep detailed records according to Section 9(6) of the Income Tax Act. However, this may result in losing the possibility of exemption upon sale after 10 years, as the time test for decommissioned business assets starts again from the date of decommissioning.

For a Czech limited liability company (s.r.o.), depreciation is applied as standard and reduces the corporate income tax base. Since an s.r.o. does not have a time test for the sale of real estate, applying depreciation is always desirable to reduce the ongoing tax burden.

Risk table and assistance from ARROWS

Conditions for financing investment mortgages in 2026

Although specific Czech National Bank (CNB) regulations evolve over time, banks in 2026 continue to closely monitor the risk of loans for investment properties. Obtaining financing is more demanding than for mortgages for primary residence.

LTV and own resources

For investment mortgages, Czech banks generally do not provide as high an LTV as for primary housing. The standard is often a maximum of 60–70% LTV in accordance with CNB rules, which means the necessity of having own capital amounting to 30–40% of the property price.

Creditworthiness and DSTI

Banks strictly assess the ability to repay through the DSTI indicator, where for investors with multiple mortgages, the installments are summed up. Net rental income is often accepted by banks only at approximately 70–80% to cover rental vacancies and repairs, which increases creditworthiness requirements.

Energy efficiency and its impact

The EU Energy Performance of Buildings Directive (EPBD) is pushing for renovations, which is changing the Czech real estate market. Properties with energy labels G or F may be harder to trade in the future or burdened with renovation obligations.

In 2026, the market is already showing a "green premium" for energy-efficient buildings and, conversely, a "brown discount" for energy-intensive older structures. When buying an older property in the Czech Republic, it is necessary to include the costs of future insulation or heating source replacement in the calculation.

Real estate tax and minor repairs

The deadline for filing a real estate tax return in the Czech Republic is January 31; however, in 2026, it moves to Monday, February 2, according to Section 13a of the Real Estate Tax Act. You only file a return if there was a change in ownership or property parameters in the previous year, with the tax amount being influenced by local coefficients.

For rental relationships in the Czech Republic, Government Regulation No. 308/2015 Coll. is crucial, as it defines minor repairs paid for by the tenant. The limit for minor repairs is CZK 100/m² per calendar year according to Section 5 of the Government Regulation; therefore, for a 50 m² apartment, the tenant covers repairs up to CZK 5,000 per year.

Comparison of tax burden: A model example

Let's assume the purchase of an apartment for CZK 3 million with a gross annual rental income of CZK 150,000 and real expenses of CZK 30,000.

In a scenario where the purchase is made by an individual (not as business assets), the tax base is CZK 120,000 and the income tax is CZK 18,000 (15%). The net annual income is CZK 102,000. The exit after 10 years is exceptionally advantageous in this case, as the sale of the real estate is completely tax-exempt under Czech law and the profit remains with the investor.

In a scenario where the purchase is made by a Czech limited liability company (s.r.o.), depreciation (CZK 100,000) reduces the tax base to just CZK 20,000. Corporate income tax amounts to CZK 4,200, leaving CZK 115,800 in the company; however, an additional 15% is withheld when paying out to the shareholder. The exit involves either a taxed sale of the property or a tax-exempt sale of the business share after 5 years.

An s.r.o. is primarily worthwhile if you do not plan to consume profits immediately for personal use. The advantage is the possibility to reinvest money within the company, thereby deferring dividend tax, or to plan an exit by selling the entire company.

Conclusion

The year 2026 requires professionalism and thorough planning from investors. The decision between purchasing as an individual or through an s.r.o. is not just about administration, but about exit strategy (10 years vs. 5 years for a share) and cash-flow management.

Our Prague-based attorneys and tax specialists from ARROWS law firm resolve these dilemmas daily and are well-versed in the legislative nuances. If you are looking for a partner to help structure your investment to be tax-optimized and legally secure in the Czech Republic, contact ARROWS law firm at office@arws.cz.

FAQ – Legal questions on investing in the Czech Republic

1. Should I buy property through an s.r.o. or is an individual capacity sufficient?
If you are buying a single property for retirement or for your children, an individual capacity is usually more suitable due to the 10-year "time test" for tax exemption. For a business involving multiple apartments, an s.r.o. is safer.

2. What is the VAT situation for new apartments in 2026?
Since 2024, a reduced VAT rate of 12% applies to new residential construction up to 120 m² according to the Czech VAT Act. For larger properties or commercial premises, the standard rate of 21% applies. This significantly affects the acquisition price.

3. Can I reduce the tax on the sale of real estate by deducting expenses?
Yes, if the sale is not exempt, you can deduct the acquisition price, demonstrable renovation costs, real estate agency fees, and legal services from the sale price according to Section 10, Paragraph 5 of the Income Tax Act.

4. I bought a property in 2025. When do I file a tax return?
By February 2, 2026 (since January 31 falls on a weekend), you must file a real estate tax return. Rental income tax is handled later, in March or April 2026.

5. Is anyone at ARROWS able to advise me on setting up a holding structure?
Yes. Our Czech legal team specializes in corporate structures, holdings, and asset protection. Write to us at office@arws.cz.

Disclaimer: The information contained in this article is for general informational purposes only. Legislation may change. To resolve your specific situation, please contact ARROWS law firm in Prague directly (office@arws.cz).

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