The majority of levies fall on compensation for the use of building land (compensation), where the amount is entirely left to individual municipalities, which determine the criteria for taxation by their decrees (assessment area, scoring, point value and exemptions). It should be emphasized that the tax base on which the compensation is assessed is not the value of the property, but at the same time there is an additional problem in the records, which are often outdated and contain incomplete data on real estate.
The change and unification of the real estate tax is also recommended by the International Organization for Economic Cooperation and Development (hereinafter OECD), which accuses us of the fiscal inefficiency of the current property taxation. The volume of property taxation in Slovenia is relatively low, as it contributes only about 0.6 percent of GDP, while in OECD members in 2016 it contributed an average of 1.1 percent of GDP. At the end of October 2018, the Ministry of Finance published expert bases for a new real estate tax, which was expected to enter into force in 2020. Later, the Constitutional Court stopped the process of adopting the law, mainly due to the mass valuation of real estate. political will to pass the law. The new property tax is expected to replace three existing levies: the compensation for the use of building land, the property tax and the forest road maintenance fee. Real estate would thus be taxed at the following rates: residential real estate with 0,1%, commercial and industrial real estate with 0,6%, agricultural land with 0,15% and forest land with 0,07%. The basis for calculating the tax would be the value of the real estate, which would be calculated by the Surveying and Mapping Authority of the Republic of Slovenia (GURS) within the framework of mass real estate valuation. Property owners in Slovenia can be satisfied with the current system of taxation, as a new system of real estate taxation would significantly increase their tax liabilities. However, it is only a matter of time before Slovenia is forced into a thorough tax reform. We can therefore expect significantly higher tax rates than are currently the case, and there is currently no consensus on the level of these rates. Let us take Germany for comparison, which is often an example for us in introducing changes in the legislative field.
The system of taxation is otherwise different between the western federal states and the eastern ones. In the west, one- and two-family houses are taxed at a basic rate of 0,26% to 0,35%, for agricultural and forest land the basic rate is 0,6% and for other real estate 0,35%. The final tax rate is calculated by multiplying the basic rate by the individual rate by a coefficient between 2,75 and 6. Effective tax rates are thus usually on average 1,5% of the market value. As in Germany, the final tax rate in Austria is determined by the individual municipality with a multiplier, so that the average effective tax rate in Austria is 0,8% of the market value of the property. In Italy, the tax rate for residential residential real estate is 0,4% and for non-residential real estate 0,76% of their value. Municipalities can reduce or increase the rate by 0,2%.
The basic proposal of the new real estate tax in Slovenia envisages the taxation of as large a range of real estate as possible, including garages, holiday homes and some church buildings. Given the presented levels of taxation in some countries, taxation will also increase significantly in Slovenia. In Germany, the tax rate is up to 15 times higher than it would be in Slovenia under the new proposal. We can therefore ask ourselves whether the real estate tax rate will not be higher than proposed and what this also means for real estate investments. Let’s look at an example from an already published article (https://www.delo.si/gospodarstvo/novice/je-nalozba-v-nepremicnine-res-donosna/), in which we determined the return from letting a property, where the purchase value of the property was EUR 175.000.
Before renting out the property, we have to invest an additional EUR 10.000 into it (the market value of the property is thus EUR 185.000), and we charge the tenant a monthly rent of EUR 750, which amounts to EUR 9.000 per year. In accordance with the Personal Income Tax Act, we must pay personal income tax on this amount, which amounts to EUR 2.103,75, and we must also pay other costs in the amount of approx. 900 EUR, which also includes the cost of assessing a compensation for the use of building land in the amount of 100 EUR. In this case, our net annual earnings are EUR 5.996,25 and compared to the amount invested, this means 3,24% of the net annual return. But how does an increase in the tax rate affect the return on a property? In our case, we assume an increase in the tax rate to 0,5%, which means a tax liability from the market value of the property in the amount of EUR 925. In this case, our net annual earnings are EUR 5.171,25 and consequently the net annual return is 2,8%. In the case of Germany and their real estate tax at an average rate of 1,5%, which is EUR 2.775, the non-annual return is only 1,8%. Will this make investing in investment property still interesting in terms of profitability?
Superos d.o.o, Upravljanje alternativnih investicijskih skladov
Ameriška cesta 8, Ljubljana