Saturday, 28 August 2010

Can you make money with planned Slovak tax changes?

One of the proposed changes in Slovak income tax law would eliminate an exemption from capital gains on apartment sale. Currently, if you buy an apartment in Slovakia and register the address as permanent residence for two years or own it for five years, you do not have to pay tax on the income from selling it at a profit.

Slovak Finance Minister Ivan Miklos proposed a series of tweaks in tax laws to generate extra revenue as the deficit left over by the previous cabinet of populist Robert Fico spiralled out of control.

The proposal would make people pay a capital gainst tax (at the current 19% income tax rate) on gains from selling an apartment regardless of when it was acquired and how long the owner lived there. It wouls apply to all properties acquired after January 1, 20111.

If this specific proposal passes it should mean that anyone who has been thinking about buying an apartment in this down market for speculative purposes should do so before the end of December 2010, boosting demand this year compared to the start of next.

I am not sure how you could estimate the magnitude of this effect and whether it could be significant enough to trade on given transaction costs. But nonetheless anyone considering selling an apartment in the near future should do so in December rather than January (assuming there isn't a strong upward trend in place of course that would overpower the tax change effect).