Real estate tax

What it means

Real estate tax is a local tax on land, buildings, flats and non-residential premises. It is collected not by the tax authority but by the municipality, and each council sets its own rates by ordinance - so they differ markedly from town to town.

What counts is the position on 1 January: whoever is recorded that day as owner, administrator or statutory tenant is the taxpayer for the whole year, even if the property is sold in February.

Real estate tax is really three taxes, on land, on buildings and on flats and non-residential premises, each with its own base. Land starts from value and area according to the land register, buildings and flats from built-up or floor area, so the tax does not follow the market price of the building.

How it works in practice

A return is not filed every year. It is filed by 31 January of the year after liability arose or ended or the use changed - purchase, sale, occupancy permit, a change of area. In other years the municipality issues an assessment on its own.

The tax paid is a deductible cost. It is booked to the period it relates to and belongs to the cost of holding a fixed asset, alongside depreciation, insurance and maintenance.

In a lease of premises the contract often provides that the owner passes real estate tax on to the tenant. The owner remains the taxpayer towards the municipality, the tenant pays the amount as part of the rent or as a separate item, and in the tenant’s books we treat it as a rental cost, while for the owner it forms part of rental income.

What to watch out for

Buyers routinely forget the return, because the purchase contract goes to the notary and the land register but not to the municipality. The arrears surface later, usually during due diligence or on a sale.

Because the position on 1 January decides, a seller who sells during the year pays tax for the whole year. If the purchase contract has no pro rata settlement, the seller bears the tax for months it no longer owned the property and has no basis for recovering it from the buyer later, so it is worth agreeing before the sale.