<p>Social housing will include apartments up to 120 meters.</p>

Prague - The category of social housing, which will be subject to a lower five percent VAT rate for its construction, will include apartments with a floor area of up to 120 square meters and houses with an area of up to 350 square meters. This definition of social housing proposed by Finance Minister Miroslav Kalousek (KDU-ČSL) was approved by the government today. However, if there is at least one apartment in a residential building exceeding this area, the higher 19 percent VAT rate will apply to its construction.
    "The government today approved the basic parameters for the definition of social housing. In the European Union, it is possible to negotiate a permanent exemption, which means that a reduced VAT rate can be permanently applied to apartments and houses that fall into the category of social housing," said the minister at a press conference after the government meeting.
    Developers were concerned that if there was even one apartment above 120 square meters in a residential building, the entire building could not qualify as social housing. This was confirmed today. "If even one apartment in the residential building exceeds 120 square meters, the entire building will fall under the increased VAT rate," said MF spokesman Ondřej Jakob to ČTK. He corrected the initially incorrect information published at the government press conference.
    The definition of social housing must be approved by the European Commission. However, there is practically no doubt that the government can implement the reduced VAT rate for housing into Czech law. Brussels has limited powers in this case and cannot effectively prevent the Czechs from doing so. The finance minister believes that the European Commission will accept the proposal in exactly the same form that the EU presents it. The Czech Republic will submit the proposal to the European Commission in the first half of this year. The finance minister will subsequently present a draft amendment to the VAT law.
    "From a tax administration perspective, it would be simpler not to have any exceptions, but this tax exemption is necessary in terms of supporting housing and the state's social policy," added Kalousek.
    Developer companies have been attracting clients to buy apartments or houses no later than this year, while the low rate is still applicable. However, it is likely that 90 percent of apartments and houses in the Czech Republic will still fall under the low VAT rate even after 2007, because the majority of apartments and houses being built here will qualify as social housing.
    "The definition of social housing approved by the government today will practically have no impact on the prices of new residential construction," said Petr Koranda, executive director of the Association of Real Estate Agencies, to ČTK.
    The current definition of social housing is a compromise between the original version of the Social Democracy government and the proposal of the Finance Ministry led by former minister Vlastimil Tlustý (ODS). The cabinet of Prime Minister Jiří Paroubek (ČSSD) approved a proposal last February that apartments of up to 90 square meters and houses of up to 150 square meters should fall into this category. Tlustý, on the other hand, proposed that all newly constructed apartments and houses be included in social housing.
    In the Czech Republic, the average area of a newly completed apartment is approximately 105 square meters. For apartments in family houses, it is 152 square meters, and for apartments in apartment buildings, it is about 67 square meters.
    Residential buildings in accordance with the state's social policy, in addition to new apartments and family houses, will also include other accommodation facilities of a social nature such as retirement homes, various institutions, emergency shelters, school facilities for institutional or protective care, special children's facilities, infant homes, children's homes, hospices, etc.
    Currently, a five percent VAT rate applies to buildings related to housing, which can only be applied until the end of 2007. The aim of the new definition of social housing is to ensure that the construction of apartments in the Czech Republic does not become more expensive after 2007. According to EU rules, the lower rate will only apply to the construction of apartments and residential houses if a social aspect is present. The standard VAT rate is 19 percent. A reduced rate for housing repairs will apply until 2010.
    The reduced rate for social housing is used in the EU by France, Belgium, Greece, Spain, Italy, and Luxembourg. The UK, for example, has a zero VAT rate on the construction of new apartments and houses.