Czech Republic: Documentation requirements for tax-deductible depreciation of real estate improvements (Supreme Administrative Court decision)
Depreciation can only be applied to technical improvements to real estate with proper documentation
The Supreme Administrative Court (SAC) addressed under what conditions building alterations to real estate can be considered technical improvements eligible for tax-deductible depreciation. The court concluded that depreciation can only be applied to technical improvements when the taxpayer can prove that the improvements have been put into a condition suitable for normal use and can document when the construction work was carried out.
The taxpayer contested the regional court's conclusion that they had not proven that the property had been brought into a condition suitable for normal use, which prevents the application of tax depreciation of technical improvements. One of the conditions for applying tax depreciation is the fulfilment of obligations laid down by special legal regulations, in this case, the Building Act. According to the regional court, the taxpayer failed to fulfil these obligations, as they had not provided a final occupancy permit or consent to a change in the purpose of use. Moreover, it was not clear from the evidence when the reconstruction took place.
In its decision, the SAC emphasized the purpose of the legal regulation of tax depreciation, which is to provide that the taxpayer only depreciates assets that were actually acquired and used for the purpose of securing, generating and maintaining taxable income. According to the court, the taxpayer should have proven to the tax administrator that the conditions for applying the depreciation of technical improvements had been met (substance) and that it was related to the taxable period in question (timing).
Read a December 2025 report prepared by the KPMG member firm in the Czech Republic