Major Czech Republic VAT Updates
Effective January 1, 2025, several changes to the Czech VAT regime will come into force. These changes include adjustments to VAT registration thresholds, the expansion of the reverse charge mechanism, and modifications to correction rules:
- VAT Turnover Period Calculation: The VAT turnover period will now be calculated annually from January 1 to December 31. Entities with a turnover between CZK 2,000,000 and CZK 2,536,500 will become VAT payers the following year. Those exceeding a turnover of CZK 2,536,500 will be liable for VAT two days after surpassing this threshold.
- Reverse Charge Mechanism Expansion: The reverse charge mechanism will be expanded to include certain cleaning services.
- Real Estate Rules Simplification: The five-year exemption limit for real estate will be abolished, and the substantial change threshold will be reduced from 50% to 30% of the property’s value.
- VAT Deductions and Corrections: The time limit for claiming VAT deductions will be reduced from three years to two years. The time limit for correcting the tax base will be extended from three years to seven years, regardless of legal proceedings. There is also a new requirement to refund tax deductions on liabilities outstanding for more than six months.
- Car Deduction Limit Review: The CZK 2,000,000 car deduction limit may be revised or removed in 2027.
Czech VAT Rules
The Czech Republic’s VAT system aligns with EU regulations and consists of a standard VAT rate and two reduced rates. Here are the key points:
- VAT Rates: The standard VAT rate is 21%, applicable to most goods and services. There are two reduced rates: 15% and 10%. The 15% rate applies to items such as foodstuffs, certain health products, and social housing, while the 10% rate applies to books, pharmaceuticals, and infant food.
- VAT Registration: Businesses must register for VAT if their taxable turnover exceeds CZK 2,000,000 (approximately €80,000) within 12 consecutive months. Voluntary registration is available for businesses with turnover below this threshold. Foreign businesses without a fixed establishment in the Czech Republic but providing taxable supplies must also register for VAT.
- VAT Returns: VAT returns are typically filed monthly or quarterly, depending on the turnover. These returns must be submitted electronically by the 25th day of the month following the tax period. Intrastat declarations are required for businesses involved in intra-EU trade exceeding specified thresholds.
- Chargeable Transactions: VAT on most transactions is chargeable at the point of supply, meaning when goods or services are delivered. The reverse charge mechanism applies to certain cross-border and domestic transactions, shifting the tax liability from the supplier to the customer.
- Tax Audits: The Financial Administration of the Czech Republic conducts tax audits to ensure compliance.
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