The approved amendment to the VAT Act, which we have been continually informing about and which was published in the Collection of Laws on 2 December 2022 under the number 366/2022 Coll. (“the amendment”), increases the threshold, from which a person liable to tax becomes a VAT payer by law from CZK 1 million to CZK 2 million for 12 consecutive calendar months. It is the date of publication of the amendment that may be relevant for those, whose turnover is within this range.

The entire amendment is to take effect from 1 January 2023, except for the transitional provisions in Article II(2) to (5) and (8) to (10), which regulate the transition to the higher limit for statutory payers. These are to enter into force on the day following the date of publication of the amendment in the Collection of Laws.

The following situations are particularly worth noting:

1. If the turnover of the person liable to tax exceeds CZK 1 million for the period preceding 1 December 2022, but does not exceed CZK 2 million, the person is not obliged to apply for registration and will not become a VAT payer as of 1 January 2023 (transitional provisions of Article II(2)).

On the contrary, such a person will become a VAT payer if he or she submits an application for registration as a VAT payer no later than on the date of publication of the amendment in the Collection of Laws and confirms his or her intention to become a VAT payer by notifying the tax administrator by 15 December 2022 (transitional provisions of Article II(3)).

2. Similar rules apply to those, whose turnover for the period preceding 1 January 2023 exceeds CZK 1 million but is lower than CZK 2 million. They will not become VAT payers from 1 February 2023 (transitional provision of Article II(4)) unless they submit an application for registration no later than the date of publication of the amendment in the Collection of Laws and confirm their intention to become payers by 16 January 2023 (transitional provision of Article II(5)).
3. Already registered VAT payers, on the other hand, who have their registered office in the Czech Republic and are not a group for VAT purposes, may apply for cancellation of registration (Article II, point 8 of the amendment), if they have a turnover of more than CZK 1 million but less than CZK 2 million for 12 consecutive calendar months preceding the entry into force of this transitional provision.

The request for cancellation of registration is to be submitted within 5 calendar days from the day following the date of publication of the approved amendment in the Collection of Laws, i.e. by 8 December 2022, electronically, using the Application for Cancellation of Registration form. In this context, we would also like to point out that taxpayers, who do not cancel their registration within this period, will not be able to benefit from the application of the flat-rate income tax regime for 2023.

The cancellation of registration entails the obligation to reduce the previously claimed tax deduction for property that is the taxpayer’s business property as of the date of cancellation of registration (article 79a of the ITA).

4. Persons, who are taxpayers due to the acquisition of a commercial establishment or transfer of assets (reasons under article 6b of the ITA), or persons continuing an economic activity after a deceased taxpayer (reasons under article 6e of the ITA) also exceptionally have the option to apply for cancellation of taxpayer status. Even in this case, the request for cancellation of registration must be submitted by 8 December 2022 (article II, point 9 of the amendment).

We will be happy to provide further details on the deadlines, practical implementation or the impact of de/registration to you, or they can also be found in the currently issued Information of the GFD on the amendment to the VAT Act with effect from 1 January 2023 – rules for the transitional period relating to the increase in the amount of turnover that establishes tax liability (https://www.financnisprava.cz/assets/cs/prilohy/d-seznam-dani/Informace-k-novele-ZDPH-zvyseni-limitu-obratu-pro-registraci.pdf). The amendment also includes some changes relating to submitting control reports, namely the extension of the deadline for filing a subsequent control report to 17 calendar days from the summons of the tax office to the taxpayer’s data box, and also a reduction of fines for late filing or failure to file a control report for natural persons and limited liability companies with a sole shareholder, who is a natural person.

Author: Richard Knobloch, Jana Kolářová