The Czech Ministry of Finance has prepared an extensive amendment to the VAT Act with expected effect from 1 January 2025 (some points later). On 30 October 2024 the amendment was approved by the Chamber of Deputies. Subsequently, it has gone to the Senate for further approval.

The major amendment to the VAT Act contains several substantial technical changes responding to developments in case law and findings from practice. The main changes proposed by the amendment are as follows.

Changes coming into force on the 1^st of January 2025

• Introduction of a special regime for small businesses operating in other EU countries

Under this scheme small entrepreneurs from other EU states under a threshold approx. EUR 80.000 (CZK 2 million) can avoid the VAT registration in the Czech Republic. However, there is an obligation of filing a report of supplies made in EU countries (separately for each country) on a quarterly basis. The scheme is optional. When using the scheme no VAT deductions are allowed.

• Change of the moment of registration of the taxpayer

If a turnover of CZK 2 million is exceeded (we newly consider the turnover within a calendar year and not within a period of subsequent 12 months) the person liable to tax becomes a taxpayer from the beginning of the following calendar year. Nevertheless, in case of exceeding the turnover of CZK 2.536.500 a person liable to tax becomes a taxpayer practically immediately. The turnover applies only to taxable persons seated in the Czech Republic.

• Introduction of the obligation of an agent for communication with the tax administrator for entities from third countries

Non-EU entities are obliged to communicate their email address to the tax authority, which will serve for delivering of any notices, and are obliged to appoint a representative (= a Czech person with a data box) who would communicate on their behalf with the tax authority.

• Changes to the time limits for claiming deductions and making corrections to the tax base

The period in which VAT deductions can be claimed is shortened from current 3 to 2 years.

The period for tax corrections (issuing of credit notes) is extended to 7 years.

The taxpayer is obliged to correct the claimed VAT deduction from the received supply if the related payment has not been entirely settled within 6 calendar months after a due date (applicable to supplies where the right to deduct VAT arose after the 1^st of January 2025).

• Broader possibilities of corrections in respect of bad debt relief

The correction of tax base in respect of bad debt is allowed after 1 year (now 2 years) following the issuance of the first enforcement order and after 3 years (now 5 years) following the initiation of recovery proceedings.

• Exclusion of tax deduction in case of importations of goods by a “non-owner”

Where the value of imported goods is not included in the value of the supply the importer (= non-owner) is not allowed to claim the VAT. It might be the case of import of goods for the purpose of repair or temporary use.

• Exclusion of tax exemptions for portfolio management

Asset management services (considered more likely as administrative services) are not exempt from tax anymore.

• Changes to the rules for determining the place of performance in the case of virtual access to cultural, sporting, educational and other similar events

Services consisting of virtual admission to such events provided to taxable person (B2B) are deemed to take place in the country where the provider is established. If the services are provided to non-taxable person (B2C), the place of performance is in the country of seat/place of residence of the customer.

• Extension of services where the use and enjoyment rule applies

If e.g. advisory, legal or financial services are provided to non-taxable person (B2C) with place of residence/established in a third country and the actual use or consumption occurs in the Czech Republic, the place of supply of the service is in the Czech Republic.

• Extension of the obligation to tax up to the level of an open market price also to supplies made for consideration to employees and persons close to them

In the case of the supply of immovable property to employees or persons close to them the open market price of the immovable property is subject to tax.

• Required data of the invoice

In the case of the supply of new means of transport or triangular trade, this information has to be specifically mentioned on the invoice.  

• De-registration

The VAT Act amendment brings extension or reduction of several periods for de-registration. If no relevant supply is reported within a calendar year the VAT registration shall be cancelled.

• Introduction of legal succession in the event of disposal of a business concern 
• Clarification of medical devices subject to reduced VAT rates (e.g. blood pressure monitors and oximeters)
• Introduction of a new form of VAT return.

Changes coming into force on the 1^st of July 2025

• Changes in the exemption and taxation of immovable properties

Non-established persons can use option to apply VAT on sale and lease of an immovable property to a taxpayer and a taxpayer can apply VAT on lease of an immovable property to a taxable person registered to the VAT in the EU.

The period for taxing a supply of immovable property is shortened from current 5 to 2 years. Taxation applies only to the first supply within this period.

Changes coming into force on the 1^st of January 2026

• Introduction of rules for the refund of unjustified tax paid or incorrectly indicated on a document

The VAT Act reflects the situation where the customer has made the correction of the unjustified tax paid/incorrectly applied tax and the supplier has not made the correction and where it is impossible to get the refund of the tax from the supplier.

• Introduction of VAT refunds for third countries entities

Businesses from third countries when importing or acquiring from EU goods into the Czech Republic shall be entitled to refund the VAT paid upon importation or acquisition if the goods are sold to Czech VAT registered person under the reverse charge mechanism, even if a reciprocity principle for VAT refunds is not recognized.

• Introduction of new rules on VAT exemptions/refunds for travelers from third countries

The supplier has to notify the VAT exempt supply to the electronic information system of the customs administration. However, he may decide not to exempt the supply of goods. In such a case, he has to proceed like this in respect of all supplies made within the year.  

• Exclusion of tax exemptions for certain financial services

Further currently exempted financial services such as record keeping, collection procurement or collection of TV and radio fees are not to be exempt from tax.

If you have any questions or wish to discuss any of the changes in more detail, please feel free to contact us.