Value Added Tax (VAT) Guidelines: Czech Republic

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published on 23 March 2022

 

 

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »



1. VAT Scope, VAT Rates and VAT Exemptions

Czech VAT is applicable to the following transactions: 
  • Supply of goods and services provided by taxable person for a consideration with place of supply in the Czech Republic
  • Import of goods to the Czech Republic from a third country (non-EU Member State) 
  • Intra-Community acquisition of goods made in the Czech Republic by a taxable person
  • Intra-Community provision of services with place of supply in the Czech Republic
 
Certain actions carried out for no consideration are also deemed to be taxable supplies. For example: Usage of the business assets for non-business purposes by taxable person or its employees, the business gifts giving, European Union (EU) transfer of own goods/property within the same legal entity (such as a corporation) etc.
 
On the other hand, certain transactions are not subject to the Czech VAT. For example: The assumption of a debt as a form of payment and compensation payments for damages, transfer of a business as a going concern, supplies within a VAT group, giving of the business gift with value under CZK 500 (approx. EUR 18) or providing of business samples without consideration.
 
The standard VAT rate is 21 percent, the reduced VAT rate is 15 percent and the second reduced VAT rate is 10 percent. Czech VAT Act distinguishes between VAT exempt supplies of goods/services with credit (i.e. zero rated supplies) and VAT exempt supplies without input VAT claim deduction.
 
Zero rated supplies, for example, are: Exports of goods from the Czech Republic to a third country, intra-Com­mu­nity supplies of goods from the Czech Republic to another EU Member State or providing services to the third country. 
 
If a Czech VAT payer exports goods to a customer (business or private) outside of the EU and the supplier, or purchaser without seat or VAT establishment in the Czech Republic, arranges for the goods to be transported, the supplier does not need to charge VAT. The Czech VAT payer who exports the goods must declare the export in its Czech VAT return.
 
If a foreign entrepreneur supplies goods from another EU Member State to the Czech Republic and the custo­mer is a taxable person, the supply of goods is considered as intra-Community acquisition of goods and Czech taxable person is obliged under reverse charge mechanism apply Czech VAT and declare this transaction in its VAT return. The foreign entrepreneur has no registration obligation in the Czech Republic, considering that the recipient is obliged to declare intra-Community acquisition of goods. 
 
Supply of goods by taxable person to a customer VAT registered in another EU Member State provided the goods is transported (by supplier or by the customer) from the Czech Republic to another EU Member State is considered as an intra-Community supply of goods which is exempt from the Czech VAT. 
 
General transfer of own goods from the Czech Republic to another EU Member State by entrepreneur is also considered as supply of goods to other EU Member State. VAT exempt supplies without input VAT deduction, for example, are postal services or financial services. 
 
If Czech VAT payer supplies goods to a non-business customer in another EU Member State, Czech VAT must be applied. Moreover, the Czech VAT payer should review whether a certain threshold for Distance Selling was not exceeded in particular EU Member State. Exceeding of the threshold may lead to registration for VAT pur­poses in such EU Member State. The threshold limit for distance selling in the Czech Republic was CZK 1,140,000 within particular or previous calendar year; since the amendment to the VAT Act was introduced, the limit was decreased to amount of EUR 10,000.
 
Apart from these principal rules, there are special rules for certain types of services. 
 
Generally, the place of supply of the services provided to another business person (business to business servi­ces – B2B) has a place of supply in the country where the recipient of the service is established. 
 
The place of supply of the services provided to non-business persons or to customer, who do not receives such services for their business (business to customer services – B2C), has a place of supply in the country of provi­der of the services. 
 
If the customer is resident outside the EU, the place of supply of certain B2C services is where the customer is resident or domiciled. 
 
If the customer from third country (resident outside EU but registered for the VAT in the Czech Republic) uses and enjoys services from Czech VAT payer in the Czech Republic, the place of supply of these services would be shifted to the Czech Republic.
  

2. VAT registration and simplifications

Taxable person established in the Czech Republic is required to register as a VAT payer if he met one of the following conditions:
  • An Entrepreneur exceeded the turnover of CZK 1 Million in proceeding 12 consecutive calendar months. The entrepreneur becomes an effective VAT payer as of the first day of the second month following the month in which the turnover was exceeded.
  • An Entrepreneur provides services with a place of supply in the Czech Republic, or it effects distance selling to the Czech Republic with a place of supply in the Czech Republic through its VAT establishment located abroad.
  • An Entrepreneur is engaged in e.g. purchase of property based on transfer a going concern from VAT payer or taxable person becomes a successor company in a business transformation in which the dissolving company is a VAT payer.
 
In case the entrepreneur exceeds the threshold, the VAT registration form should be submitted within the 15 days from the end of the month, in which the threshold was exceeded. In other cases, the VAT registration form should be submitted within 15 days from the day when the entrepreneur becomes a VAT payer.
 
Taxable person non-established in the Czech Republic is obliged to register as a VAT payer if met one of the following conditions:
  • The non-established person makes a taxable supply or provides service with the place of supply in the Czech Republic, except for the supplies which are subject to local reverse charge mechanism
  • The non-established person makes an intra-Community supply of goods from the Czech Republic to another EU Member State
 
The VAT registration form should be submitted within 15 days from the day when the taxable person becomes a VAT payer. There are some simplification rules to avoid a registration for VAT purposes in the Czech Republic:
  • Reverse Charge: For several supplies of goods or services the reverse-charge mechanism is applicable in the Czech Republic. In that case the recipient of the supply (not the supplier) is liable to pay and declare Czech VAT.
  • Call-off stock simplification: If non-established person transfers own goods to the stock in the Czech Repu­blic and the goods are subsequently delivered to VAT payer in the Czech Republic, the call-off stock simplification could be used. The non-established person should not register for VAT purposes in the Czech Republic and the customer (Czech VAT payer) should declare the transactions under reverse charge mecha­nism. The Czech Republic has implemented the “Quick Fixes” and therefore the call-off stock rules are defined by EU legislation. 
  • Transfer of own goods: Transfer of the own goods to the Czech Republic with subsequent local delivery to the Czech VAT payer. The non-established person is not becoming the Czech VAT payer if all transferred goods are delivered to the final customer (Czech VAT payer) within the Czech Republic. However, the non-established person is becoming the identify person. Considering that the several conditions for VAT refund are met, the foreign non-established person has no other legal obligations (such as submission of monthly VAT return) in the Czech Republic. 
 
The Czech Republic does not have the concept of fiscal representative since 1 January 2005. However, the Czech law allows representation of the client for the tax proceedings based on the power of attorney. It is possible to represent a client in case of VAT registration or other tax registration, in case of submission of tax returns and other tax proceedings.
 
Rödl & Partner in the Czech Republic provides all such services described above and also VAT compli­ance­/  declaration services for foreign companies, which are obliged to register for VAT in Czech Republic.
 

3. Declaration requirements and penalty regime

In general, businesses registered for Czech VAT must submit VAT returns on monthly basis. The taxpayer may decide that the tax period is calendar quarter, if its turnover for the proceeding calendar year did not exceed CZK 10 Million. VAT registered business persons must submit and pay the VAT within 25 days following the relevant tax period. VAT returns and supplementary VAT returns must be filled electronically. The late filling of VAT return and possible late payment of VAT results in penalty and late payment interest. 
 
Obligation to file the VAT Control statement has the tax payer if carries out a taxable supply with the place of supply in the Czech Republic or receiving a taxable supply with the place of the supply in the Czech Republic.
  
If the VAT Control statement is not submitted within the deadline for the VAT return submission, the tax autho­rities will assess the penalty amounting to CZK 1,000 – CZK 30,000. The VAT Control statement must be submitted every month.
 
The taxpayer is obliged to complete ESL form in case of following transactions: supply of goods to another EU Member State, provision of services to another EU Member State, transfer of assets to another EU Member State, supply of goods as an intermediary in case of intra-Community triangulation. 
 
EC Sales List (recapitulative statement) should be submitted electronically in the same regime as VAT return. If no of the above-mentioned transactions occurred, recapitulative statement is not filed. Non-filing of recapi­tu­lative statements could result in penalties and also to refusal a possibility to exempt a supply of goods to another EU Member State.
 
The Intrastat reporting is mandatory for persons registered or identified for VAT in Czech Republic if they have dispatched goods to another member state or have received goods from another member state. The threshold for Intrastat reporting is CZK 12 Million for goods dispatched and CZK 12 Million for goods received. The Intra­stat report (including negative declaration) is submitted monthly in an electronic form via web-based or desk­top application. The deadline for filing the declaration is 12th working day of the month following after the reference period (calendar month). A total penalty of up to CZK 1 Million may be imposed if no Intrastat report is filed or incorrect data are stated.
 
In general, penalty regime in Czech Republic includes especially penalty for late filling of VAT and late tax pay­ment interest (as described in section 3.). Moreover, if the Tax Administrator during the tax audit increase the VAT liability or decrease the input VAT claim deduction of VAT payer, the Tax Administrator will impose the penalty in the amount of 20 percent of newly assessed amount.
 
Failing to register for VAT in time results in backward registration and penalty for late filing and interest will be charged from the date of mandatory registration. Further, non-fulfillment of selected legal obligations may lead to additional fine up to CZK 500,000.
 

4. VAT recovery

A taxpayer registered for VAT in Czech Republic may regularly deduct input VAT in the VAT return under the further preconditions (i.e. the supplies are used for its economic activities). There are several limitations, when only part of the VAT could be deducted, i.e. VAT payer provides both taxable and VAT exempt supplies or VAT payer is using its business property also for non-business purposes etc.
 
Persons registered for VAT in another EU Member State and non-established or registered in the Czech Repub­lic may apply for VAT refund. For this purpose, the taxpayer must fill in an electronic refund application in the country of establishment. The application must be addressed to Czech authorities and submitted until 30 September of the calendar year following the refund period.
 
There are several restrictions that limit VAT refund in the Czech Republic:
  • Partial VAT refund: If the person registered for VAT in another EU Member State is entitled for credit VAT on pro-rata basis, then VAT may be refunded proportionally.
  • Non-refundable VAT: As a rule all expenses not related to business purposes (for example representation, business entertainment, personal use, goods used for VAT exempt supplies, etc.) are not recoverable.
 
Input VAT on certain employee expenses:
  • Domestic air travel: Yes, if the trip is undertaken in connection with the employer’s business.
  • International air travel: Not applicable. Expenses incurred on international flights do not incur Czech VAT.
  • Rail travel: Yes, if the trip is undertaken in connection with the employer’s business.
  • Taxi fares: Yes, it the trip is undertaken in connection with the employer’s business.
  • Car rental: Yes, if the rented car is used for business purposes.
  • Fuel: Yes, if acquired for a business purposes.
  • Car parking: Yes. The parking expenses are recoverable if used for business purposes.
  • Hotel: Yes, if accommodation relates to the taxable business carried on by an employer.
  • Advertising samples, gifts: Yes. Input VAT can be recovered, if the value of one gift does not exceed CZK 500 excluding VAT.
  • Client meals: No. Client meals are not tax deductible according to Czech VAT Act.

 

5. Invoicing

Czech VAT payer must provide a tax document for all taxable supplies and for VAT exempt supplies with credit made to other taxable persons. There are formal invoicing requirements to be fulfilled according to the Czech VAT Act.  
 
A VAT credit note is used to reduce the VAT originally charged on a supply. If the credited amount relates to several original supplies and the VAT payer is not able to link the credit note to particular original invoices, a general reference to original invoices should be sufficient (for example a period in which the original invoices were issued – it is usually used for payment of bonuses). 
 
An electronic submission of invoices (for example via email, computer fax) is generally possible. Specific condi­tions must be fulfilled by the recipient regarding the validity and the integrity of the issued/received invoice, for example: An internal control system, use of a qualified electronically signature or an electronically data interchange procedure (for example EDI). A qualified electronically signature or an EDI procedure is not mandatory.
 

6. Others

The Czech VAT Act allows the group registration for VAT purposes. 

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