Peculiarities of Filing a VAT Return for the Last Month of the Calendar Year

With the end of the calendar year, VAT taxpayers find themselves in a specific situation where their last tax return for December (for monthly VAT payers) or the fourth quarter (for quarterly VAT payers) requires special attention.

The last VAT return for the calendar year has some peculiarities. VAT taxpayers may need to adjust reduction factors, change the tax period, or modify the amount of the tax deduction.

The Last VAT Return in the Calendar Year

The last VAT return differs in some respects from the “regular” returns that are filed during the calendar year. In fact, VAT law contains several provisions that apply specifically to the last tax period of the calendar year. Ignoring these provisions may result in additional VAT charges and corresponding penalties.

VAT Turnover

One important aspect to consider is the amount of turnover for VAT purposes, as this turnover determines the tax period for the following calendar year.

VAT payers have the option to change their tax period from monthly to quarterly if their turnover for the previous year did not exceed CZK 15 million and they meet other legal requirements. This change must be reflected in the last tax return of the year.

To implement this change, taxpayers should complete the “Next Year’s Tax Period Code” column on the return. If there is no change in the tax period, this column should be left blank. However, newly registered VAT payers cannot change their tax period during their first year of registration or in subsequent years.

Proportionality Coefficient

Another important consideration is the adjustment of the tax deduction. However, this deduction does not apply to all taxpayers. The adjustment is relevant for those taxpayers who use received taxable supplies for both economic and non-economic activities, as they are required to declare the deduction on a proportional basis. This typically applies in cases where entrepreneurs use property for both business and personal consumption.

The calculation involves a coefficient that is recalculated at the end of the year based on actual figures, and any difference must be reflected in the tax return for December.

The VAT Law allows for a deviation of up to 10% from the estimated amount without necessitating an adjustment.

Deduction Factor

In addition to the proportional right to deduction, there is a second factor known as the reduction factor. This factor imposes an obligation to settle the deduction application at a reduced amount. It applies to taxpayers who engage in both taxable and tax-exempt supplies without the right to deduction. This situation often arises when taxpayers conduct financial activities, such as selling real estate or providing loans, alongside traditional taxable supplies.

The calculation of the reduction factor is based on data for the entire year. In this case, the law does not permit any deviations, and the calculation must always be performed.

Adjustments to the Deduction – Fixed Assets

When it comes to fixed assets, specific rules apply. If the degree of use of fixed assets for deductible purposes changes during the year by more than 10 percentage points, an adjustment to the deduction is required. This adjustment must be reviewed over a period of five years, or ten years in the case of real estate.

It’s also important to ensure that property acquired through your own activities has been properly classified for its intended use and that this process is complete. If it hasn’t been finalized, you’ll need to file an additional tax return. At the same time, double-check that transactions involving the supply of fixed assets or self-acquired fixed assets have been correctly excluded from the relevant lines of the tax return.

Shortage, Loss, or Destruction of Fixed Assets

A one-time adjustment of the tax deduction or credit is required in the last tax return of the calendar year if commercial property has been destroyed, lost, or stolen. Commercial property includes not only fixed assets but also inventory. This requirement applies to cases where the loss, theft, or destruction has not been properly documented.

While this adjustment is not limited to the end of the year, it is often addressed in the last tax return because the end of the calendar year typically coincides with inventory assessments and financial reporting. The taxpayer should adjust the deduction in the tax year in which they became aware of the loss or destruction.

You can always consult with the specialists at 360WEDO regarding business taxation issues in the Czech Republic. Simply submit a request on our website, and we will get in touch with you shortly.

https://www.podnikatel.cz/clanky/specifika-pri-podavani-priznani-k-dph-za-posledni-mesic-v-kalendarnim-roce