Amendments to the VAT Act will also affect the Czech real estate market

The conditions for VAT registration in the Czech Republic are changing. Small business owners will have to closely monitor their company’s turnover, as the new law introduces two important thresholds that affect registration.

It is important for every entrepreneur to monitor changes in legislation and study their impact on their business. To stay up to date with all changes in legislation and prepare for them in advance, contact the specialists at 360WEDO for advice.

Amendments to the VAT Act are to be considered by the Senate committees this week and will most likely be adopted by the Senate next week. The amendments will bring significant changes affecting all VAT payers.

“According to the explanatory note, the amendments to the VAT Act promise not only to harmonize legislation at the EU level, but also to better adapt it to modern business conditions,” says Petr Tušakovský, Director of the Tax Department at Havel & Partners.

When Will the VAT Law Change?

The changes to the VAT Law will be implemented gradually, with the most significant package taking effect on January 1, 2025. This initial phase will introduce new conditions for registering VAT taxpayers, revise the rules for adjusting the tax base, and update the guidelines for claiming deductions. Additionally, changes related to the application of VAT on real estate will come into force on July 1, 2025.

But that’s not all. The amendment also outlines further changes to the law starting January 1, 2026, particularly concerning tax refunds, and from January 1, 2027, which will restore the ability to deduct tax on premium cars.

What Will Change According to the VAT Amendments

The rules for registering VAT payers are undergoing significant changes. Previously, the turnover threshold was CZK 2 million, monitored over a consecutive 12-month period. If a business exceeded this limit, it was required to submit a registration application by the 15th of the following month and would become a VAT payer starting on the first day of the second month after exceeding the limit.

Under the new regulations, two turnover thresholds will be monitored: CZK 2,000,000 and CZK 2,536,500. The turnover will now be calculated based on the specific calendar year rather than over 12 consecutive months.

“If you exceed the CZK 2 million threshold (but do not exceed CZK 2,536,500), you will become a VAT taxpayer not on the first day of the second month following the month in which you exceeded the threshold, as was previously the case, but rather on January 1 of the following calendar year,” explains Petr Tušakovský. He also notes that voluntary registration for VAT remains possible, with no fundamental changes to those rules.

“However, if at any point during the calendar year your turnover exceeds CZK 2,536,500, you will become a taxpayer on the day after this threshold is surpassed,” adds Radka Mašková, Director of Deloitte Tax & Legal, highlighting this important update.

In both scenarios, an application must be submitted within 10 working days of exceeding the turnover threshold. As a result, businesses may need to submit applications twice in a calendar year.

Example of Changes in VAT Registration Rules

Company ABC reaches a turnover of CZK 2,200,000 on February 10, 2025. As a result, under the new legislation, it will be required to submit an application for VAT registration by February 24, 2025 (i.e., within 10 working days after exceeding the turnover threshold). However, the company will only become a VAT taxpayer starting January 1, 2026.

Later in the year, the company makes additional sales that push its turnover to CZK 2,600,000 on June 6, 2025 (exceeding the CZK 2,536,500 threshold). Based on this new information, the company will become a taxpayer effective June 7, 2025, and must file another application for registration by June 20, 2025.

“Entrepreneurs will need to be more vigilant. If they are not yet registered as taxpayers, they must closely monitor their company’s turnover or the turnover of their business if they are self-employed,” says the expert.

How to Prepare for Changes in the VAT Act in 2025

With the upcoming amendments set to take effect, the decisive turnover for VAT registration will be recalculated starting January 1, 2025, and then each January thereafter.

“Taxpayers are already monitoring their turnover for mandatory VAT registration. Now, in addition to tracking the CZK 2 million threshold, they will also need to keep an eye on the CZK 2,536,500 threshold throughout each calendar year. Exceeding this amount will trigger immediate registration and the obligation to pay VAT,” explains Radka Mašková, a tax expert at Deloitte.

Additional Changes to the VAT Law

The amendments also modify the rules for adjusting the tax base. The current three-year period during which businesses can correct declared and paid VAT (such as in cases of returned goods or subsequent price reductions) has been extended to seven years.

For advance payments, however, this period remains at three years. According to Petr Tušakovský, the purpose of this amendment is to address common supplier practices, where guarantees for goods are often provided for more than three years.

The obligation to correct the tax base will still apply if a business ceases to be a VAT payer. In this case, the seven-year period from the date of delivery or the three-year period from the date of advance payment will also apply. Corrections will need to be made in an additional tax return and the subsequent control return for the last tax period before deregistration.

Another change, which may be viewed negatively by taxpayers, is the reduction of the application period for deductions from three years to two years. This two-year period will be calculated from the end of the calendar year in which the deduction could first be declared.

In nearly 99% of cases, taxpayers declare their deductions in the first or second tax return in which they are eligible. According to the authors of the amendment, this reduction should not significantly impact taxpayers. However, it will give tax administrators more time to review and calculate taxes, says Tušakovský.

Example of the Reduced Deadline for Filing a Deduction

Company ABC purchases goods and receives a tax receipt in February 2025. As a result, the deadline for filing a deduction will expire on December 31, 2027.

The amendment also introduces a requirement for buyers to return any VAT deductions claimed for obligations that remain unpaid six months after the payment deadline. This change aims to encourage debtors to settle their obligations on time. If the taxpayer later pays their obligation, they will be entitled to reclaim the VAT deduction.

“This new requirement will involve additional administrative work, as taxpayers will need to adhere to this new deadline,” notes Tušakovský.

Changes in Real Estate Taxation in 2025

Significant changes to the application of VAT on real estate transactions will take effect on July 1, 2025. Under the new regulations, any newly constructed property will be subject to VAT only upon its first sale or if it is sold after substantial renovations. This applies only if the sale occurs before the end of the 23rd month following the completion of construction. After this period, all sales will be exempt from VAT.

This change lowers the threshold for determining what constitutes a substantial alteration to a building. Any modifications that increase the building’s value will be considered substantial, provided that the costs of these changes exceed 30 percent of the sale price. As a result, we are likely to see more instances of VAT being applied to the sale of buildings after renovation.

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