From 2025, the Rules for Registering VAT Payers in the Czech Republic Will Change

Significant changes are coming to the Value Added Tax (VAT) Act in the Czech Republic, set to take effect on January 1, 2025. These amendments are particularly relevant for entrepreneurs who currently pay VAT or may become taxpayers in the future, as they will impact mandatory tax accounting.

Currently, all entrepreneurs whose turnover exceeds 2 million CZK over the past twelve months are required to register as VAT payers. The most notable change in the law involves how this registration is handled when the turnover threshold is exceeded. The method for calculating income will be revised, a second annual turnover limit will be introduced, and corresponding deadlines will be adjusted.

While the final version of the law has yet to be fully approved and there may be partial changes in the Senate, the fundamental principle for calculating turnover is expected to remain unchanged. This amendment to the Czech VAT Act aligns with updates to Council Directive 2006/112/EC on the common system of value-added tax.

VAT: A Key Source of Budget Revenue

Value Added Tax (VAT) is the newest form of consumption tax and one of the most significant sources of revenue for the state budget. Each year, the government collects over half a trillion crowns from VAT, and these revenues are consistently on the rise, accounting for more than half of total tax collections.

New Turnover Limit and Changes in Deadlines

Currently, potential VAT payers calculate their turnover for the previous twelve months. If your turnover exceeds 2 million crowns during this period (for example, from June 2023 to May 2024), you are required to register as a VAT payer.

To do this, a company or individual entrepreneur must submit an application for registration to the tax office within fifteen days after the end of the calendar month in which the turnover threshold was exceeded. For instance, if your turnover exceeds the limit by October 31, 2024, you must submit your application by November 15 of that year. From the first day of the following month (December), you will officially become a VAT payer.

However, starting January 1, 2025, these rules will change. “If an entrepreneur anticipates exceeding the established turnover limit in 2023 or the new second limit introduced in the amendment, they should familiarize themselves with the upcoming legislation now to avoid being caught off guard after the new year,” advises tax consultant Michal Dvořáček.

How Will the New Registration System Work?

1. Deadlines

Under the new system, potential taxpayers will no longer calculate their turnover based on the previous twelve months. Instead, they will assess their turnover only from January 1 to December 31 of each calendar year.

2. When Do You Become a VAT Payer?

If your turnover for the period from January to December exceeds 2 million crowns (but does not exceed 2,536,500 crowns), you will become a VAT payer starting January 1 of the following year.

If you wish to register as a VAT payer earlier, you can do so voluntarily. To take this route, you must submit your application for VAT registration within 10 working days after exceeding the 2 million crown threshold based on the previous twelve months. In this case, you will become a VAT payer starting the day after your turnover exceeds the limit.

However, there may be delays in publishing the list of VAT payers, as this part of the process could still undergo changes during the legislative review.

3. The Second Turnover Limit

Currently, there is only one financial limit (the previously mentioned 2 million crowns in turnover over the last twelve months). After the amendment is adopted, there will be two limits.

If you exceed the new second threshold of 2,536,500 crowns within a calendar year, you will become a VAT payer starting two days after exceeding this limit.

The amendment is set to take effect on January 1, 2025. However, some changes will be phased in later: certain tax breaks on exports and tax refunds for travelers from third countries will take effect on July 1, 2025, while other changes related to tax deductions for specific vehicles will begin on January 1, 2027.

While the amendment aims to simplify existing procedures, it may increase administrative burdens – especially for small entrepreneurs – without significantly impacting larger companies.

Continuous monitoring of turnover throughout the year is generally good news for businesses. However, the slightly higher European limit of 2,536,500 crowns and the associated requirement to register as a VAT payer immediately upon exceeding this limit could lead to procedural complications. Only time will tell how these changes will affect entrepreneurs in practice and whether they will ease or complicate administrative processes, according to experts.

Changes in the Calculation of Company Turnover

The upcoming changes will impact not only VAT payers who are individuals but also the calculation of company turnover. The parameters will remain the same, meaning turnover will now be calculated on a calendar-year basis. Small businesses whose annual turnover exceeds 2 million crowns will become VAT payers starting January 1 of the following year. If their turnover exceeds 2,536,500 crowns (the EU threshold of 100,000 euros), they will become VAT payers the very next day.

The amendment also clarifies conditions related to tax rates in the construction industry, tax exemptions for the supply of buildings and land, and expands options regarding bad debts. Additionally, it reintroduces the VAT refund for cases of unjust enrichment.

However, it’s important to note that the tax refund for disabled individuals when purchasing a car has been eliminated.

New Construction Deadlines and Definitions

The amended Value Added Tax Act also addresses the construction sector. It reduces the taxation period for the first transfer of real estate from the current five years to 23 months after its completion. This change is linked to a new definition of a “change,” which now specifies that it must be a modification that increases the value of the property by more than 30 percent. Additionally, the definitions of social housing and land for development have been revised to clarify when the supply of land can be exempt from VAT, based on documentation from municipal or building authorities.

“It is anticipated that these changes could have a positive impact on the prices of new buildings. However, it is essential to consider all factors that influence real estate prices. The Czech Republic currently has the lowest housing affordability compared to other EU countries, with people needing an average of 15 years to save for their own home. Furthermore, in terms of construction duration, we rank at the bottom – taking an average of 246 days. Therefore, significant improvements in this area should not be expected,” concludes expert Michal Dvořáček.

For assistance with tax calculations and professional consulting, you can turn to the specialists at 360WEDO. We offer a full range of accounting, tax support, and consulting services for businesses of any size and in any field of activity. Our experienced and qualified staff is ready to help you tackle even the most challenging issues.
Source: https://www.businessinfo.cz/clanky/platce-dph-cekaji-i-zmeny-v-povinne-registraci-k-dph-co-prinasi-novela-zakona/