VAT Registration Changes in the Czech Republic (from 2025)

The Czech Republic will introduce modifications to its legislation governing required VAT registration starting in 2025. One of the most major changes will be to the turnover-based registration requirements for taxpayers. The method for calculating turnover will be modified. A second turnover threshold will be introduced, and there will be alterations to the associated deadlines. Let’s look at each modification in detail.

Amendments to the value-added tax legislation will take effect on January 1, 2025, requiring VAT registration for taxpayers with a turnover exceeding a defined threshold. The exact threshold is subject to final approval, but the core calculation method is likely to remain unchanged.

The European Union regulates value added taxation through Council Directive 2006/112/EC on the common value added tax system and Council Implementing Regulation (EU) No. 2/2011. The Czech Republic’s Value Added Tax Act (No. 235/2004) integrates this directive into the law. Certain proposed changes to the Czech VAT Act are closely aligned with comparable amendments to the Directive, particularly in terms of VAT registration turnover conditions.

The current VAT registration system in the Czech Republic (pre-2025)

In the Czech Republic, the “domestic” turnover has been calculated based on the 12 immediately preceding months (not just January to December, but also, for example, February to March, March to February, etc.). Monitoring the threshold of 2 million Czech crowns was necessary during this period. 

If the threshold was exceeded, an application for VAT registration had to be submitted by the 15th of the month following the month in which the turnover was exceeded. The entrepreneur or company became a VAT payer from the first day of the second month after exceeding the turnover threshold.

How will the registration and turnover system work from 2025?

Key Changes:

1. Fixed Calculation Period

Turnover will be calculated based on a fixed 12-month calendar year (January to December), eliminating rolling periods.

2. Two Turnover Thresholds
   

Threshold 1: CZK 2 million:

If the annual turnover exceeds CZK 2 million but does not exceed CZK 2,536,500, the business becomes a VAT payer on January 1st of the following year.

Businesses can voluntarily register for VAT earlier by submitting an application within 10 business days of exceeding the threshold.

Threshold 2: CZK 2,536,500:

If the annual turnover exceeds CZK 2,536,500, the business becomes a VAT payer on the second day after reaching this threshold.

3. Additional Considerations

The delayed publication of VAT payer lists may have an impact on the reverse charge regime. Businesses failing to register after exceeding the CZK 2 million threshold will become VAT payers on January 1st of the following year.

Businesses exceeding the CZK 2,536,500 threshold after crossing the CZK 2 million threshold become VAT payers on the second day after exceeding the CZK 2,536,500 threshold.

The amended VAT Act will outline specific transitional provisions to facilitate a smooth transition from the old to the new system.

Deep Dive: Unveiling Additional Implications of the Czech VAT Act Amendment (from 2025)

1. Reverse Charge Mechanism (Přenesení Daňové Povinnosti):
   

The reverse charge mechanism, where the VAT liability shifts to the service recipient, will be extended to certain cleaning services (general building cleaning, industrial cleaning, snow removal, etc.) in addition to construction and installation services.

2. Reduced Claim Period for Input Tax Deduction:
   

The period for submitting a claim for input tax deduction will be shortened from three to two consecutive calendar years.

3. New Obligation to Repay Input Tax Deduction:

A new obligation will be introduced to repay input tax deductions for unpaid liabilities after 6 months.

4. Extended Deadline for Correcting Tax Base:

The deadline for correcting the tax base will be extended to 7 years, with the remaining 3 years for obtaining a refund.

5. Changes in Determining Place of Supply for Virtual Access:

The rules for determining the place of supply for virtual access to cultural, sporting, and similar events will be modified.

6. Clarification of VAT Deduction upon Registration:
   

The rules for VAT deduction upon registration will be clarified.

7. Enhanced Registration of Business Assets:

The date when property became a business asset will be a mandatory requirement for registering business assets, in addition to designating them as business assets.

8. Correction of Tax Rate Error for Medical Devices:

An error in the tax rate for blood pressure monitors and pulse oximeters will be corrected (new reduced tax rate).

9. Clarification of Tax Document for New Vehicle Supply:

The tax document for the supply of a new vehicle to another EU member state must clearly indicate that it is a new vehicle (rules in the law will be grouped and moved to another/one section).

10. Expansion of Education Service Tax Exemption:

The tax exemption for educational services will be expanded.

11. Potential Changes to Vehicle Input Tax Deduction Limit:
    

The input tax deduction limit for vehicles (CZK 2,000,000) may be modified or eliminated (from 2027).

12. Other Potential Changes:
    

There may be other changes related to VAT registration, tax rates, special regimes, and administrative procedures.

These are just summaries of the proposed changes. The actual details and implementation may vary depending on the final version of the amended VAT Act. Businesses should carefully review the official amendments and seek professional advice if needed to ensure compliance.

source: https://portal.pohoda.cz/dane-ucetnictvi-mzdy/dph/zmeny-v-oblasti-povinne-registrace-k-dph-od-roku-2/)