Changes in VAT are coming to Czechia. The first will take effect as early as January.
12 \ 12 \ 2024
On November 12, 2024, the Chamber of Deputies advanced the proposed amendment to the VAT Act for consideration by the Senate. This extensive amendment includes a number of key changes that are to be gradually implemented between 2025 and 2027. The first part will come into effect as early as January 1, 2025.
The VAT Act amendment represents one of the most extensive changes in this area in recent times, introducing significant updates that will be gradually implemented over the coming years. Companies and individuals dealing with this matter should therefore review their processes and prepare for timely implementation of the changes to avoid issues with VAT reporting and claiming, as well as potential additional costs.
Both companies and self-employed VAT payers should prepare to adjust their tax processes and VAT return preparations to respond promptly to the new obligations introduced by the amendment.
Key points of the VAT Act amendment
Right to deduct VAT on unpaid liabilities
A new obligation will arise to reverse the VAT deduction if the customer does not pay the invoice within six months of its due date. However, if the payer subsequently settles the liability, they will be allowed to reclaim the deduction. Effective from January 1, 2025.
VAT registration upon turnover thresholds
The amendment introduces two turnover thresholds for mandatory VAT registration. The first threshold of CZK 2 million remains, but the calculation will now be based on the calendar year (from January 1 to December 31). Crossing this threshold means becoming a VAT payer from January 1 of the following year. If the second threshold of CZK 2.536 million (equivalent to EUR 100,000) is exceeded, registration as a VAT payer will be required from the day after the threshold is reached. Effective from January 1, 2025.
Property delivery and abolition of the time test
One of the most significant changes is the removal of the five-year time test for VAT exemption on property deliveries (sales). Only the first delivery of the property within two years after its completion or substantial modification will be subject to VAT. If the property is sold multiple times during this period, only the first sale is taxed. However, the supplier may opt for taxation even on exempt property deliveries, which can be advantageous for claiming VAT deductions. Effective from January 1, 2025.
Correction of the tax base
The amendment significantly extends the period for tax base correction from three to seven years, expanding the possibilities for subsequent adjustments. This new regime also applies to persons who are no longer VAT payers at the time of the correction.
A new simplified procedure applies to irrecoverable receivables up to CZK 10,000 including VAT, allowing a reduction of the tax base. If a receivable is six months overdue and the payer has sent at least two written payment reminders, they may issue a corrective tax document and adjust the originally paid tax. This simplified correction applies only up to a total limit of CZK 20,000 per debtor per year.
For receivables above this threshold, the changes mainly concern shortened deadlines for tax base correction after the issuance of the first enforcement order or in cases of debtor insolvency. Effective from January 1, 2025.
Changes in social housing
The amendment changes the definition of social housing so that the reduced VAT rate will now apply to residential buildings where most living spaces do not exceed 120 m². This adjustment benefits developers as it allows applying the reduced VAT rate even to projects that include larger residential units. Effective from July 1, 2025.
Other updates to watch
VAT refund to foreign entities
The amendment revises the principle of reciprocity for VAT refunds to foreign entities from third countries. A list of cooperating countries will be developed for this purpose. Entrepreneurs dealing with international partners should familiarize themselves with where they can continue to use the VAT refund mechanism. Effective from January 1, 2026.
Changes in taxation of direct sales to foreigners
The use of the VAT Refund system, which simplifies VAT refunds for tourists, will undergo changes emphasizing electronic records and limiting the obligation to refund VAT. Effective from January 1, 2026.
Rules for delivery representatives
Foreign entities without a data mailbox will be required to appoint a delivery representative to facilitate communication with Czech authorities. Effective from January 1, 2026.
Triangular transactions
The intermediary will be required to provide a tax document indicating that the tax was paid by the customer and include it in the summary report. Effective from January 1, 2026.
Reverse charge mechanism
Application of the reverse charge mechanism will be conditional on the publication of VAT payers in the VAT payer register on the day of the taxable supply. Effective from January 1, 2025.
Ing. Vít Legner
Tax Advisor, PORTOS
