Amendment to the VAT Act

Lucie Šutovská
The draft amendment to the Value Added Tax Act submitted by the Ministry of Finance with planned effect from 1 January 2025 brings extensive changes reflecting experience from application practice, CJEU rulings and transposition of two European directives.

The draft amendment itself includes a transposition part reacting to the European Directive on a special regime for small enterprises and the so-called "rates directive". The second, non-transposition part includes a modification responding to the experience of application practice and rulings of courts in the field of Value Added Tax. Taken as a whole, the amendment promises to simplify and clarify the legislation in question, while removing some interpretative contradictions.

The draft has undergone an external comment procedure and has currently been published for government discussion, so it can be expected that the current wording of the amendment is not final and will be subject to changes during the legislative process. The planned effective date of the amendment is 1 January 2025, however, some changes will have a delayed effect from 1 July 2025 and 1 January 2027.

Nevertheless, in view of the extent of the proposed changes, we provide a first detailed summary of the changes in selected areas:

Change in the moment of registration of the taxpayer - the registration procedure will undergo a fundamental change, whereby if the turnover exceeds CZK 2,000,000, the moment of registration is 1 January of the following year, but if the turnover exceeds CZK 2,536,500, the moment of registration occurs on the day following the turnover being exceeded;

Introduction of a special regime for small enterprises - the changes will affect the timing of registration and the calculation of turnover per calendar year (as mentioned above), with the extension of the regime for persons from other EU countries, as well as an amendment to the statute that the supply made by a small enterprise is exempt from VAT without the right to deduct tax;

Time limit for claiming tax deduction - the time limit for claiming tax deduction will be reduced from three to two years, with a reduction to 12 months when claiming tax deduction on the basis of a debit note, with an exception to this rule for supplies received where the recipient of the supply is liable to pay tax, where the three-year time limit will remain;

Entitlement to deduction in case of unpaid liabilities - in response to the CJEU case law, the obligation to reduce the deduction of Value Added Tax in correlation with an amount based on the actual payment for debtors who have not paid their debts within six months after the due date will be introduced. In the event of subsequent satisfaction of the claim, the payer is entitled to increase the deduction again. As a result of this change, it will also be necessary to monitor the maturity of individual obligations from the perspective of VAT payers;

Bad debts - the supplier's ability to recover VAT should be extended;

Benefits provided to employees - in the case of benefits provided to employees or their relatives for a symbolic price, the taxpayer will now be obliged to pay output tax always according to the normal price;

Buildings for housing - the definition of buildings for housing and social housing will now be assessed directly according to the registration in the Land Register, which will also determine the application of the reduced VAT rate;

Exemption for supply of immovable property - the five-year time test for exemption will be removed, where only the first supply after completion of the building (or substantial alteration) will be taxed until the end of the second year after completion, with each subsequent supply exempt with the option of taxation retained;

Lease of immovable property - the taxpayer will be able to apply VAT also to a lessee who is registered for VAT in another Member State.

The amendment currently contains almost 450 points and the changes affect various areas, therefore the above changes represent only selected areas. We continue to monitor the legislative process related to the VAT amendment and will keep you informed of further changes.

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Jiri Sindelar
Jiří Šindelář
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