Basic rules for claiming VAT deduction

Every VAT payer has, together with the obligation to declare and pay VAT, also the right to refund it, which in the end leads to the taxpayer´s VAT neutrality. In accordance with the VAT Act, the VAT refund can be claimed for transactions related to economic activity for which there is a tax document available. If the acquired supply is only partially used for business and partially for private purposes, the VAT can be deducted just partially.

As mentioned above, the VAT refund can be claimed for those received supplies (i.e. for input supplies) and only at the moment when the following basic conditions are met:

• the supply was used within economic activity, i.e. in general, for the realization of output supplies subject to VAT (in the home country or in the country of the recipient), or they are exempt from it with the VAT refund claim;
• a tax document is available, which basically means that the VAT refund can only be claimed at the moment when we have the tax document physically at our disposal, i.e. it has been delivered, and at the same time there are not any mistakes in there; and
• if there is an obligation to declare tax at the same time (i.e. in the case reverse-charge regime), it must be declared.

The VAT Act establishes other specific conditions for selected types of taxable transactions. For example, it is not possible to claim a VAT refund for taxable supplies in connection with a representation, i.e. costs that cannot be considered tax-deductible according to the Income Tax Act, with the exception of the gift provision as part of an economic activity, if their purchase price does not exceed CZK 500 (excluding VAT). The same applies to the provision of commercial samples free of charge as part of economic activity.

Partial right of VAT deduction

The VAT refund can be claimed fully just in the case of supplies fully related to the business activities. If the taxable supply was partly used for business purposes and partly for private purposes, the VAT refund can be claimed just partially, e.g. car for business and private purposes.

Another situation is when the received supply is partly used for the realization of taxable supply and partly for exempt activity without the right of VAT deduction, such as real estate rental or financial services. In this case, the VAT refund is reduced. We often see this in connection with the companies that rent premises to VAT payers as well as non-VAT payers.

Tax document requirements

Each of the tax documents for claiming the VAT refund for domestic taxable transactions must meet the requirements of the VAT Act. These essentials are:

• identification of the person who is realizing taxable supply, including the VAT identification number;
• identification of the person for whom the taxable supply is carried out, including the VAT identification number;
• reference number of the tax document;
• scope and subject of transaction;
• date of issue of the tax document;
• the date of taxable supply or the day when the payment was received;
• unit price without tax and discount, if not included in the unit price;
• tax base;
• tax rate; and
• the amount of tax, also in Czech currency.

The supplier is obliged to issue a tax document no later than 15 days after the sale of goods or provision of services.

The data on the tax document must be filled in correctly and meet all the requirements. If a lower tax is incorrectly stated on the tax document, the VAT refund can be claimed only up to this amount.

In the case of transactions that do not exceed the amount of CZK 10,000, it is possible to issue a simplified tax document. It is usually called a receipt as well. Such a document is also sufficient to claim a VAT refund. Unlike a standard tax document, a simplified tax document does not need to contain the following details:

• identification of the person for whom the taxable supply is carried out and his VAT identification number;
• unit price without tax and discount, if not included in the unit price;
• tax base; and
• amount of tax.

However, if the simplified tax document does not contain the amount of tax, it must contain the amount that the person realizing the taxable supply received or is expected to receive and must contain the tax rate.

Deadline for claiming VAT deduction

The right VAT refund can be claimed for the first time in the tax period when all the above-mentioned conditions are met and at the same time no later than 3 years from the realizing the taxable supply.

A newly registered VAT payer can claim a VAT refund from the taxable supplies from the past 12 months, if he has tax documents for them and meets other conditions specified by law, primarily that the object of this performance is still in his possession at the time of VAT registration. In this case, it is necessary to claim the VAT refund in the month when the taxable person became a VAT payer, i.e. in the first VAT return.