VAT 2027: Changes to Unpaid Liabilities, Bad Debts and the Input VAT Deduction Cap for Passenger Cars

The amendment shortens the period triggering a mandatory adjustment of input VAT deductions on unpaid liabilities from the current six months to three months. In practice, VAT payers who have not paid for taxable supplies received will need to monitor their liabilities much earlier. If a liability remains unpaid for the prescribed period after its due date, the VAT payer will be required to reduce the input VAT deduction originally claimed. Practical guidance is available here.

The scope for adjusting the taxable amount in respect of so-called small receivables is being expanded. The limit for an individual receivable is increased from CZK 10,000 to CZK 20,000, and the required period after the due date is shortened from six months to three months. An annual limit of CZK 100,000 including VAT applies per debtor to receivables for which the creditor uses this procedure. 

The cap on input VAT deductions for passenger cars is being abolished (please note that the CZK 2 million limit for tax depreciation under the Income Taxes Act remains in place). Full input VAT deductions will therefore be available for more expensive vehicles and related technical improvements brought into use after 1 January 2027. Under the transitional provisions, the cap continues to apply to passenger cars and related technical improvements brought into use before 1 January 2027.

All non-alcoholic beverages served as part of restaurant and catering services will now be subject to the reduced VAT rate.